Railway Budget Guided by Populist Considerations - IFTRT

According to Indian Foundation of Transport Research and Training (IFTRT), the Railway Minister has taken a populist route by refraining from making appropriate increment in freight rates and passenger fares in the third successive budget. The economy has been growing over 6%-7% for last three years and there has been substantial increase in truck rentals by as much as 30%-35% and retail parcel rates by 40%-45% in last two years due to steep rise in diesel price, vehicle prices, tyre prices, road taxes, highway tolls and motor insurance. The economy has been able to absorb major hike in truck rentals and the Roadways has maintained its 75% share in the national cargo. Thus, there was enough cushion for the Railway Minister to take benefit of the opportunity to increase the rentals by minimum of 5%-10% rather than surrendering to the artificial fear psychosis built towards competition from Roadways.

In last three years, the Railways have offered its cargo capacity of its express and mail trains to Road Transport Companies (known as freight forwarders). The total capacity of SLRs (small rakes) has been taken on lease for short, medium and long haul, which is less than 1/3rd of the retail freight charged by these freight forwarders from the consignors of general cargo/merchandise. For instance, the railway parcel-booking rate is Rs. 3.81 per kg for Delhi-Kolkata route, while these road transport companies charge Rs.14/- to Rs.15/- per kg from the consignor. That means, consignors are prepared to pay higher freight rates by booking cargo at the transport company offices rather than directly approaching Railway Cargo Booking Sidings. What the Railways need to do is to tone up its goods booking process. There exists a great deal of synergy and complementarity between Railways and Roadways. The premise of Railways vs Roadways is misplaced and unfounded.

The Railways should have increased their freight rates and ploughed back the revenue generation for its long term growth and development as well as improving its obsolete assets. The trade and commerce of the country is ready to give reasonable hike in freight rates as can be seen from the upward movement of truck rentals and retail parcel rates by movement of cargo through roadways.

Implications of various Budget Proposals for Automotive Industry at a Glance

Proposal	Impact	Remarks
Income-Tax
No changes in the rates of Personal and Corporate Income tax		Help channelise the savings to the markets. people will have more household disposable income in hand, demand for small cars and 2-wheelers may rise
Changes in FBT structure Reduction in valuation of benefits in the form of tour and travel, hospitality and use of hotel boarding and lodging facilities.		Industry was expecting complete removal of FBT
Customs Duty
Reduction in peak customs duty from 15% to 12.5%		Marginal improvement in operating margines Will lower the cost of production of vehicles having high import content, which will be passed on to the consumers in the form of price cuts
4% additional duty of customs imposed on all imported goods (with a few exceptions)		Provides a level playing field for domestic industry
Customs duty on alloy steel and ferro alloys reduced from 10% to 7.5%		Marginally positive impact on OEMs
Excise Duty
Excise duty on small cars not exceeding 1500cc (diesel), 1200cc (petrol), and 4 mtrs in length, reduced from 24% to 16%		Small cars will get cheaper by an average of about Rs. 20,000/- which will spur demand for small cars by 2%-3% Encourage to make India a manufacturing base for small cars
Service Tax
Service tax rate increased from 10% to12% 15 new services brought into the service tax net		Ultimately pinch the consumers as the prices all across will go up slightly
Proposal to introduce composite Goods and Service Tax (GST) by April 1,2010 CST to be phased out		A welcome proposal as unification of various taxes will make tax regime hassle free
Other Proposals
Thrust on infrastructure, agriculture & rural economy: Budget support of Rs. 18,696 crore for Bharat Nirman FY07 Rs. 11,700 crore allocated for National Rural Employment Guarantee Scheme Budget support for NHDP enchanced from Rs. 9,320 crore to Rs. 9,945 crore in 2006-07; Special accelerated road development programme for the North Eastern region at an estimatd cost of Rs. 4,618 crore approved with allocation of Rs. 550 crore in 2006-07; 1,000 kms of access-controlled Expressways to be developed on the Design, Build, Finance and Operate (DBFO) model		Will provide a boost to Economy. Will improve connectivity, promote all-round industrialisation and development, leading to employment generation and rise in incomes, which, in turn, will create demand for two-wheelers, small cars and commercial vehicles
Budget Overall		The Budget with continued thrust on infrastructure, Agriculture, Rural Development and Urban Renewal, is positive for the economic growth

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