New Delhi: Railway freight rate was on Tuesday hiked by nearly 6 percent across the board, which is likely to result in higher prices of foodgrain, diesel and LPG.
Increase in freight rates is on account of de-regulation in the diesel prices for bulk consumers such as Railways.
Oil companies transport over 32-33 percent of diesel, LPG and kerosene through railways and the hike in freight rates will either have to be passed on to consumers or will have to be accounted for as under-recoveries, which the government will compensate from the General Budget.
Sources said it was unlikely that the government, which is hard pressed for finances, would agree to take on additional burden and the freight increase is likely to be passed on to consumers.
The freight rates exclude development charge and busy season charges, according to the Railway Budget for 2013-14 presented in Parliament by Railway Minister P K Bansal.
Freight rate for grain and pulses has been increased to Rs 1,403.6 per tonne, from the existing Rs 1,326.80 per tonne for average distance.
In fuel category, freight charges of high-speed diesel oil have been raised to Rs 1,041.8 per tonne, from Rs 984.80 per tonne, while freight on both kerosene and LPG increased to Rs 937.60 per tonne from Rs 886.30 per tonne.
For urea, a major fertiliser, the rate has been raised to Rs 920 per tonne from Rs 869.60 per tonne.
On iron and steel, freight has been hiked to Rs 1,541.50 per tonne from Rs 1,457.10 per tonne. The same on iron ore (domestic) has been raised to Rs 664 per tonne from Rs 627.70 per tonne, while that on pig iron freight will be now Rs 773.1 per tonne from Rs 730.70 per tonne.
Freight rates on both cement and coal have been raised to Rs 724.80 per tonne from Rs 685.10 per tonne.
Reacting on freight rate hike, economists said that this would lead to increase in inflation.
"Definitely there will be some increase in transportation cost... Transportation costs for heavy industries like coal and cement will rise by at least 0.5 percent. Besides, inflation will also increase by 0.25 percent," Chief Economist at RPG Foundation Pai Panandiker said.
While inflation based on Wholesale Price Index declined considerably to 6.62 percent in January, the rate of price rise at the retail level - as measured by the Consumer Price Index - was in double digit, at 10.79 percent.
PwC, Capital Projects and Infrastructure, Executive Director, Manish Agarwal said that although higher freight rates will impact inflation, it will be marginal.
Meanwhile, Bansal announced adoption of Fuel Adjustment Component (FAC) which will be dynamic in nature and freight charges will be revised twice a year based on changes in input fuel cost.
"In the light of deregulation of the HSD oil, Railways' finances need to be rationally insulated and to this end a mechanism to neutralise the impact of fuel prices on operating expenses is required to be put in place," Bansal said in his the budget speech.
"In the Budget 2012-13, my predecessor had proposed to segregate fuel component in tariffs as FAC. As then suggested, I propose that this component be dynamic in nature and change in either direction with the change in fuel cost, say twice a year," he added.
Bansal proposed to implement the FAC-linked revision in only freight tariff from April 1, 2013.