Monopoly comes at a cost

DNA, December 21, 2014

friend wanted to travel urgently from Ahmedabad to Surat and went online to check for bus tickets. Her search returned over a dozen options of private buses plying on that route. In some cases, she even had the option to board the bus from stoppages in-between Ahmedabad and Surat.

This seems awkward as, according to research by CUTS in bus transport sector in Gujarat, the inter-city route (stage carriage) is restricted by law (gazette order of 1994) to only Gujarat State Road Transport Commission (GSRTC) run buses. Stage carriage is a bus service, wherein operators can pick passengers on the way and charge them on the basis of the point of boarding and disembarkation (or stage, hence the name).

According to CUTS analysis, legal monopoly was given to GSRTC in 1994 to operate ‘stage carriage services’ on inter-city routes across the state. However, it was realised over time that the fleet of GSRTC was grossly inadequate to cater to the demand for inter-city travel within the state. Over time the state developed considerable tolerance to allow private players to ply on these ‘restricted’ routes.

This has promoted corruption in the system, as (otherwise illegal) private players are operating at will on the inter-city route. However, only large players are able to ply as they have been able to offer the ‘rents’ needed to obtain a ‘blind eye’ from the administration to their services. This has also created entry barriers for some of the smaller private operators, as they are unable to offer such ‘rents’.

Maintaining a monopoly (even if on the books) has created considerable financial stress on the state revenue. The situation is quite stark if one looks at the level of deficit that the state has had to bear over the years (the latest available figure was nearly Rs300 crore for 2012-13). The size of GSRTC fleet has gone down over the years, and its market share has also shrunk to a great extent. However, a reform of GSRTC seems unlikely in the immediate future. Hence the state has to continue to resuscitate its operations.

A similar situation prevails in the city bus transport service in Ahmedabad, the busiest city of Gujarat. Ahmedabad Municipal Transport Service (AMTS) is the sole provider of bus service in the city, resulting from a monopoly status granted to it by the state government. The only option for private operators to get engaged in the Ahmedabad city bus transport industry is to attach their fleet to AMTS.

Given the reliance on state support to bear the cost of operation, there is hardly any pressure on AMTS to improving their efficiency. Daily commuters also seem to have become accustomed to the ordinary service of AMTS. Its revenue stream is dependent mostly on income from fares, which rarely undergoes upward revision. In the absence of an alternate revenue model, the state has to bear heavy financial burden to maintain AMTS’s monopoly. This revenue stress has been steadily growing from Rs76 crore in 2007-08 to Rs172 crore in 2012-13. Engagement of private sector through a well-thought out process will not only help the government reduce this fiscal stress, but also help curb corruption and ensure that both operators and commuters benefit from their engagement in this market.

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