Under fire, government backs off rail fare increases

Commuters try to get onto an overcrowded train on a railway platform during the morning rush hour in Mumbai March 14, 2012.

NEW DELHI (Reuters) - The struggling government caved in to pressure over the first increase in rail fares for eight years on Thursday, announcing a sweeping rollback just days after a coalition ally forced the resignation of the railways minister.

New Railways Minister Mukul Roy told parliament that fares for first and second class passengers in air-conditioned carriages would still go up, but there would be no increases for other classes of travel more commonly used by the poor on a network that carries 20 million people per day.

"The proposal to increase will impact the common man," Roy said. "I intend to give relief by not increasing fares in any of these classes."

The planned rise in passenger fares, the first in eight years, was aimed at shoring up the finances of a rail network whose dysfunction has become a major drag on the economy.

The objection to the increase, led by a partner in Prime Minister Manmohan Singh's shaky ruling coalition, underscored the inability of his government to take unpopular steps and its vulnerability in the face of querulous allies.

The same coalition partner, the Trinamool Congress Party of firebrand leader Mamata Banerjee, forced the government into a U-turn on plans to allow global supermarket chains into India, thwarting one of the few economic reforms that the Singh government has proposed since it came to power in 2004.

A Railways Ministry official said the bulk of the proposed fare increases, which would have brought additional revenue of about 40 billion rupees a year, had been withdrawn.

"We are now likely to get only around two billion rupees from the remaining hike in fares in upper categories," said the official, who asked not to be identified because of the sensitivity of the issue.

"This is yet another example of how a government ally had its way on a key government decision," said D.H. Pai Panandiker, head of the RPG Foundation, a Delhi-based think tank. "This government will need to find new allies, else it can't go on."

"This episode proves that anything that goes against the common man will be resisted. That means there will be no petrol price hike, no diesel price hike - meaning the budget will be in a complete mess."

(Reporting by Rajesh Kumar Singh and Manoj Kumar; Writing by John Chalmers; Editing by Robert Birsel)