India Inc. has praised Indian Railways' passenger-centric budget that was unveiled Tuesday, calling it a mix of populism and pragmatism.

Union Railway Minister, Lalu Prasad, in his budget speech, included cuts in passenger fares and freight rates and ambitious plans to modernize the rail infrastructure.

With a view to offset the concerns on inflation, Lalu Prasad announced a reduction of 5 percent in freight rates for petrol and diesel while proposing a 14 percent cut in freight rates for fly ash.

The railway minister said that the railways will spend Rs.75,000 crore ($18.75 billion) over the next 7 years to build dedicated freight lines for iron ore and coal, and another Rs.2,50,000 crore ($62.5 billion) by 2013 to improve its use of technology, including global positioning systems and signaling.

Welcoming the 5 percent lowering of freight rates on petrol and diesel cargoes, industry chamber Confederation of Indian Industry (CII) said, This reduction will help offset to some extent the impact of the hike in fuel prices.

However, it is unlikely that oil companies will pass on the benefits to the consumers as the gain on account of 5 percent reduction in freight charges works out to a measly Rs.50 crore a year.

The forward-looking Railway Budget 2008 will create a win-win situation for all - the railways, the wagon manufacturers, heavy industries and the common man, CII said.

With the past experience of the railways, clearly demonstrating that pragmatic policies and aggressive planning can give substantial benefits to the railways, its consumers and the national economy, the industry expects a sustained proactive and still more ambitious approach from the railways towards growth, the industry body said.

According to industry chamber, Federation of Indian Chambers of Commerce and Industry's (FICCI) president, Rajeev Chandrasekhar, the announcement to cut rates by 5 percent is a good and strong anti-inflationary measure. Chandrasekhar also welcomed the railway minister's proposal for mobilizing Rs.1,00,000 crore ($25 billion) for improving the network through public-private partnership (PPP) mode, stating that this would generate opportunities for India's private sector.

The Railway Budget has attempted to address the transport requirement of an expanding Indian economy. The Minister has introduced several new procedures which will facilitate private sector participation in the Railways, particularly in design and development of new models of wagons, Chandrasekhar said, adding that the investment proposal of Rs.2,50,000 crore ($62.5 billion) for the next 7 years would help in augmenting railway capacity and managing the huge traffic that the growth of the Indian economy will generate.

Terming the budget as pragmatic, progressive and futuristic, Associated Chambers of Commerce and Industry of India's (ASSOCHAM) president Venugopal Dhoot said the measures taken by the Indian Railways, namely, reduction in train fares and granting travel concessions, would help it attract more traffic.

The budget will make Indian Railways one of the best world-class institutions. Commercial use of railways' land by Rail Development Authority to give a boost to railway revenue is another step that will prove to be an important landmark in the history of Indian Railways, Dhoot said.

He further said through the introduction of over 53 new trains, the Indian Railways would pose a tough competition for road and air traffic.

The chamber, however, said some freight relaxations should have also been extended to steel and cement industry as well.

According to the Federation of Indian Export Organizations (FIEO), the construction of the dedicated East-West freight corridor would pave the way for smoother and greater trade.

Construction of the East-West corridor with finalization of Ludhiana-Kolkata and Delhi-JNPT (Jawaharlal Nehru Port Trust) Corridors is expected to avoid congestion and increase efficiency in delivery, FIEO president Ganesh Kumar Gupta said.

However, some industry chambers were not too pleased with the budget.

There is need to ensure that the dedicated freight corridors are completed on time but proper milestones for achieving the targets on time are missing in the budget, PHD Chambers of Commerce and Industry of India (PHDCCI) said.

With a moderate slowdown in economic growth and inflation expected to rise further, especially in essential items and the recent petroleum price hike, it would have been prudent if freight tariff had been reduced across the board, it added.

The Railway Budget is all right. The railway minister has been kind in not increasing freight charges. But I hope the Indian Railways do not increase freight during the course of the year like last year, PTI quoted secretary general of Federation of Indian Mineral Industries (FIMI) R.K. Sharma as saying.

Sharma said Lalu Prasad's announcement on doubling of some railway lines would ease the movement of iron ore and urged the Indian Railways to improve availability of wagons as, in the past, rise in freight charges and shortage of wagons compounded their problems.

We would like to congratulate Shri Lalu Prasad Yadav for presenting the Railway Budget. The Budget promises a lot of action and it has many initiatives that can be taken forward. We would also like to congratulate the Minister for presenting a surplus budget of Rs.25,000 crore ($6.25 billion) and the use of Information Technology (IT) and also investment in infrastructure, said H.M. Nerurkar, Chief Operating Officer, Tata Steel.

According to Nerurkar, there has been no increase in the freight in comparison to last year and there has been no adverse effect compared to previous year. But we were expecting a reduction in freight for raw material and steel as the Indian freight rate is the highest in the world, he added.

Meanwhile, airlines have rejected the notion that cuts in train fares across the board would have a severe impact on their businesses.

The concessions announced in Railway Budget are a reflection of shifting market trends and consumers' preference towards air travel. The phenomenal 33 percent growth recorded by the Indian aviation sector in the last year has clearly led the decision makers in the Indian railway ministry to take a hard look at making rail fares more realistic to the common man, said Jeh Wadia, managing director, GoAir.

The Indian aviation market will continue to record escalating growth during the next few years. Thus, we foresee no impact on Indian low cost airlines of the various initiatives and concessions announced by the railway minister, Wadia said.

The Indian passenger has always followed a process of upgrading as he moves up the economic ladder as purchasing power with the individual goes up. This trend will continue even in the long-run as passengers traveling by Indian Railways will upgrade themselves to travel by air. This is primarily because Indian Railways cannot provide the time efficiency that air travel offers, he explained.

According to industry analysts, by slashing train fares, Lalu Prasad has intensified the price war between train and air travel, the discount widening the gap between fares of budget airlines and AC-2Tier to around 30-40 percent. It has also widened the gap between no-frills airline fares and AC-3Tier by close to 40-50 percent.

However, even after the price slash, AC First Class travel by train would be costlier than budget airlines by around 10-15 percent.

But, interestingly, it would be cheaper than economy class fares in any full service airline (Jet Airways, Kingfisher Airlines and Indian Airlines).

So, the market analysts predict that though any amount of discount in train fares cannot replace the time advantage that air travel offers, yet, Lalu Prasad's deft move might marginally impact short-haul sectors like Bangalore-Chennai or Mumbai-Pune on which road and rail travel are significantly less time-consuming compared to air, especially given the congestion at airports.

The market analysts also predict that in future, rise in prices of ATF (aviation turbine fuel or jet fuel) would force airlines to hike their fuel surcharge and make travel by train more compelling.