The Modi Government made its first difficult decision today by raising rail fares and freight steeply.

From June 25, rail travel will become costlier by 14.2 per cent and moving goods by about 6.5 per cent.

The rate hikes come ahead of the Rail Budget to be presented next month by Railway Minister Sadananda Gowda.

Cash-strapped organisation The monolith organisation is severely cash-strapped, yet a tariff hike is a politically sensitive issue as it affects a large number of people and can have an inflationary effect.

Every day, the Railways ferries over 20 million people and hauls over 2.8 million tonnes of cargo such as coal, cement, fertiliser and petroleum products.

Friday’s decision is actually restoring an announcement of May 16, when the same hike was proposed by the UPA Government but not implemented as it came in the midst of Lok Sabha election results. The then Rail Minister, Mallikarjun Kharge, asked the Railway Board to leave the decision to the new government.

According to an official statement today, “Implementation of revised rates was withdrawn by the previous regime because of the elections. Meeting the annual expenditure would not be possible unless the revised rate, as finalised by previous government, is implemented, hence order of withdrawing implementation of revised fare and freight has been withdrawn.”

The fare/freight increase is a mix of hike in both rates and the fuel adjustment component (FAC). It will not cover container movement while for short-distance travel, the increase will be lower, at 4.2 per cent, because of the fuel-linked component.

Additional income The rate hike will mean an additional income of ₹7,000-8,000 crore for the Railways, and some revenues for the Government as well, from the service tax component.

People who have already booked tickets will have to pay the difference when they travel.

The effective hike on users will be higher on freight and the air-conditioned passenger segment as the Government also levies an effective service tax of over 3 per cent.

Mixed reactions While corporates and industry chambers said the rail fare hike was inevitable given the rising fuel costs, Opposition parties slammed the decision terming it as “criminal” to burden the people with such an increase. They wanted to know why Parliament had not been taken into confidence before taking the step.

The parties also questioned the relevance of taking such a decision when the Budget session had been announced and also demanded an immediate roll-back of the move.

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