By Invitation. Putting Rail Development Authority on track

Backed by Cabinet approval, the Ministry of Railways issued a Resolution in early May 2017 to set up the Rail Development Authority.

Separating the regulatory role from operations has been recommended by experts and debated for several years. This resolution marks an important milestone in that debate.

That the proposed arrangement falls short on several aspects of an independent, empowered regulator is perhaps only an academic point now. Clearly, the best that could be achieved is in the Resolution, namely a well-articulated list of objectives, a degree of independence through the manner of appointment and funding of the Rail Development Authority, but with functions being restricted to framing guidelines and making recommendations.

The degree of impact of the Authority will then depend significantly on the first Chairman and Members. Achieving a balance between the economically appropriate and the practically acceptable recommendations will be only part of the job.

The ability to persuade the Ministry and the Board to implement the guidelines will be critical to success. This will clearly require a zeal to make a difference and to go beyond the limited formal role.

The first objective, namely “Pricing of services commensurate with costs”, will require separation of the commercial function of the railways and the social/subsidising function of the government. This has not been easy even with well-empowered regulators in the power sector.

However, this is a necessary step to be able to bring focus on efficiency in the commercial function. The Rail Development Authority’s functions of benchmarking efficiency and encouraging private investments are thus inter-dependent on its tariff guideline-making function.

Getting an early agreement on the reform roadmap, with well-defined roles of each stakeholder in making the transition will be key to sequencing the Authority’s priorities. This will also help in syncing the priorities with various steps that other stakeholders need to take.

While the spotlight will be on the Rail Development Authority, the reformers in the government will need to play a strong role in making the structural changes needed to achieve the ambitious objectives. For example, translating the benchmarking inputs from the Rail Development Authority into targets for different divisions, providing empowerment and capability enhancement to achieve the targets, and the accountability to incentivise their achievement is unlikely to be done in the traditional arrangement. With the Rail Development Authority having only a recommendatory role, the opportunity to make the change will lie within the department.

Though unsaid, the Authority’s role will then also be to act as the forum for creating the case for reforms. For this, it will need to bring stronger focus on the “Objectives of setting a Rail Regulator” in the Resolution, than on the limited “Functions of RDA”.

Some objectives in the list, like enhancement of non-fare revenue and non-discriminatory open access for Dedicated Freight Corridor are important but will have only an incremental impact on the core problems.

The objectives of “promoting competition, efficiency and economy”, “promoting efficient allocation of resources” and “creating positive environment for investment” require more fundamental reform. A fully empowered regulator will likely be a necessary milestone in that journey.

In creating the case for reforms, its ability to position itself as “external” to the Railways will be essential for the Rail Development Authority’s credibility among stakeholders. The Centre-State joint ventures, special purpose vehicles for port and mine connectivity projects, private licensees for container rail operations, Dedicated Freight Corridor Corporation of India Limited, among others, will provide the initial eco-system in which the Rail Development Authority could play a key role as an independent agency among stakeholders.

Its fourth function, namely “Dissemination of Information” may turn out to be the most potent in creating stakeholder support for reforms. Through this, the Rail Development Authority could still play a significant catalytic role in transforming the railways, even within its limited recommendatory mandate.

The writer is Partner and Leader-Infrastructure, PwC India

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