Railways hikes fares across the board from midnight January 21

The economic slump is also making it tougher for Prime Minister Singh to fund flagship welfare programmes ahead of a national election due by mid-2014.

Railways Minister Pawan Kumar Bansal said the passenger fare increase will help generate 66 billion rupees ($1.2 billion) for the cash-strapped rail system, whose creaky service has become a drag on the economy.

The government tried to raise the fares, unchanged since2004, in March 2011 but protests from a key ally forced Singh to abandon the plan and drop his railways minister.

The refusal by successive ministers to raise passenger rail fares has strained the finances of the railways, sapping its capacity to lay new track, modernise services and improve safety.

A sleeper ticket from New Delhi to Mumbai, about 1,390 km(864 miles) away, can cost as little as about 400 rupees($7.27).

Bansal said the fare hike, which will be effective from Jan.21, was necessary. "Facilities and safety measures will improve with an increase in fares."

DIESEL PRICE HIKE

India's economic growth that once promised to hit double-digits is languishing below 6 percent for the past three quarters. One of Prime Minister Singh's key policy advisers, Montek Singh Ahluwalia last month said economic growth could get stuck at 5.0-5.5 percent if a policy logjam continues.

Singh has been pitching for a phased adjustment in domestic energy prices since last month to align them with global markets, warning that business-as-usual policies won't deliver higher growth.

India's policy to subsidise retail prices of fuels such as diesel, which account for about 40 percent of refined fuel consumption, to benefit the poor is a major drain on the exchequer.

These populist policies have swollen India's fiscal deficit,which funding through a heavy market borrowing has driven up borrowing costs for private investors and dimmed economic growth prospects.

Officials at the oil ministry said in Wednesday that the ministry has moved a proposal to the federal cabinet to increase diesel prices a rupee a litre every month. It has also suggested increasing the cap on subsidised cooking gas cylinders to nine from six and hiking prices by 100-110 rupees a cylinder. The fuel prices were last raised in September when a beleaguered government, under pressure from the credit rating agencies, launch some of its most daring initiatives that also included opening the retail and other sectors to foreign players.

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