The proposal by railway minister Nitish Kumar to increase the cost on freight will adversely affect the exports and small scale sectors as well. The freight hike will be an additional burden on the industry which is passing through severe demand recession, trade chambers and businessmen said.The movement of bulk industrial goods like coal, cement, ferrous and non-ferrous ores and metals, automobiles and other machinery will become more expensive. The freight hike will raise prices of fertilizers and bulk farm produces like wheat, rice, jute cotton and oilseeds. Coal is an essential fuel for the industry -- especially the power sector --while a significant movement of cement is by rail. In fact, coal and cement in aggregate constitute 57 per cent of railways' total freight portfolio. However, steel will not be affected much as the Railway minister has announced a special package for steel companies.

Analysts point out that ACC, the largest transporter of cement through the railways, will be affected most as the freight may go up by Rs 6-7 crore due the hike. For ACC, the yearly freight comes close to Rs 145 crore a year. Larsen & Toubro, however, is not likely to be impacted much because of the railway freight hike as it transports almost 65 per cent of its consignment through roads. L&T has been relying more on roads for transporting cement consignments, and the railway freight hike may accelerate the process. "With the freight hike, the railways may end up hurting themselves," say company officials.

According to industry officials, the impact of the hike as per the Cement Manufacturers' Association (CMA) formula is said to be around Rs1.50 per bag of 50 kg. But in reality the impact would be much less as most companies do not transport cement and coal to a distance of 750 km and 1000 km respectively considered in that formula. The impact is expected to range between fifty paise and Re 1.00 per bag.

``The minister has gone in for a soft option of hiking freight cost. The minister should have rather concentrated on increasing efficiency, bringing in cost effectiveness and taking other measures to improve quality of travel which is need of the hour in order to be competitive and in view of the economic reforms,'' says President of All India Association of Industries (AIAI) Vijay Kalantri.

The Indian Merchants' Chamber said the hike in freight rates on all commodities for all distances will have a major cascading affect on the prices of all industrial and agricultural products. IMC President Y P Trivedi said the budget will steeply raise the rate of inflation. ``With the hike of four per cent on freight, movement of bulk industrial goodslike coal, cement, ferrous and non-ferrous ores and metals, automobiles and other machinery will become more expensive resulting in multiplier affect,'' Trivedi added.

Inputs of downstream industries and prices of their products would go up. Exports will be hit severely and the prices of goods will become increasingly non-competitive in global market. Trivedi said that the Railway Minister did not spare the agricultural inputs and produces either.The across the board hike in freight rates, especially at a time when the economy and the industry was facing a slow down and would have a cascading impact, said Confederation of Indian Industry (CII) in a statement. CII said rationalisation of freight rates on the lines of passenger fares would have reduced subsidy on certain commodities which is a long term objective of the railways.

Assocham president K P Singh said the hike would particularly affect power sector since coal formed about 40 per cent of the entire freight traffic of Indian railways. ``Theincrease would add substantially to the costs of power stations and steel plants which are major coal consuming sectors,'' he said.

The PHD Chamber of Commerce and Industry said the hike in freight charges has come at a time when the railways has already lost sizeable freight to roadways due to excessively high tariff. The exporting community flayed government for not coming up with any special scheme for movement of export cargo. The negative effect of the hike on exports would be much higher than additional revenue of Rs 900 crore expected by the ministry, Federation of Indian Export Organisations (FIEO) president Navratan Samdria said. ``If at least five per cent rebate to export cargo is not allowed in the present situation, Indian exporters will be in a disadvantageous position vis-a-vis the South east Asian exporters,'' he said.