Green light on tariffs

Updated on: Oct 09, 2012

An independent Railway Tariff Regulatory Authority would employ commercial, not political, logic for setting passenger and freight charges.

With the Trinamool Congress no longer part of the ruling United Progressive Alliance, the proposal for constituting an independent Railway Tariff Regulatory Authority to decide on passenger fares and freight charges has acquired fresh momentum. The idea was actually mooted by a Trinamool Minister, Dinesh Trivedi, in his Rail Budget speech for 2012-13. But following Trivedi’s removal — at the instance of his party supremo and West Bengal Chief Minister Mamata Banerjee — the replacement Trinamool nominee Mukul Roy rolled back the proposal along with the hike in non-AC fares that were envisaged in the original Budget. The Trinamool’s pull-out from the Government has now opened up possibilities for a revision in fares in the immediate context as well as setting up a tariff regulator for the long haul.

Both these are much-needed, given the precarious financial position of the Indian Railways (IR) today. The rollback of Trivedi’s fare hike announcements – the first by any Rail Minister in ten years – cost the national transporter around Rs 4,300 crore in revenues foregone. On top of it, the recent diesel price hike would place an extra fuel burden of Rs 600 crore for the remaining part of this fiscal alone. All this for an organisation, whose accumulated surpluses for funding various capital expenditure and asset-replacement works have depleted from Rs 17,500 crore to hardly Rs 65 crore between 2007-08 and 2011-12. At the current rate, the IR would be barely able to meet operational expenditures, let alone invest in new lines, rolling stock or signaling systems. If that is to be avoided, the only alternative is tariff rationalisation, which – given the repeated recourse to freight hikes that have eroded the natural cost advantage of moving goods by rail over road – has to take the form of an immediate increase in passenger fares.

As regards having an independent tariff regulator, the need for it is self-evident on two counts. The first is that as long as the IR remains a monopoly operator – similar to power utilities licensed to serve a particular area – there is no question of giving it full freedom to fix tariffs. But that doesn’t mean entrusting that job to ministers and party bosses, which constitutes the second reason for creating an authority insulated from political pressures. This body would suggest fares and freight charges based on sound commercial principles such as allowing for automatic adjustments for fuel price increases, while also making it obligatory on the operator to undertake cost reductions through improved energy efficiency, lower wagon turnaround time, optimal manpower deployment, etc. The regulator should ideally have statutory status, so that its recommendations are binding on the Government; the latter can choose not to implement the same, only if the financial burden in this case is directly assumed by the exchequer. This is no different from the formula applicable in electricity distribution.

Published on October 09, 2012

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