The freight rate hike of 6.5% by the Railways on Friday is likely to impact power, steel and cement sectors as the coal transportation cost would rise.
"There would be definite impact of freight rate hike on electricity tariff as freight charges on coal would go up," CESC executive director Utpal Chatterjee told dna. However, the immediate impact on power tariff couldn't be measured though, he said.
Coal prices will go up as CIL passes on every kind of freight charges hikes to consumers, a senior company official said. CIL last raised freight costs in November when it hiked its charges steeply from Rs 44 per tonne to Rs 57 a tonne for a distance of up to 10 kilometre, mainly due to rise in diesel costs while that up to 20 kilometre were hiked 50% to Rs 116 a tonne.
"The increase in freight charges will lead to a marginal increase in electricity tariff -- by around 1% as freight is very small component of overall cost of electricity," said a consultant.
A CIL official said the increase in freight rates will be borne by power generating companies and lead to increase in electricity charges. The rise may lead to higher landing cost for generating companies by up to 3%. He, however, said the coal sector, including CIL, will have no direct impact due to the increase in freight charges.
Additionally, in December an extra levy of Rs 26 a tonne was put on every rapid loading to railway wagons.
The hike in freight will also push up cement prices as component of transport cost weighs heavy on cement prices, an official of Kesoram's cement division said.
"We see an increase in prices of cement by around Rs 5-7 a bag post the monsoon when demand picks up," the official said.
With the freight rate hike, fertiliser subsidy bill will rise by about Rs 200 crore annually, but will not have an impact on retail prices, industry body Fertilizer Association of India.
Every year about 44 million tonne of fertilisers, including both urea and P&K fertilisers, are 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 with the revised estimate of about Rs 67,971 crore in 2013-14 fiscal.
In a pre-Budget move, cash-strapped railways on Friday effected a steep across-the-board hike of 14.2% in passenger fares in all classes, and a 6.5% increase in freight rates to garner Rs 8,000 crore a year.
Reacting to the freight rate hike, industry bodies hoped the higher fares will lead to better quality and safety of services offered by the Indian Railways.
"The rates have been increased with a view to resource mobilisation, which is today the most critical requirement for the Indian Railways. Without adequate resources, the Railways will not be able to afford its modernisation, capacity addition and safety plans," CII director general Chandrajit Banerjee said.
While terming the freight fare hike as "inevitable", Banerjee said the industry, currently reeling under a low growth scenario, can ill-afford the freight increase especially on bulk heavy industries like steel, which contributes about 20% of the freight revenue of Indian Railways and are already under stress.
The industry chamber urged the government to accord top priority to foreign direct investment (FDI) in Railways.
Ficci president Sidharth Birla said if tariffs had been incrementally attended to over the years to match rising expenditure, an increase of this magnitude in one go would not have been necessitated.
Birla expressed hope that there will be a concomitant improvement in both the quality and safety of services offered by Indian Railways post the fare hike.
CII said resources can be also mobilised from inviting multilateral funding agencies to participate in railway projects, better utilisation of railway land, and creation of a Rail Asset Leasing Authority.