Prabhu quietly hikes railway freight rates for coal, urea and food grains

Railway minister Suresh Prabhu has quietly raised railway freight rates even as he abstained from increasing passenger fares. Freight rates on coal, iron ore and steel will go up from 1 April, a move that could raise costs for power produces and local steel makers.

Freight rates for coal will rise by 6.3 per cent, while those for iron ore and steel will increase 0.8 per cent.

Rates for the transport of urea and grains will also go up 10 per cent, which could also push up commodity prices, reversing the current trend.

The Railways needs funds to expand its annual freight carrying capacity to 1.5 billion tonnes from the current 1 billion tones. This will in part be met with the funds from the higher rates, Prabhu said while presenting the railway budget for the 2015-16 fiscal.

Prabhu did not say by when the expansion would be completed.

Over the next five years, the Railways plans to raise investment in its overloaded railway network to Rs8,50,000 crore.

Steel companies said the new rates will increase their costs and squeeze already low margins.

"We are helpless because customers may not be able to absorb the increase," said R K Goyal, managing director of Kalyani Steels Ltd. "Demand is very weak."

Companies like Kalyani Steels, JSW Steel and Jindal Steel and Power have been struggling with rising steel shipments from countries like China and Russia, forcing them to seek government help.

They now pin hopes on finance minister Arun Jaitley to raise import duties on steel to bail them out. But that will still drive up prices affecting the consumer.