The setting up of a Rail Tariff Authority to regulate fares will subject the cash strapped Indian Railways…

Question

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.

Ghissu Editorial · Accepted Answer

A Rail Tariff Authority would benefit the Railways and private container operators most directly and consumers through better service, provided it is statutory and social routes are subsidised explicitly. Section 65 of the Electricity Act 2003, which makes states pay power subsidies upfront, is the model to copy.

**Introduction**

The Rail Budget 2013-14 proposed a Rail Tariff Authority to depoliticise fares when the Railways spent over 90 paise to earn a rupee. A cost-based regulator would push the Railways to claim explicit subsidy for loss-making social routes, as electricity regulators did for state-subsidised power.

**Lessons from Electricity Regulation**

SKETCH: comparison | Power Sector Lessons for Rail
a: Power sector
b: Proposed rail model
- CERC and SERCs :: Rail Tariff Authority
- Section 65 subsidy :: Paid social routes
- Open access :: Container train access
- Cross-subsidy surcharge :: Freight subsidising passengers

1. **Transparent tariffs**: Since the Electricity Act 2003, tariffs are set through public hearings and reasoned orders, a predictability that budget-day rail fares never had.
2. **Explicit subsidy**: Section 65 makes a state wanting cheaper power pay the subsidy in advance, a model for rail's uneconomic lines.
3. **Limits of autonomy**: State commissions often deferred hikes under political pressure, so discom losses needed the 2012 Financial Restructuring Plan.

**Who Gains from a Rail Tariff Authority**

1. **Consumers**: Fares tied to cost and quality become predictable and contestable, though long-frozen suburban and second-class fares may rise.
2. **Indian Railways**: Paid social obligations and periodic revisions steady its finances and ease the cross-subsidy that drives freight to roads.
3. **Private container operators**: Licensed since 2006, they pay haulage fixed by the Railways, their competitor; a neutral regulator would ensure fair haulage and access.
4. **Binding powers**: The advisory Rail Development Authority of 2017 never became functional, so statutory force is essential.

**Conclusion**

The reform would benefit all three, the Railways and container operators most directly, if the regulator is statutory and social obligations are paid explicitly. The power sector shows that fiscal discipline, not independence on paper alone, decides whether the Railways become a sound public utility.

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