Oil, alcohol cheer; automobiles sulk

RAILWAY BUDGET 2006-07/ IMPACT ON USER INDUSTRIES

Petrol, diesel prices are, however, unlikely to come down.

The Railway Budget has reduced freight for petroleum by 8 per cent by overhauling the goods tariff structure under which the number of commodity groups has come down to 28 from 80.

The cut in freight will result in the oil industry saving over Rs 160 crore, PTI quoted an Indian Oil Corporation executive as saying. About 35 per cent of 54 million tonnes of petrol and diesel consumed annually are moved on rails.

But it is unlikely that this cut will be passed on to consumers as the freight assumed to calculate the retail selling price of fuels is substantially lower than the new freight.

This dashes the hopes of the automobile industry, which was hoping that the reduction would be passed on. But the industry is taking heart from the fact that not much of its production is moved via rails.

Else, the industry, which relies on roads, could have been hit by the rise in freight by about Rs 50 a tonne (for distances up to 500 km) to as much as about Rs 200 (for distances up to 3,000 km).

But the alcohol industry welcomed the 8 per cent cut. Deven Narang, president of All-India Distillers' Association said, "This will make the industry internationally more competitive."

Following reclassification of categories, freight costs for vanaspati, edible oils, cotton, coir, sugarcane, paper and livestock have risen.

For edible oils, "the rise is minimal and unlikely to affect consumer prices as bulk-handling will absorb the difference", said Rajesh Agarwal of the Soybean Oil Processors' Association.

Freight has been left unchanged for chemicals, fertilisers, manure, cement, timber, oilmeals, milk and milk products, and jute. But moving household stuff via the railways is going to cost about 10 per cent more.

Freight for iron ore will rise 4 per cent. Producers like Tata Steel will pay more, says an industry analyst.

The steel industry welcomed the special freight corridor and the 32 per cent rise in the Plan outlay. "It will go a long way towards meeting the growing freight requirements of core industries like steel," Prashant Ruia, managing director of Essar Steel, said.

The railways intend to produce wagons from aluminium and stainless steel. This will boost the demand for these metals. "But this does not mean that there will be an immediate change in the aluminium demand. Things will happen gradually," said an observer.

The Railway Budget also announced a freight rebate of 15 per cent, under the non-peak season incremental freight discount scheme. This rebate will be applicable to most commodities except coal, minerals, and edible oils and oilcakes.

Also, the Budget announced a discount on incremental freight in the empty-flow direction -- 30 per cent in non-peak and 20 per cent in peak seasons. This scheme will be applicable to all items loaded under covered items.