The Union government has come out with a concept paper proposing to set up a rail regulator for fixing fares and ensuring level-playing field for private investments in railway infrastructure.
To ensure that the proposed regulator, Rail Development Authority of India, doesn’t meet Parliamentary hurdles, the Railways Ministry initially plans to set it up through an executive order and later on widen its powers. The proposal to set up a rail authority was announced by Rail Minister Suresh Prabhu while tabling the Rail Budget for 2015-16 last year.
The proposed rail authority will be mandated to set passenger and freight tariff, ensure fair play and level-playing field for private investments in Railways, maintain efficiency and performance standards, disseminate information such as statistics and forecasts related to the sector.
Notably, in case, the government doesn’t accept the tariff suggested by the regulator, “the Indian Railways would need to be compensated appropriately perhaps through increased allocations in the gross budgetary support.”
“The Rail Development Authority would be an independent body, housed outside the Ministry of Railways but funded through the annual railway budget sanctioned by the Parliament. The approved Budget would be placed at the disposal of the regulatory authority. It would also be permitted to arrange funds through adjudication fees, penalties levied and any other source as specified in the proposed Act,” according to the concept paper uploaded on Ministry of Railways’ website to elicit public comments.
The proposal for setting up a regulator comes at a time when the estimated losses in passenger segment has ballooned from Rs 6159 crore in 2004-05 to provisional estimate of over Rs 30,000 crore in 2015-16, primarily due to sharp increases in input costs and no proportionate increase in fares over the same period.
The previous United Progressive Alliance (UPA) government had proposed to set up only a tariff regulator. However, the present government has widened its scope to other areas in order to usher in private sector investments in the sector. At present, the tariff is set by the Union government. Earlier, the revised tariff was usually announced by the Union Rail Minister in Parliament but this practice was discontinued after protests by the Members of Parliament over any proposal to hike tariff.
Recently, the government had increased tatkal booking charges by up to 33 per cent for travel in sleeper class, AC-III tier, AC-II tier and executive class through an executive order.
Keeping fares within affordable limits has led to cross-subsidisation of passenger services leading to erosion of railway’s market share in freight. The total share of railways in the total transportation of freight traffic has declined from 89 per cent in 1950-51 to 36 per cent in 2007-08.
The authority will set tariff based on cost recovery principle and “what the traffic can bear.” All the direct and indirect costs such as pension liabilities, debt servicing, replacements and renewals along with productivity parameters, market-driven demand and supply forces and future investments will be considered by the regulator before setting tariffs.
Another mandate of the authority is to ensure level playing field for investors and it will be authorised to penalise cartelisation, abuse of dominance and other unfair market mechanisms.
The full potential of the railway sector has not been tapped as “investors have generally been shy of investing in an industry where far too much is still being done or controlled by government and the risk or return trade-off is not always favourable.”
An appellate body is also proposed to be formed and the role, structure and composition of the body will be similar to regulators set up by the government in telecom and electricity sectors.