What Mamata Banerjee disposed off, Pranab Mukherjee has proposed in his budget proposal for 2010-11. Reportedly, that has left the Railway Minister fuming. The Union Finance Minister merely stated that the “exemption from service tax on ‘service provided in relation to transport of goods by rail’ is being withdrawn. The levy will come into effect from 1. 4. 2010.”

The implication clearly is that rail freight was brought under the service tax net. Of course, the Finance Minister exempted essential commodities like food grains and pulses, fruits, vegetables, eggs and milk from its scope. This decision was a double blow for the railways as diesel prices are also set to rise.

But the fact remains that Ms. Banerjee did not raise the freight rates in the Wednesday’s budget. She announced a token reduction in freight charges of essential commodities, including fertiliser, by Rs. 100 per wagon. Mr. Mukherjee’s proposal levies service charge even on fertiliser, on which Ms. Banerjee offered a small subsidy.

The Railways are working out the implication — the amount that it will have to give to the Central pool — that too when its own finances are dwindling. A shortfall is expected this year. The outgo could be in the region of Rs. 4000-5000 crore depending upon the revenue it earns from the freight of coal, iron, cement and fertiliser. It will only mean that the Railways will have to hike freight charges to pass the burden on to its clients.

The Railway Ministry fearing a loss of business and a further dip in its revenue, according to sources, has decided to write to Prime Minister Manmohan Singh, to revoke the decision.