Un-empowered regulator, as planned, of little use
Given the five-fold hike in losses in the passenger segment of the Railways over the decade, to over Rs 30,000 crore in FY16, which has distorted the national carrier’s functioning, there can be no doubt that the Railways needs a regulator at the earliest. Very low fares for suburban passengers, for instance, has meant that passengers travelling in the air-conditioned classes are over-charged, as is all freight—in both cases, the Railways have lost market share due to this. From a small fraction of the Railways upper class passenger business in early 2000, the number of domestic air travelers today is more than 50 times the number travelling in AC-1 and six times the number travelling on AC-2. And in the case of freight, the Railways share has fallen to 31% today—the ratio of cost to earnings per km fell from 62% in FY00 to 49% in FY13 for passenger services but rose from 129% to 164% for freight services.
Once a regulator comes in, the belief is, much of this will get fixed. That might not happen since it is the political class that needs to implement the recommendations, but even if it does not, any regulatory order—or the government’s refusal to implement it—has to be both detailed and in writing and, is therefore, appealable in court. Apart from setting tariffs, an independent regulator is critical if the Railways are to invite private sector participation—without an independent arbiter, there is always the likelihood that the Railways will stifle the competition.
The problem, however, is that with the Railways looking at bringing in a regulator through an executive order within a few months, the regulator will be quite toothless, more so since it will have to report to the Railways—under the law, the power of tariff-setting only lies with the government so even if the regulator is chosen by a committee headed by the Cabinet Secretary, it cannot set any tariffs. The ministry is right when it says that, in any case, till the Railways adopts commercial accounting which could take two years, no regulator can do much since there will be no data to work on; it is also true that it will take the regulator some time to be able to finalise principles for tariff determination. Given this, the ministry feels that it is important to start right now, and when Parliament amends the Railways Act to allow a regulator to set tariffs, the regulator can be fully empowered. Given the regulator will have limited powers anyway, and that there will be no appellate authority, it is probably best to drop the half-way house and to move a Bill that gives birth to a fully empowered regulator. While a part of the regulator’s job is setting tariff principles or common-carrier rules for sharing infrastructure, for the process to have any legitimacy, an appeals process is critical—both users of railway services and the Railways itself have to be able to appeal an order for it to have any credibility. The executive order process, however, does not even allow for an appeals process.