Public Passenger Road Transport Regulation in India

Group 5

Passenger Road Transport Sector in India

Road transport contribution to GDP 4.5% vs 1% by railways Demand catered: 85% of the passenger traffic dominated by private players Public passenger transport system consists of
mass transit/metros contract carriages (buses, taxicabs, auto-rickshaws) stage carriages (high capacity buses, mini-buses)
12% 10% 8% 6% 4% 2% 0%

Bus Transport- Timeline

1932
Mitchell-Kirkness Committee Restricted number of licences Scheduling, fares and compulsory insurance be prescribed More financially viable business, leading to better services

1939

Motor Vehicles (MV) Act of 1939 Control and regulate industry Avoid unhealthy competition Protect the Indian railways

1950

Road Transport Corporations Act Enables state government to form corporations Progressive Nationalization Government became the regulator as well as an operator

State Road Transport Undertakings Market share being lost to Private players (55 in 70s to <20% in 2007) Post-1990 Growth rates: Vehicle growth: 10%, Buses: 5%, SRTU Buses: 1%

Need for private sector

Excess demand, measured by occupation ratio

Private players allowed to enter to decrease occupancy ratio

Private players operating on profitable routes Indifferent behaviour of monopoly player, leading to misallocation of resources

Intermediate Public Transport (IPT)

Defy the economic logic of lower price, leading to more revenue
Power with the vehicle operator, monopoly Tampering with the fare-meter One-shot game, no reputation at stake Adverse selection and moral hazard

Solution : Induce the concept of brand building by formation of Fleet taxi scheme such as Meru, Easy Cab

Passenger Road Transport Regulation

Motor vehicle Act (1988) and State specific regulations
Selection of conductors
Conductors to have valid conductor license Minimum age: 18 years

Control of Transport Vehicles

Valid permit by the State Transport Authority No barrier on entry or exit State can set maximum and minimum fare

Special Provisions
In interest of public, state government can reserve certain routes or area for operation Temporary permit to private players

Control of Traffic
State government to decide the location where vehicles can be parked for specified period of time or indefinetly

Privatization of 1990s
Haryana
Permit issued to unemployed youth Operation limited to intra-district routes

Himachal
Restricted private participation to 30% State transport to have monopoly in inter-state and inter-district operations Occupancy ratio of HRTC dropped where private operation were allowed

Rajasthan
Demarcation of private sector and public sector for operation Gradually the total route-kilometerage went down for public sector

World Bank Study (2005)

Restriction on permit issue, nationalized and nonnationalized routes Private buses having contract carriage permits violate the permit conditions by operating as stage carriages Competition from smaller vehicles such as jeeps, maxicabs

PPP in Public Bus Transport

National Urban Transport Policy Incorporated as part of JNNURM

2006

JNNURM

JNNURM to provide 50% of the funds State government to provide 20% City Municipal or Private Party to provide 30%

PPP Experiences
Baroda
VMSS defined Bus Routes, Bus Stops, Fare, Frequency Bus stops made under BOT VMSS got fixed payment, private collected fare Private players procured, owned and maintained buses

Jalgaon

SPV under the name JNTU created Fare structure: Rs. 3 for first 2 km + Rs 0.6/ km thereafter GPS fleet tracking system, electronic ticketing system, LED and LCD displays, Smart Card passes Frequency of 15 minutes Carrying capacity increased by 400%, average occupancy rose to 55, revenue increase of 500 % Revenues from advertising, high level of operational efficiency

Challenges and Learning

Baroda
Revenues used for infrastructure development Reasons for success quick decisions regarding tariffs, routes, frequency transparent selections of the operator and overall monitoring by VMSS provision of plots for setting up workshop, fuel station. Challenges: Growth of 3 wheelers and personalized vehicles Possible Solution: Heavy occupancy vehicle lanes maturing to BRTS

Jalgaon

Reason for failure Lack of infrastructure provision Non co-operation from MSTRC, causing additional expenses for buses during turn around Only 5 out of the proposed 15 routes offered for operation Lesson: Urban planning and development department not given adequate attention

UK: Mass Privatization

1.Costs and fares fell 2.Total number of buses operating 3. subsidy levels also fell British Transport act 1985 Relaxation of entry norms PSU were re-organized as profit org. Subsidies through clubbing with profitable routes

1.Instability & lack of coordination 2. time tabling 3. bunching of buses at popular times, 4.customer uncertainty, lack of information

Srilanka : Decentralized
68% of all Motorized passenger trips by bus Unrestricted entry into the sector National regulator set up in 1991, but role limited . District based operator associations most significant. Transport ministry both operator and regulator.

declining reliability and productivity. Revenue orientation not sector development Fragmented network.

United States: gradual approach

Most Private operators taken over by public authorities by 1960s. Contracting of services and managing companies owned by state. Gradual and piecemeal privatisation More chance of experimentation Less service innovation The thriving personal auto market and rental market also maybe a factor.

Lessons
Some amount of regulation is required for maintaining a good network. Deregulation of prices gives the operators enough play to experiment and even cross subsidize unprofitable segments. At the same time, regulation has to ensure fair and healthy competition.

Current Indian Regulatory Environment

Currently covered under the Motor Vehicles Act 1988. Many amendments being done. Ministries for Rail and Road are separate. No central executive body for coordination between the two. Further tiers based on national and state levels impede coordination.

Entry: The permit system

Why regulate entry: to ensure adequate capacity. The Permit System : Started from a local area to regional to state and national. A system to benefit the railways?

Permit Delays : A barrier to entry.

Getting Permits is long winded process NCAER 2007 study for competition index in bus transport across 7 states Based on Time taken Registration fees Nature of permits Max no of vehicles allowed

Sr. No.
1 2 3 4 5 6 7

States
RAJASTHAN ORISSA KERALA TAMIL NADU WEST BENGAL HIMACHAL PRADESH MAHARASHTRA

Competition Index
0.838 0.764 0.721 0.622 0.602 0.595 0.569

Competitve Index vs market Share

Sr. States No
1 Himachal Pradesh

01

02

03

04

05

Sr. No.
1

States
RAJASTHAN ORISSA KERALA TAMIL NADU WEST BENGAL HIMACHAL PRADESH MAHARASHTRA

Competition Index
0.838 0.764 0.721 0.622 0.602 0.595 0.569

36

40

46.1

49.2

49.6

2 3 4

Tamil Nadu

25.4

21.3

21.3

21.1

20.9

3 4 5 6 7

Orissa Rajasthan Maharashtra West Bengal Kerala

93.8 85.3 10.7 85 85.4

94.8 82 10.1 85 85.4

95.2 81.2 9.4 84.6 86.5

95.7 81.9 8.8 85 82.6

96.8 82.4

5 6

7 85 82.6

Fare Regulation
Inefficient fare calculation and is not based on cost profile of the mode. Constrained fares not enough for maintenance of the vehicles themselves. Fare revisions are slow. Populism affects the increasing of fares

Policy recommendations
Need of a specialist regulatory agency. Multimodal mix : the best way to optimize transport. Need to provide Public private partnerships in for setting up road public transport systems.