Cross-subsidy prevents Railways from offering discounts to CIL

Recent tussle between Coal India and Indian Railways over freight charges has brought into focus the dynamics of freight charges and overall logistics costs in our country, which, according to many studies are higher compared to global standards making India a high-cost place to do business.

With an aim to emerge competitive with the coming of commercial mining era, Coal India had asked Indian Railways to offer 15 percent reduction in freight rates for transporting coal to power plants located at distances of beyond 701 km an up to 1,400 km.

The demand follows a move by the Railways authority to offer 20 percent concession on freight price for transporting coal and coke and other commodities beyond a distance of 1,400 km.

Coal India’s request has reportedly been turned down by the Railways with a reasoning that most of the coal traffic falls in the range of 700 km and 1,400 km and any steep discount for this lucrative segment would significantly impact Railway’s revenues.

In an era of monopoly, coal in this case, cost competitiveness, isn’t a necessity.

However, with the opening up of the coal mining sector, costs like Railway freight would now be weighted in not only by state-owned entities but private sector also.

In this context, it’s worthwhile to look at a recent study by ‘How India Lives’, an organization that studies spending trends.

Dynamics of Railway freight rates

Among the slew of activities that were disrupted and brought to a halt since the nation-wide lockdown, there were a handful that continued to run uninterrupted. One among them was Indian Railways ferrying goods.