The Re 1 cut in diesel prices could lead Railway Minister Lalu Prasad Yadav to announce a reduction in passenger fares in the forthcoming Railway Budget.

As diesel locomotives comprised around half the railway fleet, general class fares in popular trains could come down, railway ministry officials told Business Standard.

The cut could also lead to a reduction in freight rates for essential commodities, including grain and industrial commodities like steel and coal, officials said.

Passenger fares have not been changed since the UPA government took over three years ago. But officials said the minister might reduce prices to give competition to low-cost airlines. It could also help the ruling coalition gain political mileage.

The diesel price cut, however, is not expected to have any impact on freight and rentals in the road transport sector, which accounts for 80 per cent of the transport industry. However, a small change in rates for bulk cargo and corporate consignments is being expected in a week.

According to players in the transport industry, the 14-15 per cent increase in the prices of tyres and other inputs in the last one-year as well as the general boom in cargo will nullify the reduction in the price of diesel.

This despite the fact that diesel accounts for 65 per cent cost of running a truck and the Re 1 reduction in price will reduce the operating cost by around 3 per cent. The truck prices have also gone up by 9 per cent in the past two months and interest rates have shot up by 3 per cent.

SP Singh, co-ordinator, Indian Foundation of Transport Research and Training said, "The pervious decrease of Re 1 per litre on November 30 last year did not impact truck rentals. This time also we do not expect any change."