CREW Project Research Findings of Diagnostic Country Report (DCR), India Bus Transport Sector NRG Meeting III Presentation by

Outline National Policy Framework – Competition issues GSRTC monopoly in ‘Stage Carriage’ permits - who gains from it? AMTS monopoly in city regular bus transport - at what cost to the State? Abolishment of MPSRTC – what have been the gains and limitations? 2

Motor Vehicles Act -MV Act, 1914 failed to deal with burgeoning road transport sector -Mitchel-Kirkness Committee (1932)– restriction on no. of licenses/route, fixation of schedule and fare, compulsory motor insurance, etc. -Spirit largely incorporated in the MV Act, 1939 (revised in 1988) Post independence, road transport placed in Schedule B of Industrial Policy Resolution 1956, indicating move towards state control Given effect through Road Transport Corporation Act 1950 and concomitant addition of special provisions for State Road Transport Units (SRTUs) in the MV Act - Reservation for SRTUs in partial/complete exclusion of private players at the discretion of the state - State discretion led to wide variation in the transport set up across states 1. National policy framework: reduced role of private sector 3

2. Case of GSRTC – monopoly over ‘Stage Carriage’ permits: Implications on operators and commuters 4

2.1 Case of GSRTC: monopoly in ‘Stage Carriage’ permits GSRTC accorded monopoly status in stage carriage segment in Entry barrier truncates competition as private players not legally permitted -However, large operators by-pass the system, small operators can’t GSRTC has been faltering in the recent past in fulfilling the demand Large demand-supply gap allows ‘illegal’ private entry; generates competition nevertheless Mar-03Mar-08Mar-13 Avg. Fleet Held (Number)9, , , Avg. Fleet Operated (Number)7, , , Passenger Carried (Billion)

2.2 Impact on transport operators GSRTC No competitive benchmark Continued budgetary support promoted inefficiency - Allows systemic weaknesses to persist - Introduces market distortion Private transport operators plying in ‘stage carriage’ mode Likely domination of larger, influential players Illegal nature of operation, as only have ‘contract carriage’ permits Additional cost (rents) to ensure smooth operation Unregulated competition 6

2.3 Plight of Commuters Majority of commuters aware of this ‘illegality’ 2/3 rd of the respondents exercise better choice No significant increase in fare or price difference between public and private operators 7

Competitive forces are working and benefitting commuters Makes a case for review of 1994 ‘order’ providing legal monopoly to GSRTC Commuters benefitting from market competition

2.5 Lessons for policy Legal restriction on supply side, even when GSRTC cant meet demand? No competitive benchmark to improve operational efficiency of GSRTC Unregulated entry of private players, imposes additional cost on operators (promotes corruption) Commuter’s implications: - Additional costs (rents) likely to be passed on to passengers - No published time schedule, fare chart, route, etc. - No dispute resolution mechanism - Could pose safety and security issues Commuters are enjoying some benefits from public-private competition, which raised question - Should the 1994 policy be continued 9 ?

3. Case of AMTS – Monopoly over intra-city regular bus transport: What cost to the State? 10

3.1 Legal monopoly over intra-city regular bus transport There is legal public monopoly given to AMTS - Limits private entry as parallel operator and thus competition Operational performance has been faltering, though cost is burgeoning 11

3.2 Impact on supply side Sustaining on large dole of public fund infusion, considerable cost to the state Cost of Rs 3.66 bn in vs. revenue to Rs 1.44 bn No scope for setting benchmark for improving operational efficiency Annual adjustment in fare may not be sufficient Stifles innovation – administrative laxity, financial constraint To reduce cost, it has leased out 170 of AMTS buses to private operators and also have hired another 210 buses from them Thus, Pvt operators are running half of the city services But, presence only as service provider to AMTS 12

3.3 Impact on Commuters in Ahmedabad Subsidized fare No alternate option/choice Limited service availability Falls behind Bhopal in terms of incremental changes, despite higher overall satisfaction 13

3.4 Lessons for Policy Diminishing scale of ‘own’ operation; low efficiency Limiting competition and private participation puts considerable pressure on state resources Hemorrhage of public resources with high opportunity cost Limited possibility of innovation in service based on passenger needs Raises question on utility of following with this public monopoly Requires assessment of the element of competition in the ‘procurement’ of services of private operators 14

4. Case of MPSRTC – Abolishment in

4.1 MPSRTC – Abolishment in 2005 Set up in 1962; 36,000 buses in early 90s but left with only 1,800 buses by 2000 – with disproportionately high staff strength of 13,000 At the time of abolishment in 2005, it had a fleet of around 1500 (~1,000 were on road) and 11,500 employee. Monthly losses of MPSRTC was running into Rs 50 million Accumulated salary backlog itself touching Rs 450 million Closure estimated to have cost the state Rs 12 billion, including cost of offering voluntary retirement services to staff 16

4.2 Impact on producers Open entry for private operators Freedom to private operators to choose type of permit, route, schedule under regulatory oversight Determination of fare in hand of RTA Fragmented market dominated by private players Estimated to have around 200 private operators A heterogeneous group - fleet size ranging from a single bus to buses A limited number of public operators like Madhya Pradesh Tourism Development Corporation, Bhopal City Link Ltd., Atal Indore City Services Ltd., etc. 17

4.3 Impact on Commuters More than half the passengers report some level of improvement in almost all parameters post abolishment Most respondents also report only marginal increase in fare, which has been largely in line with general price rise Marginal increase in fare and in line with general price rise Perceived impact of abolishment of MPSRTC on services 18

4.4 Lessons for Policy Competition seem to be providing benefits to commuter, but needs to be strengthened, structured Weak regulatory oversight poses challenges – operators not following schedule, route, fare, etc. So need a strict but smart regulatory framework to be implemented by a well- resourced institution – M.P. State Public Transport Regulatory Authority 19

5. Concluding General Observations Strategy to promote competition in Public Procurement (PPP) Negotiated Performance-based Contracts Regulation of Fare, Service Standard Need for State Public Transport Regulatory Agencies 20