Committees’ Report make the ‘Setting up of Rail Regulator’ even more Urgent

Though railway minister Suresh Prabhu’s budget speech had also spoken of the need for an independent regulator for the sector—to look at more than just tariff regulations—the DK Mittal and Bibek Debroy committees make the setting up of the regulator even more urgent since both are looking for a larger role for the private sector, including in the running of trains. No trains can be run by the private sector as long as the signalling and other such activities are controlled by the Railways. As in the case of telecom and power, an independent regulator needs to lay down ground rules and then ensure they are followed—mandatory interconnection between telcos, and clear rules for how this was to be priced, for instance, is the bedrock on which the telecom revolution in India was built. The idea of a regulator is not new and even the UPA Cabinet had cleared the formation of a Railway Tariff Authority whose recommendations were ‘ordinarily’ to be accepted by the Railway Board. The problem, however, was that for the body to work, it needed to have over-riding powers —the big problem being seen with the telecom regulator from time to time, for instance, is that its powers are only recommendatory, not binding.

So, when NITI Aayog vice chairman Arvind Panagariya is preparing a roadmap for the regulator, as he has been tasked with doing, he needs to factor this in. It is only when running railways are economically viable that private sector firms will come in. With the railways losing R34,298 crore in FY15 on account of passenger carriage, its earnings/cost ratio is 49.4% for passenger fare and 163.7% for freight—both need to be fixed for the railways to be viable and regain market share lost to roads in the case of freight. While Debroy has recommended the railway regulator’s suggestions be made binding except on passenger fares—that is, they have to be binding in areas like track management and freight rates—this is only a temporary pause. Once the government decides on how railway subsidies are to be shared between the Centre and the states, even this is to be brought under the ambit of the regulator. Over the medium-term, the regulator will have to lay down rules to, as in the case of interconnection in telecom, ensure private sector firms get a level playing field in comparison with the government-funded railways; to ensure that, for instance, government trains don’t get precedence over private ones or that government trains don’t get subsidised—in the oil sector, private petrol pumps were put out of business when the government-owned pumps continued to sell subsidised fuel. India’s history with regulation has been mixed, but it is clear that without a strong and independent regulator, the railways aren’t going to get back on track.