The Hindu Business Line : For whom does the Government toll?

Marxist economics has a basic principle, that “prices are formed in the commodity markets”. Since Marxists don’t regard services as being of any real value, they don’t have a theory about where prices are ‘formed’ for services. Nor, it would seem, does the Road Transport and Highways Ministry.

It has been tying up itself into all kinds of knots over toll rates. The latest confection has been served up at the Allahabad bypass on the National Highways network.

Heavy price

If the new toll policy is implemented there, heavy vehicles will have to pay at least Rs 8/km for the 90 km stretch. Car users will have to shell out Rs 185, buses up to Rs 555 and heavy vehicles about Rs 1,100, according to the local district administration estimates.

Stunned, the new Highways Minister, Mr Kamal Nath, is reviewing the policy, which was finalised about a year ago after nearly three years of detailed, high-level, inter-Ministerial discussion. India is thus back to square one: it has no clue as to how much to charge by way of toll. But as William Shakespeare might have said, the fault, dear Minister, lies in our intentions, not our policies.

The policymakers, in their zeal to ensure the maximum return on investment for the concessionaires, linked the toll rates to cost of construction of structures.

This was a departure from the earlier practice of charging 40 per cent of the savings in vehicle operating cost resulting from a highway as toll. In the process, they forgot all about the users.

In any highway that is tolled, there are either two or three key stakeholders — Government and users in government-funded projects; and Government, concessionaires, and road users in build-operate-transfer projects. While deciding the toll rates, a delicate balance between these stakeholders has to be struck to maximise the welfare of all the three.

Luxury or necessity?

A basic question in this context is whether India should treat highways as a luxury or a necessity? In spite of almost 60 years of economic analysis, no one has come up with a sensible answer.

Many developed countries like France, for instance, treat highways as a necessity and charge tolls only for “expressways/superhighways”.

Expressways are divided highways with controlled access and no intersections, thus allowing higher speeds. In effect, for driving down between two points, users have an option — to use a highway with no tolls (and lower traffic speeds); or an alternative route or expressway which is tolled (with higher speeds).

In India, until 1997, only standalone bridges on national highways were tolled. The Central Government then came up with a toll policy in 1996 based on a detailed Road User Cost Study (RUCS) by the Central Road Research Institute.

RUCS had estimated the savings in vehicle operating cost (VOC) due to wider roads. The study tracked savings on account of fuel, depreciation, tyres, lubricants, spare parts and time.

The Cabinet decided to charge 40 per cent of the savings in vehicle operating cost as toll. This continued till late 2008 when the new toll policy was notified. The new policy allows a directly proportional linkage between the cost of construction of the structure (bridge, bypass or tunnels) and the toll rate. The earlier toll norms had no such distinction.

Traffic estimation

The real problem is of estimating future traffic flows correctly. Many BOT concessionaires see significant variations in actual toll earnings compared to the projections. As can be seen from the examples given below, the very nature of predicting traffic over a 10-15 year period is extremely difficult because there are all kinds of externalities that affect the traffic flow.

For instance, the traffic on national highways connecting Paradeep port saw extremely high traffic for few years in the run up to the Olympics in China because there was a sudden surge in iron ore exports to China. That traffic would be unsustainable over a 10-15 year period.

The concessionaire of a stretch in Ambala-Chandigarh route apparently undertook the traffic study at the peak of the apple-plucking season in Himachal Pradesh. That traffic cannot be sustained round-the-year. Highways that connect ports get impacted by export-import policies of the country — which are difficult to predict over a long duration. Similarly, a Delhi-Agra or Delhi-Jaipur highway gets maximum traffic during the weekends or holidays. Also, there could be highways leading to religious destinations which see a surge in traffic during festive season.

Possible solutions

So what should be done? There are no clear answers.

Central to the issue is the notion that roads and highways which ought to be treated as public goods and therefore funded by the State are being treated as private goods and for which funding by private investors is being sought. This is a faulty approach and unless it is given up, we will remain stuck in the jam.

In no country has the private sector built more than 5 per cent of the total network. Usually, the figure is lower at around 2 per cent. But in India, because the Government wants to use taxpayers money to buy votes through subsidies and doles instead of using it to build infrastructure, the private sector is being asked to step in.

But it not only needs a high return, it also wants a risk-free investment. In short, the Government will use our money to win votes, and the private sector will take our money to make profits — through prices determined by the Government.

Nice. Very nice.

More Stories on : Policy | Taxation | Roadways | T.C.A. Srinivasa-Raghavan

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