Get the trains back on track

The just-approved rail regulator will need to begin with a vision that enables the Railways to achieve optimal results.

What was initially conceived to be mainly a tariff regulatory authority, enabling the Railways extricate itself from a skewed tariff structure, has now received a wider remit from the Centre. Bruised by a succession of political satraps and their self-serving agendas, Indian Railways has for long continued with ludicrously untenable passenger fares for lower class journeys. This has haemorrhaged its finances.

Worse, the cascading increases in freight charges, meant to offset the underpricing of passenger fares, has driven away much of its goods traffic.

Call for transparency Beginning with the Rakesh Mohan Committee 2001, a huge clamour ensued for an independent statutory body to help free IR’s tariff regime from politicians’ whims. The primary function of this authority, as envisaged, was to develop an integrated, transparent and dynamic pricing mechanism for the determination of railway tariffs “based on cost of operations and factors impinging on it”, and to “generate requisite surpluses for healthy growth in times ahead”.

In fact, the Railway Board in a January 27, 2014 resolution, proposed the setting up of an interim Rail Tariff Authority pending an amendment in the Railways Act.

Meanwhile there arose a demand that, for sustained and large-scale private sector participation in the railways, it was essential to rid it of a clear conflict of interest inherent in it being policymaker, regulator and operator.

In his Railway budget speech for 2015-16, Minister Suresh Prabhu pleaded for “a regulation mechanism independent of the service provider” for “orderly development of infrastructure services, enabling competition and protection of customer interests”.

Instead of “only a tariff regulator” in tune with the recommendation of the National Transport Development Policy Committee 2014, also reiterated by the Bibek Debroy panel 2015, he drew up a blueprint for the expanded mechanism “which will be entrusted with making regulations, setting performance standards and determining tariffs. It will also adjudicate on disputes among licensees/private partners and the ministry, subject to review in appeal”.

That being the genesis of the NDA-led Cabinet decision on April 5 for formation of the Rail Development Authority of India (RDA), it signifies a radical rethink on improving the country’s transportation architecture, as it comes close on the heels of the Government merging the railway budget with the Union budget on February 1, 2017.

Expectation of change The RDA is expected to change IR’s landscape: it will help IR to take decisions on pricing of services commensurate with costs, protect consumer interests, suggest measures for enhancement of non-fare revenues, promote competition, create a positive environment for investment, promote efficient resource allocation, besides suggesting measures for absorption of new technologies.

Besides fixing fares and freight charges, the authority, an independent and quasi-judicial body, would thus be responsible for ensuring quality of service, encouraging market development, protecting the interests of consumers, providing non-discriminatory open access to infrastructure, and benchmark service levels to ensure quality and reliability of service.

Set up as an independent body to be formed through an executive order of the Government and be subsequently strengthened by legislation, the RDA with an initial corpus of ₹50 crore will have a five-year term and will be empowered to engage experts.

The Centre will appoint the chairman and three members from a panel of names recommended by a search and selection committee chaired by the cabinet secretary, the other members being the chairman of the railway board, secretary in the department of personnel and training, and the chairman of another central regulatory body nominated by the cabinet secretary.

The RDA is expected to enable the sector to move towards market-determined tariffs, full recovery of costs and reduction of cross-subsidies.

The flawed and anomalous fare and freight structure has brought about serious distortions in the country’s transport domain.

While IR suffers huge losses (over ₹30,000 crore annually) in its passenger business, it has allowed competing modes to wean away large volumes of freight in bulk as well as non-bulk segments, causing much damage to the economy and environment.

The RDA’s recommendatory role with regard to tariffs has elicited apprehensions that political considerations may still prevail over attempts to rationalise rail tariffs. Although its role is only advisory, the process is expected to free the railways from politicisation of its businesses. “In cases where the Government does not accept the suggested tariffs, IR would need to be compensated either through allocations in budgetary support or other mechanisms,” explained a senior official.

Some recommendations Although the RDA’s role in fixing tariffs will be advisory in nature, its orders with respect to performance standards and penalties will be mandatory. Its observations regarding policies for private investment should help ensure reasonable safeguards to PPP investors and resolve disputes over concession agreements. Along with the regulatory authority as an essential corollary, NTDPC favoured IR’s management and operations to be carried out by a corporatised entity, the Indian Railways Corporation as a statutory body retaining many of its quasi-governmental powers derived from the IR Act 1989.

Simultaneously, it recommended the corporatisation of IR’s equipment production units, advocating that each of the production units be set up as a corporate subsidiary of a holding company that would oversee all the production units. The committee desired that IR be re-organised in terms of business lines such as infrastructure management, freight transportation, passenger business, parcel and miscellaneous activities — all organised as separate profit centres. How the future unfolds in terms of these structural changes will shape IR’s destiny in the days to come.

Prima facie , the new regulatory institution as envisaged must flag the imperative need for the Government to ensure that the authority eschews any temptation of an over-reach and does not become another power centre inimical to optimal performance and development of the railways .

A great national asset with the remarkable track record of having delivered nation’s goods in war and peace, its lifeline, and kingpin of the economy, IR needs to be put back on the right track.

The writer was formerly CMD of Concor