Return
to Story Page
To print: Select File and then Print from your
browser's menu
Railway Budget
The industry will be to some extent relieved by railway minister, Nitish Kumar's budget. An increase in freight rate by four per cent across the board in a time span of two years, is decent considering the fact that freight rates are the ideal tool to meet the railway deficit. This is, anyway, the lowest hike of the decade. The railway minister could have been tempted to further increase freight rates, considering that he has to provide for the increase in employee costs (including higher pensions). He is also faced with a lower than targeted revenue collection in the current fiscal. For the ten months ending January, the railways transported 343 million tonnes against a target of 369.10 million tonnes. For the year, the target is 450 million tonnes but the minister says the actual figure would be in the region of 424 million tonnes.
Nitish Kumar seems to have realised that rather than increasing freight rates and further causing injury to its customers, it is better to increase volumes. Here it may be mentioned that the railways has been losing out to road transport for smaller distances. The concession of 25 per cent on freight rates upto 50 km is likely to bring back some lost traffic. Apart from this the railway minister has allowed some flexibility in fixing the rates. This has been done by giving full powers to general managers to quote station-to-station rates. Thus companies transporting higher quantities will be in a good position to negotiate.
There are, however, certain sectors that have been given a step-motherly treatment. Washed coal and caustic soda liquor have been placed on a higher slab-rate. This means an effective increase of around nine per cent in rail transport charges for these commodities. Further, the reclassification of washed coal would mean a 9.2 per cent hike in freight charges for its transportation. Its impact will be felt by most metallurgical companies and the cost of thermal power too would rise. Freight cost constitutes almost two-third the total cost (excluding cess and royalty) of coal.
Currently, for every tonne of cement/clinker exports, import of 200 kg coal is allowed duty free. The duty on imported coal is 19.6 per cent. The minimum freight hike of 9.2 per cent will have an adverse impact on land locked cement units relying on domestic coal. Fuel accounts for at least 30 per cent of manufacturing expenses for a cement unit.
Caustic soda manufacturers are currently operating at around 55 per cent capacity utilisation. With the hike in freight rates the sector is likely to be affected further. This is because most of the caustic soda units are located in the western region, leaving the eastern region vulnerable to cheap imports. Caustic soda is a high volume low price commodity, thus freight charges play an important role in the cost structure.
The good part of the budget seems to be the continued special status to the steel sector. The only problem with the special status for steel is that it just concentrates on finished goods. Nevertheless, freight charge rise for washed coal would not affect Tisco and Sail much as some of their coal consumption is through captive mines. Besides, coast-based plants can look at imported coal as that would be better option and can translate into higher margins.
As for the future, railways is likely to see some tough times. Firstly, because the economy has shown no signs of improvement. Secondly, and more importantly, railways is likely to lose a major portion of its revenue after pipelines are commissioned. In order to overcome this loss in revenue, the railway minister will have to increase its customer base, and cut down on cross-subsidy from the passenger traffic. The only silver lining appears to be the pending revision in diesel prices which would make road transport more expensive.
-- The Index Team
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------