NDA takes first tough measure, hikes railway fares by 14%

In a pre-budget move, cash-strapped railways on Friday announced a steep across-the-board hike of 14.2 per cent in passenger fares in all classes and a 6.5 per cent increase in freight rates to garner Rs 8,000 crore (Rs 80 billion) a year.

Meanwhile, the Railways clarified late in the evening that the increase was only 10 per cent in passenger fare and 5 per cent in freight charges. It also insisted the hike was "as finalised by the previous government", and promised to "review" the additional burden due to oil price fluctuation if the the price of oil decreases.

The ministry said in a press release that the figure of 14.2 per cent hike in passenger fare and 6.5 per cent hike in freight rates is inclusive of the Fuel Adjustment Component (FAC).

It said the FAC is 4.2 per cent for passenger fare and approximately 1.5 per cent for freight charges, which is done once in six months "routinely", depending upon fluctuations in oil prices similar to retail prices of diesel and petrol at petrol bunks.

"The additional burden due to oil prices fluctuation will get reviewed if the price of oil decreases. It is pertinent to note that the FAC linked revision has already been implemented twice earlier by the previous government and was last done in October 2013," the ministry said in the release. 

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The decision, which will come into effect from June 25, marks the implementation of an announcement of May 16, the day Lok Sabha election results came, when the hike was announced but put on hold immediately.

In a flip-flop, the Ministry first announced that today's hike will be implemented with immediate effect but later changed it to June 25, saying the officials needed time to execute it.

Announcing the decision, less than a month after the NDA government took over, Railway Minister Sadanand Gowda said, "I was forced to implement the order that was done by my predecessor. I am only withdrawing the withholding order."

He said the interim budget presented by the previous government had assumed certain revenues on the basis of the proposed hike that was announced on May 16.

"Meeting the annual expenditure would not be possible unless the revised rates as finalised by previous government is implemented, hence order of withdrawing implementation of revised fare and freight has been withdrawn," said the Railway Ministry, which is incurring a loss of about Rs 900 crore (Rs 90 billion) per month in passenger segment.

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"Accordingly, the revised passenger fare and freight rates and freight structure rationalization will come into effect from June 25, 2014," it said in a statement.

The hike was announced nearly a week after Prime Minister Narendra Modi said the country should be ready for "tough decisions" required to improve the financial health.

The Railway Budget will be presented in Parliament in the first week of next month.

Two days ago, Gowda had said he would meet the Prime Minister before announcing the hike.  

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The Railways had earlier issued a notification on May 16 effecting hike in passenger fare by 14.2 per cent across the board and freight charges by 6.5 per cent from May 20. This was followed up with an official press release.

The May 16 fare hike decision, which had raised eyebrows as it came in the midst of Lok Sabha election results, led to a scurry of activities in Rail Bhawan on that day and the Railway Board went into a huddle to discuss its fallout.

Soon after, the red-faced Railway Ministry had put the decision on hold, saying the matter related to the revision will be left to the next government.

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The then Railway Minister Mallikarjun Kharge came out with a statement directing the Board to leave the decision on the hike to the new government.

"It is now informed that under the directions of the Minister of Railways Mallikarjun Kharge, the decision on the proposed hike in the freight charges and passenger fares have been kept pended till further advice for placing this proposal before the new government," the statement said.

A fresh notification was issued later, stating that the "revision of fares with effect from May 20 should be pended till further advice."