The Railway Board also functions as the Ministry of Railways, leading to a conflict of interest between the regulatory and policy-making bodies. So long as this isn't resolved, no ‘authority', be it to monitor tariff or safety, can function effectively

The draft of the 12th Five Year Plan suggests setting up a Tariff Regulatory Authority for Indian Railways that will fix passenger fares and freight rates. The reason for creating such an authority is the inability of the Railways to increase passenger fares to cover the rising cost of operation of passenger services, which is currently heavily subsidised by earnings generated from freight transport.

The power to fix rail tariff has always rested with the Union Government so as to protect passengers from arbitrary hikes by the monopoly supplier. Also, many railway operators in the pre-independence era were from the private sector. Ironically, now the consensus is that it is best to divest the state of this power, and give it to a regulatory body.

Indian Railways suffered a loss of nearly Rs24,000 crore in passenger business in 2011-2012, about three-fourth of the total passenger and other coach earnings. It is treated as a provider of affordable transport, particularly for those travelling short distances by the branch line regional trains and suburban trains in metropolitan cities. But the subsidised rates have affected passenger business profitability — the loss gradually reaching an unsustainable level.

For subsidising passenger services, Indian Railways has had to increase freight rates, sometimes keeping them abnormally high. This has hurt the Railways which has consistently lost its market share in freight traffic, particularly in cement and steel transport.

The proposed rail tariff regulatory authority will be required to address the aberration in freight rates and passenger fares. Although it is agreed that passenger fares should be kept at a reasonable level so that the Railways is able to cover at least most of its cost of operation, there is still a lingering doubt if the regulatory authority will be able to enforce its mandate.

The Railways is managed by the Railway Board which also virtually doubles up as the Ministry of Railways. The tariff regulatory body’s recommendations will ultimately be considered by the Ministry of Railways, which will have the last word on the matter. There have been suggestions to make the regulator’s tariff recommendations mandatory but they may not work. The Railway Ministry may ask for a subsidy to keep passenger fares low. Otherwise, too, it may not be prudent to give such powers to an external

regulatory agency.

The current governance mechanism of Indian Railways, which was inherited from an earlier era, is out of sync with present-day requirements. It is not that the Railway Board is reluctant to fix a competitive tariff rate but it is ultimately the political leadership which decides to have low passenger fares in the larger public interest. A regulatory authority may not be able to do much in this situation.

As of now, the functions of a regulatory authority are being discharged by the Union Government through the Ministry of Railways, that is, the Railway Board. Thus, the Railway Board is both the executing and the policy-making body. This is the root of all problems. The Railway Board acts as the provider as well as the regulator of all services.

Unless there is a structural change in this regard, the tariff regulator will not able to make a difference. Consider the case of the safety regulator for Indian Railways. Under The Indian Railways Act of 1989, adherence to safety rules is overseen by the Commission of Railway Safety, headed by the Chief Commissioner of Railway Safety who conducts statutory investigation into rail accidents and ensures that any new railway line conforms to the standards prescribed by the Ministry. He/she also acts as the principal technical adviser to the Union Government, and herein lies the conflict of interest. The Railway Board is responsible for ensuring safety; at the same time, in its position as the Ministry of Railways, it also examines statutory reports against itself.

There is no denying that Indian Railways need a regulator. Aggrieved rail users today have no effective redressal mechanism. Also, private investors are wary of investing in public-private partnership projects as there is no certainty about the long-term rail policies.  The Railway Board often fails to recognise its role in framing a broad policy of development for the rail industry as a whole. This is despite the fact that the Constitution lists railways as a Union subject.

Structural changes in Indian Railways have been recommended from time to time, most recently by the committees led by Anil Kakodkar and Sam Pitroda. Around the world, most railway systems have already undergone major organisational transformations since the mid-80s when Governments began experimenting with ‘unbundling’ and giving a greater role to private enterprises. However, Indian Railways has remained organisationally unchanged since the formation of the Railway Board in 1905.

(The writer is a Distinguished Fellow, TERI, and former Member (Traffic), Railway Board. The views expressed are his own)