Creating a Rail Development Authority for India is among the most significant reforms to an infrastructure system undertaken by the government. The railways connect the country’s far corners and act as a driver of the economy.
High rates of economic growth have raised the demand for travel, but this remains largely unmet. The popular aspiration is for a modern system that offers high-quality travel with low risk of accidents, while industry wants smooth freight transfer.
An independent, empowered regulator could be the paradigm shift that is needed. The proposed Authority would have to ensure that the resources of the system are optimally utilised, overcoming existing inefficiencies that arise from the fact that policy, regulatory and management functions of the railways are intertwined.
As the National Transport Development Policy Committee noted in 2014, the centralisation of all functions in the Railway Board has proved detrimental to the organisation’s growth, particularly at a time when there is a need for massive investment in infrastructure for 7%-plus GDP growth.
Conversely, robust economic expansion further raises the demand for railway services. To reconcile this, the regulator has to identify sectors that can support higher tariffs and also produce greater volumes of traffic. Such accurate interventions are critical if the trend of declining rates of growth in railway freight revenues and volumes, which set in during 2011-12, is to be reversed.
One of the big challenges before the Centre is to facilitate higher non-budgetary investment in the railways.
The Bibek Debroy Committee found the private sector is discouraged from participating more effectively due to a monopolistic framework. Coming up with a system that de-risks private investment and creates a level playing field are among the major challenges before the Rail Development Authority.
In the area of passenger services, this offers several possibilities; the railways cater to some 23 million passengers a day in a network of about 8,000 stations. The experience of consumers in cities shows that use of information technology to deliver traditional services can lead to higher levels of efficiency and lower costs, besides adding jobs.
While regulation of tariffs matching the quality of travel can help raise revenues, the system should be able to move both people and freight faster in order to grow. Inducting faster, more comfortable trains on 500 km-plus inter-city routes would attract new traffic, and help operate cheaper passenger trains to interior areas, as part of the government’s social obligation. Technology upgrades are essential to raise carrying capacity, service frequency and speeds.
Rail reform is complex and what was undertaken in Europe during the 1990s, separating infrastructure from operations, is an interesting model: sequential measures achieved sustainable results, rather than a package of changes introduced at once.
About Rail Development Authority
It will act within parameters of Railway Act, 1989 and undertake the following broad functions: tariff determination, ensuring fair play and level playing field for stakeholder investment in Railways, setting efficiency and performance standards, dissemination of information.
The authority will set tariff based on cost recovery principle and “what the traffic can bear.” All the direct and indirect costs such as pension liabilities, debt servicing, replacements and renewals along with productivity parameters, market driven demand and supply forces and future investments will be considered by the regulator before setting tariffs.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.