Private players in passenger transport may hit state bodies

FM in Budget said the govt would open up passenger segment of road transport to private sector; state bodies say the move may impact business of STUs

In his Budget speech on Monday, Finance Minister Arun Jaitley said the government would open up the passenger segment of road transport to the private sector. While private players welcomed the proposed move, the Association of State Road Transport Undertakings (ASRTU) said the move could impact the business of state transport undertakings (STUs).

Currently, states issue permits to private bus operators to run only on specific routes. Once an amendment to the Motor Vehicles Act is done, operators would not be bound by such restrictions.

"Passenger traffic on our roads has to be made more efficient for the benefit of the common man and the middle class. This is a totally unreformed sector, which suffers from several impediments. Abolition of permit-raj will be our medium-term goal. The government will enact necessary amendments in the Motor Vehicles Act and open up the road transport sector in the passenger segment," Jaitley had said.

The minister added an 'enabling ecosystem' would be provided for the states, which would have the choice of adopting the new legal framework. This means, entrepreneurs would be able to operate buses on various routes, subject to certain efficiency and safety norms.

"The major benefits of this game-changing initiative will be the provision of more efficient public transport facilities, greater public convenience, new investment in this moribund sector, creation of new jobs for our youth, growth of start-up entrepreneurs and other multiplier effects. These measures will take us faster down the road to development."

Abhishek Pathak, managing director of MP Group, a Pune-based transport service provider, said: "This is an exciting move by the government to allocate public transportation to the private players. It will see the rise of many entrepreneurs and operators. For the public they can expect a better service and regularity due to several players in the market."

The firm manages a fleet of 200 self-owned buses for staff transportation across Pune and Mumbai.

Pathak, however, added it needed to be seen how the government would regulate the bus operations with the uprising of a large number of non-professional operators.

Echoing similar sentiments, Bhavish Aggarwal, co-founder and CEO of Ola, said: "It was quite encouraging to see the FM also address some key road transportation issues and set aside a requisite budget for infrastructure development. Creating inroads for entrepreneurship in the public transportation space and amendments in the Motor Vehicles Act to allow for innovations will provide a strong impetus towards enabling mobility for citizens."

A senior ASRTU official told Business Standard: "STUs have in the past been hiring fleet from private operators on contract basis for specific routes. However, the government should take into consideration the interest of STUs before implementing the new policy."

For most STUs, it would be a question of their survival given their poor financial health. STUs suffered a combined loss of Rs 7,395 crore in 2012-13. In 2012-13, none of the state road transport undertakings out of the total 55 made profit. Currently, the total fleet size of all STUs is around 148,000 buses. These carry about 70 million passengers a day.

Experts say the major reason why the STUs are in such a bad shape is that these don't have resources for capital investment for increasing fleet size, modernising workshop, deploying information technology in operations, etc. As a result, operating costs remain high.

Madhya Pradesh, Chhattisgarh and Jharkhand have already wound up their transport corporations because of financial stress.