By Chakshu Rai and Anirudh Burman What is the difference between a JPC and a PAC? A structured committee system was introduced in 1993 to provide for greater scrutiny of government functioning by Parliament. Most committees of Parliament include MPs from both the Lok Sabha and Rajya Sabha. A Joint Parliamentary Committee (JPC) is an ad-hoc body. It is set up for a specific object and duration. Joint committees are set up by a motion passed in one house of Parliament and agreed to by the other. The details regarding membership and subjects are also decided by Parliament. For example, the motion to constitute a JPC on the stock market scam (2001) and pesticide residues in soft drinks (2003) was moved by the government in the Lok Sabha. The motion on the stock market scam constituted a JPC of 30 members of which 20 were from the Lok Sabha and 10 were from the Rajya Sabha. The motion to constitute the JPC on pesticides included 10 members from the Lok Sabha and 5 from the Rajya Sabha. The terms of reference for the JPC on the stock market scam asked the committee to look into financial irregularities, to fix responsibility on persons and institutions for the scam, to identify regulatory loopholes and also to make suitable recommendations. The Public Accounts Committee (PAC), however, is constituted every year. Its main duty is to ascertain how the money granted (budget) by Parliament has been spent by the government. The PAC scrutinises the accounts of the government on the basis of CAG reports. The composition and functions of the committee are governed by parliamentary procedures. The PAC can consist of 15 to 22 members. Not more than 15 members can be from the Lok Sabha, and the representation from the Rajya Sabha cannot exceed 7 members. A minister cannot be a member of the PAC. What can a JPC do that a PAC cannot? The PAC examines cases involving losses and financial irregularities. Its examination is usually limited to the scrutiny of CAG reports and issues raised by the reports. The committee expresses no opinion on points of general policy, but it is within PAC’s jurisdiction to point out whether there has been waste in carrying out that policy. The mandate of a JPC depends on the motion constituting it. This need not be limited to the scrutiny of government finances. How many JPCs have we had so far? Although a number of joint committees have been formed since Independence, four major JPCs have been formed to investigate significant issues that have caused controversy. These are: (1) Joint Committee on Bofors Contracts; (2) Joint Committee to enquire into irregularities in securities and banking transactions; (3) Joint Committee on stock-market scam; and (4) Joint Committee on pesticide residues in and safety standards for soft drinks. How effective have JPCs been? Is the government bound by their recommendations? JPC recommendations have persuasive value but the committee cannot force the government to take any action on the basis of its report. The government may decide to launch fresh investigations on the basis of a JPC report. However, the discretion to do so rests entirely with the government. The government is required to report on the follow-up action taken on the basis of the recommendations of the JPC and other committees. The committees then submit ‘Action Taken Reports’ in Parliament on the basis of the government’s reply. These reports can be discussed in Parliament and the government can be questioned on the basis of the same. How effective is the PAC process? Between 2005 and 2010, the PAC has prepared 54 reports and examined ministries that have cumulatively received around 80% of the budgetary allocations in the last five financial years. Since it is not possible to examine every CAG audit finding in a formal manner, ministries have to submit Action Taken Notes to the PAC on all audit paragraphs. A 2009-10 report of the PAC, however, noted that there were 4,934 audit paragraphs still pending with various ministries. What can the JPC or the PAC find in the 2G case that is not already known, that the CAG and the Trai have not already said? The JPC or the PAC can only look at the documents and examine ministry officials who testify before the committee. The parliamentary committees can arrive at independent conclusions based on the documents placed before them. Members of the committee can also place dissent notes if they do not agree with the majority. Can Raja be tried and the telecom licences cancelled on basis of a JPC report or do we need a CBI report as well? Prosecution of individuals and cancellation of licences are executive functions and can only be initiated by the government. A JPC report can recommend the prosecution of a particular person or the cancellation of certain licences. However, the government can disagree with the JPC’s findings and refuse to take such action. How much of Parliament time have we lost already and how many critical Bills are stuck? The Lok Sabha and Rajya Sabha are supposed to work daily for six hours and five hours, respectively. The Lok Sabha has worked for five hours and forty five minutes and Rajya Sabha has worked for an hour and twenty five minutes in the past 12 days. Some important Bills that are listed for consideration and passing in Parliament are the Seeds Bill, 2004; the Commercial Division of High Courts Bill, 2009; and the Amendment to the Right to Education Act, 2010. Bills listed for introduction include the National Identification Authority Bill, 2010; the Protection of Women from Sexual Harassment in Workplace Bill, 2010; the Judicial Standards and Accountability Bill, 2010; Land Acquisition (Amendment) Bill; and the Rehabilitation and Resettlement Bill. This article appeared in Financial Express.
