The railways sought to correct the long running distortion in the fare structure by hiking passenger fares by 14.2 per cent across all classes and freight charges by 6.5 per cent. The increase takes effect immediately.

The previous government had decided to hike fares from May 20, but its implementation was stayed because the announcement was made on the same day as declaration of election results.

However, the speed with which this government took the decision caught senior railways officials by surprise because just a day earlier, Railway Minister Sadananda Gowda had told them that some rounds of consultations were still pending.

Senior officials said the hike in passenger fares will help pare down the diversion of profits from the freight to passenger segment. Successive Governments have shied away from biting the bullet on passenger fares because of fears of public dissatisfaction.

As a result, passenger hikes in previous years, especially in the more patronised second class and suburban travel, were either rolled back or of amounts that were lower than planned. The railways moves about 600 crore passengers every year.

While Opposition parties opposed the hike, senior officials said this will partially restore railways financial health in both mid and long terms. For now, it will leave an adequate amount to modernise existing infrastructure and build new one. In the long term it will help stave off the financial predicament faced by the country's largest single employer when the Sixth Pay Commission was announced.