Financial Daily from THE HINDU group of publications
Saturday, Feb 25, 2006
Logistics - Railways
Railway Budget Lalu takes on low-cost airlines, drops AC fares
New Delhi , Feb. 24
After managing to stem the increased diversion of freight traffic to road, the Railway Minister, Mr Lalu Prasad, has now trained his guns on low-cost airlines.
In a bid to prevent the likes of Air Deccan and SpiceJet from weaning away upper class passengers, the Rail Budget for 2006-07 has proposed an 18 per cent reduction in AC first class and 10 per cent in AC two-tier fares.
While these high-end passenger segments currently contribute hardly nine per cent of the Railways' total passenger earnings of Rs 16,800 crore (Budget estimate for 2006-07), what is clear now is the underlying message: the Railways mean business and isn't going to shy away from competition.
The Minister has backed this up with a number of other sops to commuters: making e-tickets and Internet booking services available for all mail and express trains (against only for Rajdhani, Shatabdi, and other special trains) and a fully air-conditioned `Garib Rath' service on four routes (Delhi-Patna, Delhi-Mumbai, Delhi-Chennai and Saharsa-Amritsar) priced 25 per cent below current AC-3 tier fares.
And, for the fourth year in succession, there will be no increase in passenger fares across all classes.
What Mr Lalu Prasad has done is to basically extend the policy of aggressive pricing of freight to passenger segment.
He has been helped in this by the general economic buoyancy, which has resulted in gross traffic receipts in 2005-06 touching Rs 54,700 crore as per the revised estimates. This is Rs 3,732 crore higher than what was initially budgeted.
Freight earnings alone have overshot the Budget estimate by over Rs 3,000 crore. For the coming fiscal, the Minister has set a target of Rs 59,978 crore, of which Rs 40,320 crore is slated to come from freight.
In freight, the strategy followed has been to lure incremental traffic through dynamic pricing during the off-peak season in July-October.
There would be a freight rebate of up to 15 per cent for users bringing in monthly incremental revenues of Rs 5 crore.
Then, there is a 30 per cent discount for those using wagons on return trips for distances beyond 700 km. The rationale: 40 out of 100 freight trains currently return empty.
Mr Lalu Prasad has also unveiled a "loyalty discount scheme" wherein cement and steel plants will be entitled to a one per cent discount provided they move over 90 per cent of their production by rail.
Simultaneously, he has reduced the number of commodity classification groups from 80 to just 28, while bringing down the gap between rates for the highest and lowest freight categories.
This has led to a decrease in freight rates for petrol and diesel by around eight per cent and an increase in those for items such as sponge iron, leather, de-oiled cake, bricks, and paper.
ROLLING STOCK SHINES
But the biggest achievement trumpeted by the Minister was the "historic" financial turnaround registered by the Railways - partly due to overall industrial resurgence and also because of more efficient deployment of rolling stock.
The Railways is expected to internally generate a record Rs 10,794 crore, which will finance an all-time high annual Plan outlay of Rs 23,475 crore.
The Rail Budget has thrown up some bad news for those planning to use railways for moving household goods from one city to another. In line with the ongoing process of rationalisation of freight structure, the Railways has proposed to increase the freight rates for a range of goods including leather, paper, sponge iron, de-oiled cakes, bricks as well as household effects.
"A slight increase in the tariffs may be noted in case of paper, sponge iron, de-oiled cakes," the Railway Board Chairman, Mr J.P. Batra, said at a conference here. While bricks have been moved from existing charging class of 110 to 130, the leather goods have been shifted from the existing class of 90 to 100. sponge iron, which was at 150, would rise to 160, while the household effects would rise to 150.
Mr Prasad has also proposed to create a separate category for luggage traffic, rates for which are 125 per cent steeper than the prevailing parcel rates. At present there is no separate category for luggage and single rate is prevalent for both parcel and luggage. Moreover, the existing rates for parcel too are proposed to be hiked by a uniform rate of 25 per cent.
PARCEL RATES UP
Distance of 100 km would attract a new luggage rate of Rs 64.35 per quintal, which is 125 per cent more than the existing parcel rate of Rs 28.6 per quintal. Besides this, the parcel rates have also been increased to Rs 35.75 per quintal.
In case of 200 km distance, the new luggage rate would be Rs 96.75 per quintal. The existing parcel rate for 200-km, which stood at Rs 43 per quintal, has now been hiked by 25 per cent to Rs 53.75 per quintal.
Similarly, the proposed luggage rate for 500-km would be Rs 174.15 per quintal, as against the existing parcel rate of Rs 77.4 per quintal. The proposed parcel rate in this segment has been hiked to Rs 96.75 per quintal. For 5,000-km distance, the new luggage rate of Rs 1,007.78 per quintal would represent a 125 per cent increase from the existing parcel rate of Rs 447.9 per quintal. The new parcel rate of Rs 559.88 per quintal represents 25 per cent increase from the existing rate.
The adjustment in fares and rates along with rationalised goods tariffs would be effective from April 1, 2006.
On the Left parties' concern over leaving out Kolkata from the Rs 22,000 crore freight corridor project, he said it would not have been economical for Railways to have extended it from Sonpur in Bihar to Kolkata as the sector was mainly of passenger traffic.
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