Draft Discussion Paper on Integrated Transport Policy

7.1 Historically investment in creation of transport infrastructure has largely been made by the State for public use. In assessing the role of private sector, a distinction must be made between infrastructure and services. Most of the transport services and mobile assets with the exception of Railways are owned by the private sector. The Railways also made a beginning to involve the private sector with the launching of Own Your Wagon Scheme. The scope of private sector participation in acquiring rolling stocks particularly high speed wagons and new generation locos needs to be enlarged gradually through innovative leasing schemes. The long term goal should be to provide an open access to the fixed infrastructure.

7.2 The basic infrastructure with a few exceptions is in the public sector. Efforts should be made to involve the private sector in provision of these basic infrastructure facilities as well. In fact, in the port sector, initiative has already been taken to involve the private sector. In case of airports, it would be possible to involve the private sector after corporatisation.

7.3 Road construction will remain in public domain to a large extent. There is a niche for private sector participation in development of roads where the traffic densities are extremely high but the total scope for private sector investment in roads is likely to be limited. There is much greater scope for private investment in bridges and bypasses. In order to involve private sector in development of highways, the public sector funds should be used in the form of equity and/or grant so that the project may become more attractive for the private sector.

7.4 The basis of the market economy argument is that an optimum allocation of resources will take place if the prices are allowed to reflect the real economic cost and consumers of both intermediate and final products make their choices on the basis of these prices. This presumes that the market must be competitive and all costs must pass through the market. These conditions do not prevail in the transport sector anywhere, much less in our country. There are a number of factors which contribute to market failure in the transport sector. Some of the transport services and infrastructure are more in the nature of public good. The economies of scale, an element of sunk cost, need for coordination and presence of externalities, all stand in the way of effective functioning of market. The presence of externalities leads to over-production or under-production of transport depending upon whether the externalities are negative or positive. Therefore, there is a need to take regulatory measures.

7.5 Many infrastructure facilities and services have natural monopoly characteristics. There is a need for regulation in order to ensure that the operator does not exploit its market power to serve his own ends. In order to achieve this objective the regulator must be equipped to fix optimum tariff and perform quality monitoring role. The regulation policy followed in the past has been restrictive with a view to curb "unhealthy competition". However, what is required now is to encourage competition to ensure efficient delivery of services and timely provision of infrastructure at minimum cost. The regulatory practices need an orientation to ensure that the transport modes are truly competitive and responsive to users demand as well as address consumer grievances like quality of services, safety etc. The regulator will also be required to act as an arbitrator in disputes between service providers or between concessionaire and the concessioning authority. In order to perform these functions effectively the regulator must be independent. It is, therefore, important to ensure that the regulatory authorities are functionally free from bureaucratic control.