India will raise railway passenger fares for the first time in nine years, snapping a populist trend in order to help mend the finances of a network whose creaky service has become a drag on the economy.

Railways Minister Pawan Kumar Bansal said on Wednesday the fare increase, which comes into effect on January 21, will help generate 66 billion rupees ($1.2 billion) for the cash-strapped system.

The government tried to raise the fares, unchanged since 2004, in March 2011 but protests from a key ally forced Prime Minister Manomohan Singh to abandon the plan and drop his railways minister.

The fare increase ahead of the railway budget release in February signals Singh's intent to push ahead with politically unpalatable but vital reforms to revive an economy that is on track to post its worst growth rate in a decade.

Many Indians still see the railways as a service for the "aam aadmi", or common man, ferrying often-poor migrants left largely on the outside of two decades of surging growth that has seen millions buy cars or travel by air for the first time.

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

Bansal said the fare hike was necessary.

"Facilities and safety measures will improve with an increase in fares," he told reporters.

He also said the rail budget in February would not propose a further hike in fares.

A sleeper ticket from New Delhi to Mumbai, about 1,390 km away, can cost as little as about 400 rupees ($7.25).

Clogged freight lines, slow delivery times and overcrowded ports have dented many companies' competitiveness and slowed the pace at which crucial commodities such as coal are transported, aggravating India's power shortages.

India's economic growth has been stuck below 6 per cent for the past three quarters, hurt by a combination of weak investment and consumer demand.

The slump has buffeted government finances and put the country's sovereign credit rating in peril. It is also making it tougher for Singh to fund flagship welfare programmes ahead of a national election due by mid-2014.

A fast-worsening economy forced the government in September to launch some of its most daring initiatives, such as raising subsidised diesel prices and opening the retail and other sectors to foreign players.

Signalling his intent to stay on the reform path, Singh last month warned that business-as-usual policies won't deliver higher growth. - Reuters