The Planning Commission had favoured setting up of a Rail Tariff Regulatory Authority to rationalise tariff and remove distortion in the inter-modal mix of transport and also to ensure that the Railways meet the transport requirement at the minimum cost to the economy.

The Finance Ministry too endorsed the proposed authority on the ground that Railways being a monopoly, need an independent regulatory mechanism for tariff fixation and that the authority will help Railways improve performance and tighten productivity losses.

However, the Working Group headed by former Chairman Railway Board Vivek Sahai saw little merit in this regulatory mechanism.

In its recent report to the Commission, the Group argued that under the Railways Act, 1989, full powers for fixation of tariff have been vested with the railway ministry. As the Railways has a social obligation to provide transport at affordable cost to economically weaker sections of society, it cannot function entirely on commercial lines. In fact, the tasks of regulatory functions are being exercised in the form of Parliamentary intervention through scrutiny by various Parliamentary Committees and through the Railway Budget, it pointed out.

Moreover, a regulatory authority is generally required when there are more than one service providers so that there is a level playing field between various operators, the Group said. “Tariff Regulatory Authority cannot appreciate/permit the requisite flexibility for the Railways to adjust rates/incentives, keeping in view the stiff competition from the road sector where there is no regulatory authority at present,” the panel contended.

Saying that Rail Bhawan has definite reservations about the efficacy of the proposed authority in fulfilling the intended objectives, the panel argued, “As the service operator has control over expenditure and cost efficiency, the role of this authority will be limited to set up tariff fixation parameters without any influence on the cost of operation. Hence, it will not be able to drive the Railways towards achieving a more economic and efficient operation nor will be able to achieve productivity improvements. Thus, there appears to be no rationale of the proposed authority at least under the present organizational structure of the Railways.”

On rationalising passenger fares, the Group said there has been a downward revision of passenger fare since 2002-03 resulting in no linkage between the input costs and passenger fare leading drastic increase in the level of cross subsidisation. It cited that losses sustained by the state-run transport monolith owing to non-revision of passenger fares has been to the tune of Rs 18960.67 crore in 2009-10.

Due to a steady upsurge in losses in passenger services, the percentage of cross subsidisation of passenger fares by freight earnings has gone up from 20 per cent in 2004-05 to 32 per cent in 2009-10.