Fare hike to add 10 bps to CPI inflation and push fertilizer subsidy by Rs 200 Crore

New Delhi, 21 June-2014, FPJ: The hike in railway passenger fares will add around 10 basis points to the consumer price index inflation in near term, while the hike in freight fares will have an indirect impact on the same, Nomura said.

Fare hike to add 10 bps to CPI inflation and push fertilizer subsidy by Rs 200 Crore

Fare hike to add 10 bps to CPI inflation and push fertilizer subsidy by Rs 200 Crore

India’s headline inflation rate based on the new CPI fell to a three-month low of 8.28% in May, from 8.59% a month ago. The government announced hiking of passenger rail fares by 14.2% and freight rates by 6.4% from Jun 25. “Wholesale Price Index inflation is likely to see a marginally larger impact as the cost of transporting goods such as coal, cement, oil, steel and food grains will rise,” the report said. However, Nomura described the hike “a move in the right direction” as it is likely to improve profitability of railways.

Inflation based on wholesale price index (WPI) rose to five-month high of 6.01% in May, mainly on account of higher food prices.

Industry body FAI said that fertiliser subsidy bill will rise by about Rs 200 crore annually but will not have an impact on retail prices following the government’s decision to hike rail freight by 6.5 %.

Every year about 44 million tonnes of fertilisers, including both urea and P&K fertilisers, is moved through the country. Out of this volume, 80 % is moved through rail and rest is via roads.

Government in the interim budget had fixed the fertiliser subsidy at Rs 67,970 crore for the financial year ending March 2015 compared to the revised estimate of about Rs 67,971 crore in 2013-14 fiscal.

India Inc said the hike in railway passenger and freight fares will help in resource mobilisation, hoping that higher fares will lead to better quality and safety of services offered by Indian Railways, while asking the government to allow FDI in Railways.

Commenting on the decision, former Chairman, Commission for Agricultural Costs and Prices (CACP), Ashok Gulati said: “Government is bold enough to bite the bullet and this signals that government is trying to control subsidies and pricing services.” “I hope this will improve the services and prices will come down in real term going forward,” Gulati added.

Freight hike may push up steel rates by Rs 600 a tonne

Steel prices may go up by upto Rs 600 a tonne on account of 6.5% increase in rail freight charges as steel makers will have to shell out more on transportation of key raw material iron ore as well as finished products. Miners body FIMI said the hike in freight rates was bound to impact consumers as iron ore is a key steel making raw material, transported by rail by almost all steel firms.

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