Steel freight rates may be cut

The railway ministry may consider a reduction in freight rates for steel in its Budget for 2007-08. The ministry has received requests from the steel ministry for a "considerate view" on the rates.

With steel accounting for around 30 per cent of the total freight traffic of the railways, the ministry may consider the request, sources said.

However, another reason why Rail Bhawan cannot afford to write off the issue is because of the political colours it may take. Earlier this year, just prior to the Rail Budget, Steel Minister Ram Vilas Paswan had written to his political rival Lalu Prasad Yadav, seeking a similar sop. The rebuff apparently did not go down well with Paswan.

But with the railways basking in the glory of its economic turnaround, and finished steel being a significant contributor to its freight revenue, the ministry will have to consider the request seriously.

Also, the constraints of coalition politics may play a role. With both Yadav and Paswan being partners in the UPA government, despite their political rivalry, the request assumes significance.

Railway ministry sources told Business Standard that the steel ministry had sent an informal request to the finance and railway ministries for keeping freight rates of steel and related commodities on a lower side.

Though railway ministry officials claimed that freight rates for finished steel had been static for quite some time, they agreed that rates of items like pig iron, melting scrap and sponge iron had not been uniform.

In the Rail Budget for 2005-06, finished steel, along with pig iron, melting scrap and sponge iron had been moved to a higher slab after being reclassified. This led to a hike in their freight rates on a per tonne basis. The ministry had cut the number of categories in freight classification from over 4,000 to 80.

The role steel and related materials play in the freight traffic revenue of the railway ministry could be gauged from the fact that of the total freight earnings of Rs 3,600 crore in November 2006, Rs 358 crore came from steel alone. But what could go against the steel ministry is the fact that in the last one year, the overall steel production had grown only to 40 MT, from 38 MT last year.

The railway ministry would also have to keep revenues in mind while taking a decision.

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SEEKING SOPS

With steel accounting for around 30 per cent of total freight traffic of railways, the ministry may give the request a consideration.

In the rail Budget for 2005-06, finished steel, along with pig iron, melting scrap and sponge iron had been moved to a higher slab after being reclassified.

But what may go against the steel ministry is the fact that in the last one year, the overall steel production has grown only by 2 MT