Railway Minister Pawan Bansal on Wednesday announced hike in rail fares on Wednesday, which will be effective from Jan. 21, 2012. Sleeper class fare hiked by 6 paise per km while AC 1st and 3-Tier class fared raised to 10 paise per km. While ordinary non-suburban fare raised to 3 paise per km. Ordinary suburban fare hiked to 2 paise per km.

Commenting on the fare hike, Sonal Varma, economist, Nomura Financial Advisory and Securities said, "We see recent developments as an important signal from the government that consumers need to pay up. Over the past few years, consumers have remained immune from rising inflation as prices (of fuel, railway fares, fertilizer, electricity) have been kept artificially suppressed.

This kept inflation suppressed, fuelled consumption, and led to an unbalanced economy, with the burden of these imbalances falling on private investment. In this context, we see the recent move to hike passenger fares and discussion of higher diesel prices as a medium-term positive as it should help narrow the consumption-investment gap. Although in the short run, these measures will lead to high inflation (release of suppressed inflation), they should over time help ease some of the demand price pressures in the economy."

While Tirthankar Patnaik, Religare said, "We believe this is a step in the right direction and would provide some relief to railway finances. Moreover, it indicates the government's continued focus on fiscally prudent reforms, making the case for monetary easing stronger."

"The bold decision by Railway Minister to hike passenger rates by nearly 25% is a solid reform measure. The measure though has low revenue implication, but foretells the tough measures the Centre wants to implement to set right the fiscal deficit situation, which the rating agencies have warned to downgrade the sovereign ratings," Networth Stock Broking said.

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