* Fare increase sparks political backlash
* Railways crucial to economic growth - minister
* First fare increase since Manmohan Singh became PM (Adds political reaction, fare details, analyst quote)
By Matthias Williams and Manoj Kumar
NEW DELHI, March 14 (Reuters) - India will raise railway passenger fares for the first time in eight years, snapping a populist trend to help mend the finances of a creaking network that is a bottleneck for growth in Asia’s third-largest economy.
Opposition lawmakers seized on Wednesday’s fare increase to attack the Congress party-led coalition government, which is already reeling from a slew of corruption scandals and was battered in crucial state elections last week. Even the railway minister’s own party demanded that the hike be rolled back.
The rail budget precedes the federal budget, to be presented in parliament by Finance Minister Pranab Mukherjee on Friday, which is expected to push fiscal deficit reduction amid slowing economic growth and high inflation.
“I had two very clear yet contrasting options -- either to keep the railways in status quo mode with just incremental annual changes or, as the phrase goes, bite the bullet,” Railway Minister Dinesh Trivedi told parliament.
“The second option would involve going for a generational change with a focus on safety and inclusive growth to meet the aspirations of this great country in the next decade. I chose the generational change,” he said in a speech that was littered with poetry and occasionally interrupted by jeers and laughter.
Under the new fare structure, the second-class fare on an ordinary train from New Delhi to the financial hub , Mumbai about 1,390 km (864 miles) away , will rise 21 percent to 260 rupees ($5.21). A first - class fare on an air - conditioned Rajdhani Express on the same route rises 14 percent to 3,445 rupees.
The fare increase will raise about 40 billion rupees in additional revenue, the minister said, part of the 1.33 trillion rupees the government expects to take in traffic receipts in the fiscal year that starts April 1 .
Fares were last raised before India’s ruling Congress party won its first term in office in 2004.
Many Indians still see the railways as a service for the “aam aadmi”, or “common man”, ferrying often-poor migrants left largely on the outside of two decades of surging growth that has seen millions buy cars or travel by air for the first time.
The refusal by successive ministers to raise passengers fares has strained the ministry’s finances, sapping its capacity to lay new track, modernise services and improve safety.
Clogged freight lines, slow delivery times and overcrowded ports have dented many companies’ competitiveness and slowed the pace at which crucial commodities such as coal are transported, aggravating India’s power shortages.
The political storm sparked by one of the government’s allies over the fare hike underscore d the fragility of Prime Minister Manmohan Singh ’s coalition government. Opposition even from within has made it difficult to push through economic reforms, from retail sector liberalisation to a tax overhaul , that are seen as necessary to s hore up India’s flagging growth .
“ Today’s events have made the government an object of ridicule,” said Swapan Dasgupta, a political analyst with links to India’s main opposition Bharatiya Janata Party (BJP). “I think the reforms under this government is a story of the past. It is not going to happen in the lifetime of this parliament. ”
Trivedi is a member of the Trinamool Congress Party, which governs the eastern state of West Bengal under firebrand Chief Minister Mamata Banerjee. The party last year blocked one of Singh’s biggest reforms: to allow in foreign multibrand retailers such as Wal-Mart Stores Inc.
“The price hike is a big concession to the market forces and it goes against Mamata Banerjee’s strident refusal to hike fares,” said political analyst Amulya Ganguli.
Trinamool Congress members scrambled to attack Trivedi after his budget speech, pressing for his resignation.
India plans to add 700 km (435 miles) of new rail lines to its network in the fiscal year starting in April, Trivedi said, adding that India planned to invest $147 billion in the railways during the next five-year plan period, 2012-2017. India’s railways have a history of missing investment targets.
India’s railway network is one of the world’s largest, but years of low investment and populist policies have crimped growth and hindered private investment.
“ It is not only the size of railways, it is those long years of doing nothing,” Ganguli said.
Ahead of the budget, business leaders had called on the government to improve the railway network, more than 80 percent of which was built before India’s independence from Britain in 1947, and is plagued by delays, accidents and overcrowding.
Investors want private operators to be allowed to run trains and bid to build new infrastructure such as stations.
Despite Singh’s push to revamp India’s infrastructure, with a $1 trillion splurge planned between 2012-17, the railways can still appear a law unto themselves, with their own budget, schools, hospitals and residential colonies to house some of their 1.4 million employees. ($1 = 49.9250 Indian rupees) (Reporting by Matthias Williams, Manoj Kumar, Annie Banerji, Arup Roychoudhury and Satarupa Bhattacharjya; Editing by Tony Munroe and John Chalmers)