The decision would push up freight rates by about Rs 100-200 per tonne depending on the distance. “The new rates would be levied from the next week,” an official in the Rail Bhawan said.

In June this year, the Railways had shifted iron ore from class 180 to 170 to reduce the price of the commodity by 4-5%. The decision was taken to soothe the inflationary pressure.

The move comes at a time when the country is having a high inflation rate. An official in the Rail Bhawan, however, justified the action; “We have observed that the railway freight classification in respect of both iron ore for domestic consumption and exports should be at par.”

While the Railways decision is based on global fall in metal and mineral prices, domestic iron prices continue to remain high. Steel companies and mining firms have still not been able to reach to a consensus over the pricing of iron ore.

“Higher freight may put further pressure on steel companies who have suppressed their margins by reducing steel prices even as input prices (iron ore and coking coal) are quite high,” an official in a steel company said. Iron ore is the predominant raw material used in the production of steel.

The price of the ore comprises between 30% to 45% (depending on the kind of iron and steel) of the total price of steel. Currently, the price of steel is around $750-900 per tonne in the global market.

Although the inflation numbers are coming down, experts feel that the decision to increase freight of iron ore is not conducive in the current economic scenario when inflation is still around 12%.

The government has been fighting inflation due to rise in prices of various raw materials, iron ore being one of them. The Railways transported 53.59 million tonne of iron ore for exports in 2007-08.