The government's business in the transport sector has many inefficiencies and is unresponsive to the demands of consumers, according to a study by the Reserve Bank of India (RBI).
"Public sector ownership, management and financing of the transport sector in India suffers from several forms of inefficiencies and has been found to be unresponsive to user demand," the study said.
The transport sector serves as one of the key factors in the developmental process of any economy, it noted. Thereby financing the sector in an effective way becomes crucial especially in an emerging liberalised economic framework.
The study said services are usually priced below costs, which impede the generation of adequate internal surpluses, in turn, leading to excessive dependence on budgetary support.
"Contemporary cost curves do not justify the natural monopoly of state," the study said.
Given the tapering off of the conventional sources of funds to finance new investment and for the maintenance of the transport system, the report said there is an imperative need to access alternatives sources that are emerging.
Among various recommendations, the study suggested drawing on market-based financing as much as possible, promoting public-private partnerships and supporting private infrastructure through government guarantees.
"Although private participation can provide immediate access to a considerable pool of additional funds and private management skills, it is recognised that it may not necessarily be a panacea for the problems confronting all infrastructure projects," it, however, said.
The RBI recommends understanding the international experience in respect of practices, regulations, institutional arrangements and risk management to devise a framework that is fair, predictable and that delivers services with efficiency.
It also supports systematic pruning of those subsidized services that does not reach the target groups.
