The setting up of a Rail Tariff Authority to regulate fares will subject the cash strapped Indian Railways to demand subsidy for obligation to operate non-profitable routes and services. Taking into account the experience in the power sector, discuss if the proposed reform is expected to benefit the consumers, the Indian Railways or the private container operators.

The RTA (Rail Tariff Authority) has been constituted to engage with all the stakeholders, including Railways, consumer groups, container operators etc before it advises the government on determination of fares and freight rates. Other than rationalizing the fare structures, the RTA has also been given the responsibility of increasing the quantum of freight sent in Railways and also reduce cross subsidization.

In the case of the power industry, the distribution companies were incurring heavy losses due to low fares that hadn’t been revised upwards for years. Reforms in the sector led to increasing of rates, so that the discoms might become profitable, which adversely affected consumers but benefitted the dicoms. Similarly, in the Railways sector, the rationalization of fares led by RTA is expected to result in increase of fares. In India, the Railways makes Rs. 1.44 for every ton of freight moved a km, while it makes just 35 paise per passenger per km. The fares of passengers are kept artificially low partially by overcharging freight. Thus, rationalization of fare and freight and measures to increase freight will inevitably result in increase of fares for passengers and reduction of rates for freight. This will not only motivate more persons to resort to freight as the preferred means of transportation but will also, to a certain extent, help reduce the heavy losses the Railways incurs. Thus, while detrimental to consumers, the RTA’s probable actions, though perfect valid, will be beneficial to Railways and private container operators.

Topics: GS-III: Infrastructure Ports Roads Airports Railways