Rail Fare Hike 'Inevitable', to Have Some Impact on Inflation: Experts

Terming the rail passenger fare and freight hike "inevitable", experts on Friday said it will have some impact on price rise as it will increase transportation cost.

"I think government had to bite the bullet and need to take hard decisions. It was inevitable. It will raise the cost of transportation. But I think it will ensure viability of railway finance," Crisil chief economist D K Joshi said.

(Read: How much more you will pay)

He also said the fare hike will also push the inflation a little.

The cash-strapped Railways increased across-the-board passenger fares by 14.2 per cent and freight by 6.5 per cent to garner Rs 8,000 crore a year. The new rates would come to effect from June 25. (Read full story)

Wholesale price index-based inflation in India rose to a five-month high of 6.01 per cent in May, mainly on account of higher food prices.

Commenting on the decision, former chairman of the 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."

Industry body Assocham president Rana Kapoor said the decision to increase fare was inevitable but was bold.

"The central government's decision to increase the railway fares by 14.2 per cent is an inevitable but bold decision. Corrective measures are necessary to address the severe financial crunch facing the Indian Railways, a result of a decade of decadence," Mr Kapoor said.

"As promised, the Prime Minister is taking all due measures towards his vision of a 'Shresht Bharat', amidst some calibrated tough measures. This is a precursor to a prudent Railways Budget."

The fare hike was inevitable as there was a cumulative deficit in Railways for many years, said Abhaya Agarwal, partner-infrastructure practice at EY.

"Freight hike is very modest. If Railways wants to ensure safety, modernisation and other passenger amenities, it needs to have surplus funds or else it is very unsafe," Mr Agarwal said.

However, it will add up the pressure on passenger a little, he said.

"It is a welcome step. Going forward the unit cost of freight needs to be reduced than to raise fares."

Expressing displeasure over the railway fare hike, realty firm Parsvnath Developers chairman Pradeep Jain said, "This is blow to the industry as an increase of 6.5 per cent in freight by Railways would have a magnifying effect of price of steel, cement etc. which are already touching sky."

Steel and cement are two main raw materials for the real estate industry and are transported mainly through Railways only, he said.

"At a time when the sector is already experiencing tough times, any such incidence is going to hit us hard. We are in no position to increase property prices as the industry is already having millions of unsold units."

"We appeal to the government to review its decision so that the infrastructure and real estate sector may walk some more miles," Mr Jain said.