Railway budget sets tone for austerity year

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India's railway network is the world's fourth-largest but it has suffered from years of low investment and political meddling. The result is a creaking system plagued by delays, overcrowding and slow freight delivery times that sap the competitiveness of Asia's third-largest economy.

But Prime Minister Manmohan Singh's government faced the challenge of raising revenues to modernise the network without alienating voters ahead of an election due by May 2014. More than 20 million Indians use the network every day, many of them poor people who see cheap rail travel as a right.

Railway Minister Pawan Kumar Bansal's budget defied speculation of a second round of hikes in basic passenger fares after a 21 percent increase in January. But there was a nearly 6 percent hike in freight traffic rates and additional charges on some passenger tickets, mostly for wealthier passengers.

His budget was delivered to parliament two days before Finance Minister P. Chidambaram unveils what is expected to be an austerity budget to cut India's bloated fiscal deficit, restore investor confidence and revive sagging economic growth.

"The main read-through to the Union budget is that government spending will likely rise at a slower pace and suppressed prices will be passed on to consumers, but only at a very gradual pace due to the risk of consumer backlash ahead of the elections," said Sonal Varma, an economist at Nomura.