Overhauling the railways

The regulatory body must usher in systemic change

The Union Cabinet gave its nod last week for the setting up of the Rail Development Authority (RDA), which will function as the regulator for Indian Railways. The RDA is expected to be up and running by August 1, and will be required to give its recommendations to the government across a whole host of policy decisions, especially in fixing tariffs. For a long time now, the railways have been struggling on almost all counts. For passengers, while the fares have not been hiked much, the quality of service has remained shoddy. On the other hand, the cross-subsidisation of passenger fares with higher freight has undermined the railways’ finances and their attractiveness as a transporter of goods. As things stand, the railways compare unfavourably with airlines for long-distance passenger travel and with road transport for shorter journeys.

The central problem has been the lack of political will to take hard decisions, such as timely and targeted tariff revisions. The railways have been in dire need of such an independent body that could, based on commercial principles, provide guidance on this. As the National Transport Development Policy Committee (NTDPC) noted in 2014, the centralisation of all functions in the Railway Board has proved detrimental to the organisation’s growth, particularly at a time when there is a need for massive investment in infrastructure. Instead of the culture of arbitrary decisions, an independent regulator is expected to identify sectors that can support higher tariffs and also produce greater volumes of traffic. Such interventions are critical if the trend of declining rates of growth in railway freight revenues and volumes is to be reversed.

The establishment of an independent regulator is thus a welcome move. The desirability of such an authority was first outlined in 2001 by an experts group under the chairmanship of Rakesh Mohan. The idea was iterated by several other committees till 2015. The move should be seen in consonance with the merger of the Railway Budget with the General Budget from this year onwards — another decision aimed at depoliticising the daily decision-making in the railways. Railway Minister Suresh Prabhu had promised the establishment of a regulator in the Railway Budget of 2015-16. But then the government lost its way, and a lot of time, in an effort to get legislative backing for the regulator instead of getting it off the ground by an executive order. The fact is that regulatory bodies have been set up through executive orders in the past. So this delay in setting up a railway regulator is all the more inexplicable as it has eventually been set up by an executive action.

There is, however, some comfort in the remit of the new body as its recommendations on tariff and fares are not binding on the railways, which will retain the freedom to set the fares it wants to charge. This will, hopefully, allow the railways to strike a balance between having expert guidance on technical issues – for instance, the RDA is likely to recommend tariffs based on the cost recovery principle and “what the traffic can bear” – as well as the freedom to take the final call given that it is the one that provides the service. However, simplistic decisions – for instance, merely increasing passenger fares without a pro rata improvement in other facilities and safety – will not be enough to spark a turnaround in the functioning of railways. The real reform in the railways will happen when the regulator ushers in competition among the different zones, and allows them and private players to run trains at a cost-plus formula.