Recently, the Indian Railways announced rationalisation of freight fares. This rationalisation will result in an 8.75% increase in freight rates for major commodities such as coal, iron and steel, iron ore, and raw materials for steel plants. The freight rates were rationalised to ensure additional revenue generation across the network. An additional revenue of Rs 3,344 crore is expected from such rationalisation, which will be utilised to improve passenger amenities. In addition, the haulage charge of containers has been increased by 5% and the freight rates of other small goods have been increased by 8.75%. Freight rates have not been increased for goods such as food grains, flours, pulses, fertilisers, salt, and sugar, cement, petroleum, and diesel. In light of this, we discuss some issues around Railways’ freight pricing.
Railways’ sources of internal revenue
Railways earns its internal revenue primarily from passenger and freight traffic. In 2016-17 (latest actual figures available), freight and passenger traffic contributed to about 63% and 28% of the internal revenue, respectively. The remaining is earned from miscellaneous sources such as parcel service, coaching receipts, and platform tickets.
Freight traffic: Railways majorly transports bulk freight, and the freight basket has mostly been limited to include raw materials for certain industries such as power plants, and iron and steel plants. It generates most of its freight revenue from the transportation of coal (43%), followed by cement (8%), food-grains (7%), and iron and steel (7%). In 2018-19, Railways expects to earn Rs 1,21,950 crore from its freight traffic.
Passenger traffic: Passenger traffic is broadly divided into two categories: suburban and non-suburban traffic. Suburban trains are passenger trains that cover short distances of up to 150 km, and help move passengers within cities and suburbs. Majority of the passenger revenue (94% in 2017-18) comes from the non-suburban traffic (or the long-distance trains).
Within non-suburban traffic, second class (includes sleeper class) contributes to 67% of the non-suburban revenue. AC class (includes AC 3-tier, AC Chair Car and AC sleeper) contributes to 32% of the non-suburban revenue. The remaining 1% comes from AC First Class (includes Executive class and First Class).
Railways’ ability to generate its own revenue has been slowing
The growth rate of Railways’ earnings from its core business of running freight and passenger trains has been declining. This is due to a decline in the growth of both freight and passenger traffic. Some of the reasons for such decline include:
Freight traffic growth has been declining, and is limited to a few items
Growth of freight traffic has been declining over the last few years. It has declined from around 8% in the mid-2000s to a 4% negative growth in mid-2010s, before an estimated recovery to about 5% now.
The National Transport Development Policy Committee (2014) had noted various issues with freight transportation on railways. For example, Indian Railways does not have an institutional arrangement to attract and aggregate traffic of smaller parcel size. Further, freight services are run with a focus on efficiency instead of customer satisfaction. Consequently, it has not been able to capture high potential markets such as FMCGs, hazardous materials, or automobiles and containerised cargo. Most of such freight is transported by roads.
The freight basket is also limited to a few commodities, most of which are bulk in nature. For example, coal contributes to about 43% of freight revenue and 25% of the total internal revenue. Therefore, any shift in transport patterns of any of these bulk commodities could affect Railways’ finances significantly.
For example, if new coal based power plants are set up at pit heads (source of coal), then the need for transporting coal through Railways would decrease. If India’s coal usage decreases due to a shift to more non-renewable sources of energy, it will reduce the amount of coal being transported. Such situations could have a significant adverse impact on Railways’ revenue.
Freight traffic cross-subsidises passenger traffic
In 2014-15, while Railways’ freight business made a profit of about Rs 44,500 crore, its passenger business incurred a net loss of about Rs 33,000 crore.17 The total passenger revenue during this period was Rs 49,000 crore. This implies that losses in the passenger business are about 67% of its revenue. Therefore, in 2014-15, for every one rupee earned in its passenger business, Indian Railways ended up spending Rs 1.67.
These losses occur across both suburban and non-suburban operations, and are primarily caused due to: (i) passenger fares being lower than the costs, and (ii) concessions to various categories of passengers. According to the NITI Aayog (2016), about 77% to 80% of these losses are contributed by non-suburban operations (long-distance trains). Concessions to various categories of passengers contribute to about 4% of these losses, and the remaining (73-76%) is due to fares being lower than the system costs.
The NITI Aayog (2016) had noted that Railways ends up using profits from its freight business to provide for such losses in the passenger segment, and also to manage its overall financial situation. Such cross-subsidisation has resulted in high freight tariffs. The NTDPC (2014) had noted that, in several countries, passenger fares are either higher or almost equal as freight rates. However, in India, the ratio of passenger fare to freight rate is about 0.3.
Impact of increasing freight rates
The recent freight rationalisation further increases the freight rates for certain key commodities by 8.75%, with an intention to improve passenger amenities. Higher freight tariffs could be counter-productive towards growth of traffic in the segment. The NTDPC report had noted that due to such high tariffs, freight traffic has been moving to other modes of transport. Further, the higher cost of freight segment is eventually passed on to the common public in the form of increased costs of electricity, steel, etc. Various experts have recommended that Railways should consider ways to rationalise freight and passenger tariff distortions in a way to reduce such cross-subsidisation.
For a detailed analysis of Railways revenue and infrastructure, refer to our report on ‘State of Indian Railways’.
