Given how the Railways loads on huge passenger subsidies onto its freight business, the last thing it needed to do was to effect a sharp hike in freight rates. Yet that is precisely what it has done as part of its busy season policy. Two things will happen as a result of this. One, inflation will get a fillip and, two, over a period of time, the Railways share of freight traffic will fall even faster than it already is. Based on the numbers presented in the Budget, the Railways are likely to lose R25,000 crore on R36,000 crore of budgeted passenger revenues this year. As a result, it overcharges on freight—the passenger-fare-to-freight earnings ratio has fallen from 0.31 in FY01 to 0.25 in FY13 (this ratio is 1.3:1 for China)—and then loses on freight revenue once traffic shifts to the roads sector. You just have to look at the growth in freight traffic for the Railways versus GDP growth over the last years to realise this.
But it is not just the Railways that is guilty of taking the easy way out. While diesel subsidies have reached R14.5 a litre as compared to R9 when the government first started market-orientation of prices in January, the petroleum minister is ruling out a price hike and has, instead, said he plans to take a bus to work once a week and hopes officers of his ministry and the PSUs under it will follow suit. A free bicycle scheme has also been mooted. Taking the bus or riding a bicycle may be good for the environment, and even for the heart in the case of the latter, but India’s current problem is the wallet—oil imports of $144billion in FY13. Only a sharp price hike can fix this.