India cuts rail fares with eye on polls, inflation

Posted 02 28 2008 5:13AM

NEW DELHI (Reuters) - The government on Tuesday cut rail passenger fares and freight rates and unveiled a major push to modernise its huge network as it tries to woo voters ahead of a general election and bolster a fast-growing economy.

Maverick Railways Minister Lalu Prasad Yadav cheered ruling lawmakers with a string of populist moves, trimming fares by 5-7 percent, and setting the tone for Friday's union budget, the last from the governing communist-backed coalition.

Yadav defied noisy protests from opposition benches to announce he was cutting freight rates for petrol and diesel by 5 percent, and would set up bulk handling facilities for cement, food grains and fertilisers to help fight inflation.

"The dire straits the railways were in prior to the United Progressive Alliance government is not hidden from anybody," Yadav told lawmakers in his trade-mark rustic style.

"We have not only offered dreams but have also made them a reality. Even as we improved the railways' financial performance, we have offered the masses the nation's most economical, efficient and profitable transport system."

National polls must be held by May 2009 and all parties are gearing up for the battle ahead.

Much of the rail budget centered on modernising the century-and-a-half old network, one of the world's largest and which last year carried more than 18 million people a day.

That's essential if India is to sustain economic growth close to 9 percent and provide a long-term solution for low inflation.

For long plagued by losses and delays but now seeing a resurgence, Indian Railways runs more than 14,000 trains a day.

By cutting first- and second-class fares, Yadav was also looking to take on a string on new cut-price airlines that are increasingly being used by business and pleasure travellers.

The state-run rail network's earlier reputation for red-tape and inefficiency also saw it losing freight traffic to trucks.

ANTI-INFLATION THRUST

The railways minister said the construction of dedicated freight corridors linking northern states with industrial areas in the east and west would start in the 2008/09 financial year.

Rail connectivity with major ports would be improved to keep pace with the country's growing exports and make imports cheaper.

Annual wholesale price inflation in Asia's third-largest economy ticked up to a six-month high of 4.35 percent in early February, pushed up by higher food and commodity prices.

With a recent increase in retail prices of fuels yet to feed into the data, the reading is expected to creep close to the central bank's fiscal year target of 5 percent in the weeks ahead.

Analysts said the railway budget's infrastructure thrust augured well for efforts to control prices.

"The minister has tried to address debottlenecking between the ports and mainland. The budget will help in easing ... the transit of crucial commodities," said Shubhada Rao, chief economist at Yes Bank in Mumbai.

"Very clearly this increase in infrastructure spending is aimed at alleviating some pressure on inflation through the reduction of costs because of delays in transportation."

The government wants to build up the railways to meet the demands of the fastest growing major economy after China, which is expected to see growth moderate to a still pacy 8.7 percent this fiscal year.

Yadav said the government would spend 750 billion rupees ($18.8 billion) over seven years to increase the capacity of about 20,000 km of rail lines used to transport coal and iron ore.

It would also try use public-private partnerships to build world-class stations, rolling stock and logistics parks with a targeted investment of $25 billion.

(Additional reporting by C.J. Kurrien in MUMBAI)