Regulation Railways

Published on April 6th, 2017

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Cabinet Clears Rate Regulator for Indian Railways

While one key segment of the logistics chain – ports and that too only 11 out of the 12 owned by the union government – is about to be freed from rate regulation when the Parliament passes the Major Ports Authorities Bill, another segment – the behemoth that is Indian Railways – will soon have a regulator to set passenger and cargo rates, a politically sensitive task, particularly on passenger fares, hitherto carried out by the railway ministers in the annual Rail Budget.

A separate Rail Budget was scrapped from 2017.

And, the cabinet led by prime minister Narendra Modi didn’t waste any time in approving a Rail Development Authority (RDA), an independent regulator to recommend passenger and freight fares and set service level benchmarks.

“Union Cabinet has approved a major policy reform in Railway sector. The RDA will be set up as an independent regulatory body in New Delhi,” an official statement said on Wednesday.

Despite the adverse market conditions, the Railways managed to carry 1107 million tonnes (MT) of cargo earning Rs 1.67 lakh crores in the year to March 2017, just managing to hold on to the last year’s performance of 1104 MT and Rs 1.63 lakh crores.

With the railway ministers playing up to the gallery by leaving the passenger fares untouched while hiking the freight rates year after year, the cross subsidization of passenger fares by freight led to diversion of cargo from rail to road.

Rail haulage of cargo containers, a segment which was privatized in 2007-08, was milked by the Railway ministry for raising revenue through repeated hikes in haulage charges.

Still, cargo containers have become the sunrise segment for Railways, now its fifth largest commodity.

Since, Suresh Prabhu took charge of the Railway Ministry a little less than three years ago, the Railways have not raised the haulage charges for the last two years. And, in April 2016, the Railways withdrew the port congestion surcharge to make the rates competitive.

With the Railways increasingly looking at private funds to modernize and upgrade facilities, an independent regulatory agency has become imperative to create a level playing field, industry sources said.

The RDA, approved by the Cabinet, will have a chairman along with three members with a fixed term of five years and it can engage experts from relevant areas. The chairman of the Authority can be from the private sector and will be selected by a committee chaired by the Cabinet Secretary, a Railway Ministry official said. The Authority will soon be set up through an executive order, the official added.

“It will act within parameters of Railway Act, 1989 and undertake the following broad functions: tariff determination, ensuring fair play and level playing field for stakeholder investment in Railways, setting efficiency and performance standards, dissemination of information,” the official statement added.

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.

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