Pre-Budget Proposals for the Railway Budget 2007-08

1. Steel Industry and Railways

1.1 The steel industry forms a 16% of the total freight carried by the Indian Railways

• For every tonne of steel produced in the country, transportation is required for 4 million tonnes (mt). Rail is the preferred mode of transport for steel industry. About 60% of raw materials and 35% of finished steel freight are carried by Rail. Thus underscoring the mutual importance of these sectors for each other.

• However, the capabilities of Indian Railways are insufficient to handle even the current transportation requirements of the Steel industry let alone the traffic that will be created by the planned expansions of Steel Capacity from 43 mtpa to 200 mtpa by 2020. The steel related traffic is expected to go up from current 172 million tonnes to 800 million tonnes. But total traffic moved by Rail was only 667 mt in 2005-06.

• Similarly the freight costs are also a problem. The railway freight per thousand km/tonne is 3 times higher in India than in case of China and South Korea. To further add to the problems of the Steel Industry, the railways freight charges on movement of iron ore were increased by 68% in the just last two years (from classification 120 to 180). Also steel items remain in the maximum freight classification (180). This has lead to huge competitive disadvantage for the Indian Steel producers as freight forms anywhere between 10 and 15% of the operating cost of steel making.

• Although railways have improved their performance over the last few years, yet the quality of the railway service has remained poor by global standards. Railway's 'Product' is still limited to providing the 'Transportation' needs of industry and there is no provision for comprehensive 'Integrated Logistics Solutions'. Extremely high Transit times of Goods trains- average speed of goods train 24 km/hr compared to 47 km/hr in case of Passenger Trains. Indian Railways is still living with an 'Era of Shortages' mindset - Customers have to run pillar to post to 'Extract' services from the railways.

• As discussed above Indian steel industry is set to expand rapidly during the next 15 years. Railways have to ramp up their networks and improve their operational capabilities and performances.

2. Proposals: Freight Rationalization

2.1 Restore Iron Ore Classification back to earlier classification i.e 120.

• The Indian Railways have targeted Iron ore freight very badly. During the last two years, the Railways have increased freight tariffs by 68% either by changing the classification or by adjusting the slab rates. As a result, the cost of freight of moving iron ore for distance of 554 km has gone up by Rs 275 per tonne in a busy route. In other words, for every one million tonne of ore freight movement, the additional burden on the industry is Rs 27.54 crores.

 

Increase in Railway freight Charges on Iron Ore on K-K Line
Date	Class	Freight Charge (Rs)	Sur-charge *	Total Frieght (Rs)	Increase (Rs)	Increase (%)
28.10.04	120	403.7	0	403.7	0.0	0
29.10.04	130	437.3	0	437.3	33.6	8.32%
27.11.04	140	471.0	0	471.0	67.3	16.67%
01.04.05	160	538.2	0	538.2	134.5	33.32%
01.12.05	180	605.5	10%	666.1	262.4	64.99%
01.07.06	180	617.4**	10%	679.1	275.4	68.23%

* Busy route surcharge, ** Revised adjusted slab

• According to the authorities of Indian Railways, this hike was mainly to cope up with inflation. However, average inflation rate during the last two years was only 5.1 and 4.1% respectively.

2.2 Rail Freight classification for iron ore booked for port destinations for coastal shipment should be reduced from 180 to the level in which other steel majors are operating.

• From 1st December 2005, Indian Railways have increased freight classification for iron ore booked for port destinations. This is unfair and has no logic.

2.3 Removal of 20% surcharge on K. K. Line as the Railways had already recovered capital cost on this line long ago.

• For no reasons, companies that move freight on K K Line pay Rs 109 per tonne more than freight moved on other lines with a distance of 465 km.

Note: K-K-Line (Bacheli-Vizaq) actual distance is 465 km, but with surcharge of 20% it is taken as 554.

3. Augmentation of Railway capacities

3.1 Policy on Railway Networks

• Future developments of Railway networks related to steel industry to be given utmost priority in the annual Railway budgets.

• Considering high concentration of iron ore and coal reserves in the Eastern States & Karnataka, focus should be to connect mines, steel plants and ports

3.2 New Railway lines for New Steel Projects

• New track between Manoharpur-ChotaNagra-Karampada-Tatiba-Barajamda & Manoharpur-Salai, Karampada-Bolani, Gua-Karampada

• Between Barbil-Koira sector-Roida sector-Keonjhar-Paradip

• Fast completion of Barsua-Haridaspur-Paradip line to reduce the lead distance from Barbil sector

3.3 Form Separate company to Dedicatedly serve Freight Operations - Build State of the art dedicated freight lines/corridors.

3.4 Use Steel only for manufacturing wagons and coaches

• While presenting the Union Budget for Railways, the Minister for Railways announced a move to try aluminum in place of steel for the manufacture of railway wagons and coaches.

• The main argument of in support of aluminum is that it reduces weight by 40% and overcomes the problem of rusting along with corrosion. But new high strength steels available today promise a reduction in weight of up to 35% leaving aluminum only just ahead. While aluminum has the advantage in terms of corrosion resistance, that alone cannot make it a steel substitute. Steel is a much better structural material compared to aluminum owing to its better flexibility, strength and durability. In terms of cost Aluminum cost 4-5 times higher than steel.

• The Institute of Steel Development & Growth (INSDAG) has studied the technical facts and found that steel - from all angles - is the right material for wagons and coaches. Thus as such there is hardly any reason for the Railways to opt for an alternate material at much higher cost, coupled with greater risks (safety).

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