The economic benefits to the state could exceed the fiscal cost of free bus transport for women
This is an unedited draft of my The Intersection column that appears every other Monday in Mint.
The Siddaramaiah-Shivakumar government’s move to provide free basic public bus services to women could be a game changer for Karnataka’s development, if it follows up to make the investments necessary to make the policy successful over the medium-term.
Underpricing leads to overconsumption. While ridership will increase, it’s unlikely that a lot of people will travel unnecessarily. Supply will, however, have to increase to cater for the demand at zero price.
The economic case for subsidised transport is that it has positive externalities — for growth, environment and social development — that are massive in the in Indian context, and that private players alone will not sufficiently provide for. Sure, conditional cash transfers might have been a more efficient way to deliver the subsidy, but a policy that is politically feasible and empirically effective is far better than a merely elegant.
The real problem has been that although most state governments run quasi-monopolistic road transport corporations, public transport remains undersupplied. Public bus fleets have not kept up with population growth: Bengaluru has only 7000 buses when it should have at least three times that number. Karnataka’s Shakti scheme is an opportunity to fix the long-standing government failure in delivering affordable, comprehensive & comfortable public transport.
A lot of people underestimate how social attitudes towards women weigh against their working, studying or commuting, even in cities like Bangalore. This is one reason why free bus rides score over cash transfers, as the latter tend to be controlled by men.
Making public transport free for women will make a difference to the bottomlines of the poorest families, spur workforce participation, school attendance and employment of women. At the margin auto-rickshaw rides and two-wheeler use might decline. The increase in the number of female passengers in the days since the scheme started demonstrates the previously unmet demand. According to analysis of the 2011 census by HowIndiaLives, 35% of the women commuters in Bangalore walked or rode a bicycle to work, only 26% of the men did. Only 12% of the women used private transport, compared to 30% of the men. Getting more women into public transport will unlock a lot of human potential that is currently tied down by unfavourable social conditions. The effect on the state’s economic growth and incomes will certainly outweigh the approximate annual subsidy of Rs 4000 crore.
The actual cost of the scheme will be higher than Rs 4000 crore per year and must be properly calculated. There is a need for additional capital expenditure and injection of funds into the public bus companies so that they can cater to the greater demand.
Apart from additional charge on the state budget, there is a risk of overcrowding and road accidents if transport corporations are unable to scale up their fleets quickly. The organisational culture of public bus companies can erode faster than their balance sheets, as the management and staff lack incentives for efficient performance. A race to the bottom, a vicious cycle where public funds are poured into ineffective, loss-making PSUs, is possible and even likely unless the government puts in place measures to avoid that outcome.
In the immediate term, buses will have to make more trips and private operators allowed to run parallel commercial services.
First, the government must back the scheme with a policy to quadruple the number of public buses in the state. If Shakti is to be successful, there must be a massive public investment in buses, bus stops, public toilets and accessibility.
The current transport department & Road Transport Office system is antiquated and needs reform. The regulator must be independent of the operators.
Second, both urban and long-distance road transport must be deregulated. Not only will private operators increase supply and tap various market segments, they will create incentives for the public bus companies to operate efficiently. And if the public bus company keeps the market price down, private operators will push service standards upwards. Deregulation is thus the key. To govern a vastly different transport sector Karnataka needs an independent transport regulatory authority.
The best way to do this is to make bus companies compete with each other. Instead of giving them quasi-monopolies, the various state RTCs can be allowed to compete with each other, and with private operators, on a level playing field.
Third, the incentive structures for the transport corporations must be designed to promote accountability and efficiency. Currently the government plans to reimburse them on passenger-kilometres. This is insufficient. In addition to competitive pressure, transport corporations need to be held accountable for timeliness, quality of service, crowding and safety; again, a task that requires a specialised regulator.
Instead of allowing individual routes, bus companies must be allocated sectors that include both lucrative and non-lucrative routes. Similar to telecom companies who have universal service obligations.
Fourth, the policy objective must be to maximise coverage. There are massive last-mile gaps in Bengaluru’s bus network, and hundreds of villages remain unserved by the state transport corporations. Last-mile service obligations must be imposed on both public and private bus operators.
Sneha Priya Yanappa and Avinash Reddy Pichhili explain why domicile and smart-card requirements are a problem.
The Shakti scheme is available only to women resident in Karnataka. This domicile requirement is unbecoming of the state and diminishes the welfare intent of the scheme. Smart cards should be made available at physical locations like bus stands, not solely through websites. They should be seen as instruments of accounting, not exclusion. Besides, the IT system will be much cheaper and less complicated if the cards are used merely to track rides rather than establish identity and domicile.
Lack of footpaths is a scandal and available data understate the number of pedestrians. Unfortunately “good footpaths” does not have the same political cachet as “free bus rides”.
Fifth, the state must invest in pedestrian infrastructure. If you can’t walk to a bus stop, you can’t take the bus. Clear footpaths, road crossings, overbridges and bus shelters benefit a lot more people, men and women, passengers and non-passengers. It should baffle us that pedestrians, who constitute the majority on our roads, remain neglected in a democracy.
Paid parking is a solution to many urban problems including those concerning public finance. Earmarking is frowned up by public finance experts, but studies by experts like Donald Shoup show that transparency and earmarking is critical for paid parking to win public acceptance.
Finally, there is the question of where is Karnataka going to find the money to finance all this? Transport corporations should be permitted to run premium services that can cross-subsidise the free services for the masses. But this is an excellent opportunity to introduce a state-wide paid parking policy. Not only is allowing unregulated free parking in congested urban areas an unthinking and shameful transfer of public assets to vehicle owners, but is a major cause of congestion and pollution. Revenues from parking and advertising can cover the Rs 4000 crore annual ticket subsidy expenditure. Given the scale of Siddaramaiah-Shivakumar government’s social welfare agenda, recovering the economic value of public assets must be a priority. Parking might well pay for the free bus rides.
Karnataka’s Shakti scheme can either end up as a burden on the state exchequer or herald a new phase in the state’s development. Good public policy and political follow-through make the difference.
There are many more The Intersection columns here
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