Carry On Trucking

The government is reportedly planning amendments to the Carriers Act of 1865. A broad-based committee has submitted its recommendations, which will be reflected in draft amendments, to be routed through the law ministry to the cabinet. The thrust of the proposed changes seems to be the creation of an organised transport sector, by barring the entry of small players through amendments to the Carriers Act. This is bad law and bad economics. It is bad law because it can be held to be violative of Article 14 of the Constitution. Since 95 per cent of the industry is dominated by small transporters with one or two trucks, there is a problem of service quality delivered to consumers. But the key to solving this is recognition that freight aggregators provide the crucial informational link between truckers and customers. Given the imperfect information with players, direct contractual relationships between truckers and consumers are rare and relatively unimportant. (Some of the large truck companies are in fact aggregators who have diversified.) To the extent that contractual relationships need improvement, the issue is dealings between aggregators and customers. Admittedly, there are problems with the quality of trucks (absence of multi-axle trucks) and over-loading. But these are also symptoms of poor quality of roads (they have weak culverts) and the Carriers Act cannot solve such problems.

 

More pertinent is the proposed changes in compulsory declaration. At present, the Carriers Act has a schedule (changes to the schedule are made by state governments) and unless the customer declares a higher value, the maximum liability for goods listed in the schedule is Rs 100. This clause is clearly outdated. For instance, the first item in the schedule continues to be gold and silver coin. The committee has proposed a compulsory declaration of value by customers. This is welcome and lobbying by the All India Motor Transport Congress (AIMTC) for a cap on this liability needs to be resisted. Reports are unclear about whether the committee has considered the present exemption to "government" from the purview of the Carriers Act. This is dysfunctional and needs scrapping and there is also need for reconciliation with the Railways Act, which also permits such exemption, unless caused by negligence or criminal acts.

The preferred model is one where customers obtain a gamut of services under one roof, including insurance. However, the market is capable of taking care of this, without government intervention. A model with a large number of small truckers and a large number of small customers, intermediated through a small number of large aggregators (with regulatory structures if necessary), is a feasible one. If state-induced policy distortions are removed, this will automatically happen. Insurance is a case in point. The AIMTC has used instances of fraud connected with insurance as an argument for caps on liability. However, insurance fraud is not limited to truckers and is related much more to the present state monopoly on insurance. Exclusion of small truckers reflects a licensing mindset that is best junked.