NEW DELHI (Reuters) - The Indian government announced a fuel surcharge of just under 5 percent on freight traffic in the railway budget on Tuesday, but ducked the opportunity of a further round of passenger fare hikes as it gears up for a national election due next year.
India’s railway network is the world’s fourth largest but it has suffered from years of low investment and political meddling. The result is a creaking system plagued by delays, overcrowding and slow freight delivery times that sap the competitiveness of Asia’s third-largest economy.
The railways budget is closely watched, both by the millions of poor Indians who use it every day and see cheap rail travel as a right, and by economists looking to see how far the government will be willing to go to tackle politically sensitive reforms.
The railway budget was delivered two days before Finance Minister P. Chidambaram unveils what is expected to be the most austere federal budget in years. Analysts say India’s railways need a radical overhaul to get the system back on track, requiring difficult decisions that previous railway ministers have also avoided.
But the ruling Congress party must strike a balance between cutting a bloated fiscal deficit and keeping up spending on infrastructure to drive stuttering economic growth. Some government ministers are worried that spending cuts will incur the ire of voters and hurt the Congress party as it gears up for a national election due by early next year.
“As regards passenger fares, since these were revised only in January this year I do not intend to pass on the additional burden to them now,” Railway Minister Pawan Kumar Bansal said in a speech in parliament.
The government took the politically risky step in January of raising passenger fares for the first time in a decade. The move aimed to raise money for a ministry that spends more than half its budget paying the salaries of 1.4 million employees and retired workers’ pensions.
The last time a railway minister tried to do that - in the budget last year - he was sacked within days following a political backlash. More than 20 million Indians use the network every day, many of whom are poor migrant workers, and raising fares is seen as squeezing those who can least afford it.
Reporting by Manoj Kumar and Matthias Williams, editing by Ross Colvin and Sanjeev Miglani