Rail Development Authority takes Shape, albeit with less Teeth

Railways comes out with concept paper on Rail Development Authority (RDA) according to which the proposed body will be an independent and quasi-judicial one with four key functions… The Concept Note on the proposed regulator for the Railway sector drafted with key roles on determining tariff, setting efficiency and performance standards and ensuring a level playing field to attract private investment. The concept note specifically stated that the regulator would not be involved in policy making and financial expenditure management.

New Delhi: A year after it was approved by Cabinet, the proposal for an independent authority for India’s rail sector got a boost in a new avatar on Monday, albeit with somewhat less teeth in terms of fixing tariffs.

The government today released a concept paper for the proposed Rail Development Authority of India, which may be set up as early as this year through an executive fiat and later empowered by a bill.

Earlier named Rail Tariff Authority, the newly proposed ‘Rail Development Authority’, will not be able to compel the Railways to revise fares or freight but can only “recommend” passenger and freight tariffs considering the cost structure

The regulator would initially address issues relating to joint ventures and special purpose vehicles such as those for the dedicated freight corridors.

It would supervise private parties such as container train operators and those with whom the railways have signed licence agreements, such as vendors.

“Streamlining the tariff determination mechanism and fixing tariffs rationally, based both on the cost recovery principle and what the traffic can bear, is an absolute necessity for the railways. This will help reduce cross-subsidy and can improve the market share in freight,” according to the note.

It added that the authority would recommend passenger and freight tariffs considering the cost structure, including all direct and indirect costs such as pension liabilities, debt servicing, replacements and renewals, productivity parameters, market-driven demand and supply forces and future investments.

Ultimately, the rail development authority will undertake four functions: fix tariff; ensure fair play and a level-playing field for private investment; set standards of efficiency and performance; and disseminate information. The concept paper said the authority would recommend passenger and freight tariffs.

“In cases where the government does not accept the suggested tariffs, Indian Railways would need to be compensated appropriately perhaps through increased allocations in the Gross Budgetary Support or through a suitable mechanism,” says the concept note on the Authority released on Monday for public comments. The Authority, a statutory body to be set up by amending Railways Act, will also not deal with setting technical standards.

Besides, this will reduce tinkering with passenger fares, which have been kept low for political considerations rather than sound economic principles. The cross-subsidisation by freight has resulted in the railways losing market share to road.

Officials said the authority would consist of the chairman and four other members specialising in railways, infrastructure, finance, law, management and consumer affairs.

The government has invited comments on the paper till the end of this month, while the setting up of the authority may be announced during the railway budget in February.

The officials said the setting up of the authority would not lead to an immediate privatisation of the railways. However, it will ensure fair play between the competing parties working for the railways.

“New joint ventures are being set up with mining companies, state governments to set up special railway lines and services and it was necessary to have an independent regulator,” said officials.