India proposes to increase railway freight rates on iron ore, steel, and coal from 1st April 2015 to fund expansion of the existing worn out rail network. The move is likely to raise the costs to local manufacturer of steel at this juncture when demand is down and imports are increasing.
The Railway Minister of India said while presenting the railway budget for the fiscal year 2015-16 that the government is planning to increase the railway’s annual freight carrying capacity from 1 billion to 1.5 billion tones with the help of the fund raised from higher rates of freight. The increase in freight rates is meant for the expansion of infrastructure, but he did not mention by which date the expansion gets completed. The rate in coal transport rises by 6.3%, while for iron ore and steel the figure is 0.8%. The transportation cost of urea and grains will increase by 10%. However, no change in passenger fare has been proposed.
India plans to raise its investment in overloaded network to the level of 8.5 trillion Rupees equivalent to $137 billion, the government official said on Thursday. In a reaction to the proposed freight hike, steel companies were of the view that it would increase their costs, and further squeeze their already thin margins. Managing Director of Kalyani Steels Ltd, R K Goyal was skeptical whether consumers will be able to absorb the increase which is likely to complicate matter due to very weak demand already. Such companies as Jindal Steel, Kalyani Steel, and JSW Steel etc. are already reeling due to increasing imports from China and Russia. They are forced to seek help from the government. However, Arun Jaitley, Finance Minister of India, is likely to increase import duties on steel to assist indigenous steel companies when he presents the annual budget for the fiscal year 2015-16 on Saturday.