The fall in iron ore freight traffic in October and November this year by 70 per cent is likely to punch a huge hole in the cash surplus target of Indian Railways for the current financial year. 

The railways had projected a Rs 30,000 crore cash surplus before dividend for the current fiscal. But now they are looking at a surplus of Rs 20,000 crore.

 "Until October, we were confident of meeting the target. However, in the last two months, the iron ore meant for exports carried by the railways has witnessed a sharp fall of 70 per cent. This may affect our cash surplus target. Therefore, we expect our cash surplus to come down to around Rs 20,000 crore by March 2008," said a senior railway ministry official. 

In the last four years, the railways have reported a cash surplus of around Rs 24,000 crore annually, of which profit from iron ore stood in the range of Rs 8,000 crore to Rs 10,000 crore. During October 2008, the total freight carried by the railways witnessed a decline of 0.14 per cent, compared to last year. While iron ore constitutes 5 per cent of the total freight traffic of the railways, the margins for carrying iron ore are very high.

Railway freight traffic predominantly constitutes commodities like coal, iron ore, cement, fertilisers, petroleum oil and lubricants (POL), pig iron and food grains. "Other than food grains and fertilisers, the demand for commodities is cyclical in nature. So any kind of macro-economic downturn is bound to impact us," the official added. 

Apart from the slowdown in commodity traffic, the implementation of the Sixth Pay Commission recommendations has also put an additional burden of Rs 1,700 crore on the railways, against their budgetary estimates. The railways had made an ad hoc provision of nearly Rs 5,000 crore for the pay panel recommendations.

 Facing a tough task ahead, the railways last week increased the freight rates for key commodities, including cement and coal by up to 8 per cent. 

"The recommendations of the Sixth Pay Commission and the overall economic slowdown have impacted our revenue projections. Therefore, we are in the process of balancing our earning target," said a senior Railway Board member, justifying the increase in freight rates.