The Railways have been advised to go in for market borrowings, reduce cross subsidisation on passenger fares and impose cess to raise additional resources for its modernisation programmes in the Railway Budget 2005-06 to be presented on February 26.

And despite Railway Minister Lalu Prasad is opposed to increasing passenger fares and doing away with ongoing subsidies, the sources said the Railway Budget 2005-06 may go in for all the three options together.

This means passenger fares may be hiked with the imposition of a new cess.

These suggestions were made during the various meetings railway ministry had with Prime Minister's Office, finance ministry and Planning Commission, railway ministry sources said.

One such meeting was held at Prime Minister's Office on Tuesday as part of last minute efforts to finalise the nitty-gritty of the Budget.

Railways had demanded Rs 5,000 crore (Rs 50 billion) budgetary support which the finance ministry turned down saying they can not raise it beyond Rs 1,500 crore (Rs 15 billion) from the present level of Rs 1,180 crore (Rs 11.80 billion) due to financial constraints.

Instead, the finance ministry and the Planning Commission suggested that the Railways meet the additional expenditure by reducing cost subsidisation on passenger fares, market borrowings and by levying a 'modernisation cess' on lines of 'Safety Cess' imposed earlier.

The Railways wanted government to provide budgetary support saying it had an outgo of Rs 5,735 crore (Rs 57.35 billion) to meet the social cost. But the government is understood to have made it clear any social cost incurred by Railways has to be met through its resources.

Meanwhile, the sources said the Railway Ministry has finalised budget for the fiscal 2005-06, but it was yet not clear which option will be implemented to raise the resources.

Budget preparation was preceded by four meetings with the Planning Commission and the finance ministry and one with the Prime Minister with the full Railway Board, the finance minister and the deputy chairman of the Planning Commission on February 1, 2005.

The annual plan size of Rs 14,498 crore (Rs 144.98 billion) in the current fiscal is expected to rise substantially for the next year in view of the UPA government giving special emphasis on development of rail-infrastructure in its National Common Minimum Programme.

The ministry is also of the view that any further hike in the freight rates of coal, cement, steel, petro products, oil and lubricants will have cascading impact on prices and will fuel inflation.

In the recent past, they said, freight rates have been increased by 12 per cent in 1997-98, 4 per cent in 1999-2000, 5 per cent in 2000-01, 3 per cent in 2001-02; there has been no hike after that.

The UPA government after coming to power had increased freight rates by 7.7 per cent to offset the burden of Rs 1,550 crore (Rs 15.50 billion), including Rs 950 crore (Rs 9.50 billion) on account of three hikes in fuel prices.

A steep hike in steel prices put an additional burden of Rs 600 crore (Rs 6 billion) in full year and the November 22, 2004 hike yielded about Rs 1,300 crore (Rs 13 billion), leaving a gap of Rs 250 crore (Rs 2.50 billion).

"This is expected to be offset through minor rationalisation in freight rates," the railway ministry sources said.

There is stiff competition between railways and roadways and any further hike in freight rates would shift more business to roadways, the sources said.

Also any increase in upper class fares is likely to encourage passengers to graduate to air traffic in view of declining air tariffs, they said.

The question of hike in fares is, therefore, to be resolved in a 'last ditch' meeting between the railway minister, the prime minister, the finance minister and the deputy chairman of the Planning Commission, they said.

The question of fare hike apart, the next budget is likely to unveil a Rs 24,000 crore (Rs 240 billion) modernisation plan for the Railways to be spread over five years.

Budget 2005-06: Coverage