Union Cabinet approves setting up Rail Development Authority

April 6, 2017

The Union Cabinet has cleared approved setting up an independent rail regulator, named Rail Development Authority (RDA). It will be based in Delhi and will be set up through an executive order.
It will be responsible for recommending passenger fares, setting performance standards for rail operations and creating level playing policy for private sector participation.

Key Facts

The RDA will be an independent body with separate budget. The independence is ensured through separate budget, appointment and removal process.
It will act within the parameters of the Railway Act, 1989. It will only make recommendations to the Railway Ministry which will take a final call on passenger and freight fares.
Primary functions: (i) Tariff determination: RDA will frame principles, recommend tariffs, principles for classification of commodities, frame principles for social service obligation and guidelines for track access charges on dedicated freight corridors.
(ii) Ensuring fair play: It will ensure level-playing field for all stakeholders. It will propose modifications and send suggestions or advisory notes on investment in railways.
It will also make suggestions regarding policies for private investment to ensure reasonable safeguards to PPP investors to ensure level playing field and resolve disputes regarding future concession agreements.
(iii) Setting standards: It will help to set efficiency and performance standards and disseminate information in line with global best practices and benchmarking. It will also collect, analyse and disseminate information and statistics concerning the rail sector.
Composition: It will have a Chairman and three members with a fixed term of five years. Moreover, it will be allowed to engage experts from various fields.
They can be removed by the Centre on grounds such as insolvency, misbehaviour, conviction, physical and mental incapability.
The Chairman and members of the Authority will be appointed by a Search and Selection Committee headed by the Cabinet Secretary.
The search committee will also include Railway Board Chairman, Department of Personnel and Training Secretary and Chairman of any regulatory body of Central Government nominated by the Cabinet Secretary.

Background

The need for a separate regulator was emphasised by various committees, including the Dr. Bibek Debroy Committee on Mobilisation of Resources for Major Railway Projects and Restructuring of Railway Ministry (2015), National Transport Development Policy Committee (2014) and Expert Group under the Chairmanship of Dr. Rakesh Mohan (2001).

Problems with Indian Railways

At present, the rail tariffs were set by the Union government and were mostly based on political considerations especially in passenger segment.
As per provisional estimate, Railways losses had touched over Rs 30,000 crore in 2015-16 in the passenger segment due to sharp increases in input costs and no proportionate increase in fares over the same period.
Moreover, keeping rail fares within affordable limits has led to cross-subsidisation as the goods fares have increased considerably more than the passenger fares in the past.
The fare structure had distorted in the Railways network as the passenger fares are subsidised by goods fares which has led to increase in the freight tariffs, resulting in diversion to road sector.

Comment

RDA will improve the services offered to passengers, provide comfort to investors in the rail sector and enhance transparency and accountability. It will help the Indian Railways to take decisions on pricing of services commensurate with costs, protect consumer interests, suggest measures for enhancement of non-fare revenue, create positive environment for investment, promote competition and encourage market development, promote efficient resource allocation and benchmarking of service standards, and suggest measures for absorption of new technologies and human resource development.

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