By Dr Rahul Chakraborty and Shri Prakash
Indian Railways over the years has lost its share in freight transport from over 70 per cent in early eighties to about 30 per cent currently. This gradual decline also coincided with railway’s stated policy to concentrate mainly in bulk transport, capacity constraints particularly on important freight routes, and higher freight tariff needed for cross-subsidizing passenger losses. The monopoly advantage once Railways enjoyed in freight transportation has eroded with betterment of road infrastructure, terminal delays along with additional costs for first and last mile connections necessitated by nature of rail transport. These have made rail uncompetitive vis-à-vis its biggest competitor, road.
Railway Board was constituted under the Indian Railway Board Act, 1905 and subsequently all central government powers were delegated to Railway Board. At that time, it was considered mostly as a regulator, whereas, the executive and operational powers were entrusted to the government and private railways. After independence, all the government and private railways were regrouped as zonal railways, and Railway Board doubling up as a Ministry of the Central Government started working as the sole owner, operator, and regulator of railways, with its separate budget (which was merged with the general budget from 2017-18). A government regulated tariff structure thus emerged, gradually got alienated from the market dynamics unlike the principal competitor road sector, operating under competitive market structure.
Although the Indian Railways Act does not explicitly bar private sector participation in rail transport, the current industrial policy permits private investment including FDI in specific areas like construction, operation, and maintenance of- suburban corridors; high speed trains; dedicated freight lines; rolling-stocks; electrification; signalling; terminals; mass rapid transit; etc. However, the private investment has not been coming up in railways due to the legacy of the unique monopoly power enjoyed by Railway Board in operation, administration, and regulation of the railways. For instance, container operation was liberalized in 2006 but has been marred by the allegations of preferential treatment towards CONCOR (the sole custodian of container operation since 1989 till 2006) by Railways in access to its infrastructure.
In the recent past, Railways has attempted to attract private players through different schemes like wagon investment scheme, liberalization of container policy, automobile freight train operator scheme, etc., but most of these have failed to generate sufficient business for Railways. Major impediment has been the lack of trust between private sector and Railways, due to the absence of an independent regulator, resonating in issues such as- delayed and vague guidelines, tedious working procedures, absence of level-playing field, etc.
In past, several high-level committees like the Rakesh Mohan Committee (2002), Sam Pitroda Committee (2012), Bibek Debroy Committee (2015) suggested separation of regulatory power from Railway Board and setting up an independent rail regulator. The National Transport Development Policy Committee (2014) also suggested clear separation of different functions-the policy-making being under the domain of government, regulation by a regulatory authority, and operation by single or multiple corporate entities. However, till date despite the approval from cabinet to set up of a Rail Tariff Authority (RTA) in 2014 and a Rail Development Authority (RDA) in 2017, neither of these has been established.
A regulator is envisioned to disburse the following roles- ensure quality of service; rationalize operation (costs, revenue); protect interests of all stakeholders; ensure survival of the industry; efficient settlement of disputes; increase transparency; and foster competition. An independent regulator is paramount to foster competitive environment when a sector involves private players, ensuring a level-playing field. Under the Indian governance structure, a regulator can be either ‘independent’ or ‘attached office’ to a ministry or department of the government.
As an attached office with dedicated staff and more granular decision-making, a regulator can significantly aid Railway Board in informed decision-making. However, with movement of newer types and greater volume of goods in future, as envisioned by the National Rail Plan, an independent regulator is imperative for PPP development and attracting private capital. When the executive has regulatory role, the rules of operation may be influenced by political factors and may have negative impact on market confidence, and an independent regulator can leverage upon its statutory ‘independence’. In the context of international railway systems, a major independent regulator is the Office of Rail and Road (ORR) overseeing primarily the railways in the UK. ORR regulates rail activities, access to rail network, licensing railway assets to the operators, and funding requirements. It has improved the efficiency of the railways in the UK considerably. Similarly, within the European Union, Italy, Spain, and Switzerland have independent regulators (controlled by parliament) for railways.
An independent statutory regulator overseeing operation of Railways, through market research (for costing and demand management) and periodic impact-evaluation of its regulatory actions, can bring transparency. Particularly, for reversal of the declining trend of rail share in freight transport; an independent regulator for freight tariff determination is a sine qua non. Towards this, short-term step can be establishing a tariff regulator working as an attached office to Ministry of Railways (also in line with the past decisions on yet to be established RTA or RDA), and in long-run a gradual shift towards a statutory independent authority.
Dr Rahul Chakraborty is Associate Fellow, TERI; and Shri Prakash, Distinguished Fellow, TERI and former Member (Traffic) at Railway Board
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