The railway minister in his maiden budget bucked the trend by hiking fares of subsidised passenger travel but left freight rates more or less untouched. His logic was freight rates have touched a level and a further hike could severely burden the economy as well as the railways. On the contrary, the pricing of passenger services has been so moderate as to require increasing amounts of cross-subsidisation from freight earnings. Such a pattern of pricing is not sustainable.

The industry, in general, seems to be relieved on this count but there is no cause for any excitement as incentives are at the bare minimum. For example, freight rates for coal for distances beyond 1,500 km has been reduced by one percent only, this is marginal considering the hikes announced at the previous tworailway budgets.

The Financial Express takes a look at the impact of the railway budget on commodities.

Steel: Relief that was earlier granted to steel industry by reducing the classification for iron or steel temporarily from class 230 for train-load and class 250 for wagon-load to class 210 and 230 respectively will be continued. Further, freight rates have been structured in a fashion that will reduce as distance increases by about one to two per cent. This move however, is a bit too late for the steel sector because of the change that has taken place in the structure of the industry. With the commissioning of Jindal Vijaynagar, Ispat Industries, Essar Steel, Raymond Steel in the southern and western region of the country, these markets have been virtually out of reach for Tisco and SAIL. The two steel giants are now restricted to sell their products within the vicinity of their plants, thus benefits are only marginal. In shorter distances too, companies like SAIL are moving towards roadtransport to affect quick deliveries.

Further more, higher freight costs of inputs like coal and iron ore within a range of 500 km (most of the plants are situated close to these raw material sources) will adversely affect the companies. The hike for coal for distances within 500 km will be 1-2 per cent or between five rupees and Rs Rs 10 per tonne, while for iron ore it will be around four per cent or between eight rupees and Rs 12 per tonne.

Coal: In coal, freight rates have been increased by two per cent up to distances of 500 km, while there has been no change for distances between 500 km to 1,500 km and a reduction of one per cent beyond 1,500 km. The railways have been incurring losses on short distances while transporting the coal, hence it has decided to offer some kind of incentives for attracting traffic for longer distances. The railway minister believes this will not only give a boost to the core sector but also enable this sector to offer more traffic to the railways.

Most industriesthat use coal as the main inputs, like the metallurgical sector, are situated near the coal mines. These industries will in fact be affected by the hike in freight rate by two per cent. Further, companies situated near the shore specially those in western and southern areas prefer to use imported coal which works out to be more economical.

Cement: The railway minister has proposed to adjust the taper rates of cement so as to reduce rates at longer distances by around one-two per cent. Cement producers, however, say that the measure will fail to give a boost to the core sector as the impact on cost would not be significant. The re-classification reducing rates by one-two per cent will be of little help considering the state of the industry.

Further reducing the classification of limestone, dolomite and gypsum hardly makes sense as cement plants are usually located near limestone deposits and the common mode of transport is road. The hike in coal freight rates is likely to balance the marginalreduction on cement freight.

With increase in capacity of cement plants, market has become regional, thus most transportations are for shorter distances. The marginal reduction is hardly going to benefit companies, who would rather pass it on as discounts considering the dismal state of the industry.

Agro - commodities: The railway minister has exempted commodities like foodgrains, edible salt, edible oils from increase in freight rates. However, the exemption has not been extended to other commodities like pulses, sugar, fruits and vegetables, fodder, oilseeds, livestock, hydrogenated and vegetable oils. Banana traffic moving in train loads will be given concession at the existing level on the revised rates.

Most of the agro-commodities apart from foodgrains and sugar are generally transported by road. Hike in freight prices for sugar will in fact affect government's subsidy on this product.

The oilseed and oilmeal sector will adversely be affected as the plantation areas are generally in theinteriors and exports is one of the most lucrative markets. Being a high volume and low cost industry, the freight hike will hit profits.

Chemicals: Kerosene and LPG continue to be exempted from any freight hike. However, caustic soda, soda ash, rubber crude which were in lower classification have been moved up by one step. Subsidy on kerosene and LPG will have to be borne by the government unless they are linked to international parity. The already languishing alkali industry is in for some more trouble times as freight cost of both caustic soda and soda ash have been increased. Consumers in the eastern region of the country had already shifted to imports rather than procuring from the domestic markets (from manufacturers in the western region) because of the high freight cost. Higher costs of these chemicals is likely to affect the glass and detergents industry. Tyre manufacturers too, will have to dole out more for procuring crude rubber which is generally grown in the southern region or imported.