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Indian Railways to establish Independent Rail Regulator

New Delhi: In a major policy reform initiative, India’s cabinet approved a proposal on April 5 to establish an independent rail regulator, which will be responsible for setting Indian Railways’ (IR) freight and passenger tariffs and ensuring a level playing field for stakeholders and investors.

The Rail Development Authority (RDA) – which will comprise a chairman and three members – will set efficiency and performance standards for IR on the basis of “global benchmarking parameters”. It will have the powers to engage experts from other fields.

The RDA is expected to revive investor sentiment, as it will ensure greater continuity on the railway when a change of government occurs.

With the setting up of the regulator towards the fourth quarter of 2017, passenger fares on the IR network – which have remained hugely subsidised in recent decades – are also likely to rise.

A focus for the RDA will be addressing the huge disparity in yield between IR’s passenger and freight businesses. According to the 2015 White Paper on Indian Railways, yields from IR passenger services are among the lowest in the world – calculated at $US 0.01 per kilometre, against $US 0.027 cents in China, $US 0.067 in Russia, $US 0.094 in Japan and $US 0.062 in Germany.

Conversely, freight yields are among the highest at 1 US cent per tonne-km, compared with 0.58 cents in China, 0.75 cents in Russia and 0.51 cents in the United States.

With continuing losses in the passenger segment, IR has been diverting profits earned from freight to subsidise passenger services.

Losses in the passenger segment in the last fiscal year were estimated at Rs 320bn ($US 4.9bn).

“The setting up of the regulator means that the culture of populism will vanish and objective decisions in respect of freight and passenger tariffs will be taken,” an official said. “In all probability, passenger fares will henceforth be fixed on calculations of the Consumer Price Index.”

According to the Indian cabinet’s decision on April 5, an initial sum of Rs 500m will be set aside to establish the RDA, which will operate under the 1989 Railway Act.

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