New Delhi: While the centre and some state governments have cut taxes on diesel, there was a decline in the movement of freight in November because of slower industrial activity.
“The quantum of freight moved was flat to negative on-month after the pre-festive buzz in October,” research and ratings agency CRISIL said in a report.
It added freight rates for haulage of essentials such as FMCG and FMCD have remained relatively resilient in November but, after the festive stock-up, freight rates for discretionary goods such as auto carriers and textiles are seeing more pressure.
Freight rates in the mining, cement and steel sectors have also seen some correction as infrastructure-building activity was subdued month-on-month but this correction is not significantly more than the fall in diesel price in the case of cement.
The central government announced a Rs 10 per litre reduction in the central excise duty applicable on diesel in the first week of November. A few states followed suit by announcing additional cuts in state taxes or Value Added Tax (VAT) on diesel.
While this may seem to augur well for the profitability of transporters, demand and supply factors also play a material role in freight rates because the freight industry is very dynamic and competitive.
The excise duty cut translates to a 3-5 per cent reduction in the cost structure of a transporter. Add the cropping of VAT rates by a few states, and the reduction would be 4-6 per cent.
Discretionary goods such as automobiles and textiles are seeing the highest correction in freight rates — about 10 per cent — because dispatches have been under pressure. However, mining products like coal, iron ore, and limestone, apart from cement and steel are seeing a slight moderation in freight rates relative to the diesel price cut.
