Currency’s slide a red flag for Railways

The sliding rupee, signalling a massive rise in fuel costs, is flashing dangerously red for the Railways.

High speed diesel prices have been on the fast-track since January, rising 25 per cent, after the Government withdrew the subsidy for bulk customers.

Indian Railways, the single largest consumer of the fuel, uses over 2.5 billion litres of high-speed diesel every year. According to early estimates, the Railways had expected to spend about Rs 16,000 crore on diesel this fisca. While this amount factored in the shift to market prices, it could not be ascertained if the Railways had pencilled in the increases in diesel rates while arriving at the estimate.

“Diesel prices for Railways have already touched Rs 64 a litre in Delhi for the August 1 to August 16 period,” disclosed an official source. This is a 23 per cent increase on a per litre basis against the Rs 52 a litre in January, when the new price regime was put in place.

Though diesel rates have moved both ways in the interim for short periods, the trend has largely been upward, pushed further by the depreciating rupee.

Bulk diesel rates are revised every fortnight based on crude oil prices and rupee movement against the dollar. The rupee reached a new low of Rs 64 a dollar on Tuesday before closing at 63.23.

State variances

“In many States the diesel rate will be higher,” said the official. However, Railway officials did not say by how much the fuel bill had increased in the first five months due to diesel price fluctuation. “For the Railways, the final diesel rate at each depot varies depending on the market linked price of high-speed diesel, value added tax of different States and the distance of the depot from the point where the oil firms serve the depot,” said a source.

Higher fuel prices may have an impact on freight and passenger services. The Railways started levying a fuel adjustment component (FAC) from April, although the FAC has so far been imposed only on freight, leaving the politically sensitive passenger rates untouched for now.

The next round of revision in the FAC is slated for September. The FAC is reviewed twice a year.

The Railways has already imposed an FAC on all freight movement, including on movement of coal, cement, fertiliser and iron ore. It has to take a call on whether to link passenger rates to fuel price movements.

Published in: on August 21, 2013 at 4:33 pm  Leave a Comment  

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