18 Sep 2013
Axe subsidy, not the bus
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Supreme Court order upholds diesel price hike for bus corporations, but ignores the subsidy still enjoyed by cars, SUVs. What happens to the right of the majority to have affordable, reliable and comfortable bus service?

The Supreme Court while hearing the petitions relating to diesel price hike, filed by the state transport corporations of Kerala and Andhra Pradesh, has upheld the government policy to decontrol diesel prices for the bulk consumers like the bus corporations. In its order, the apex court called for a balanced approach in giving subsidies. It argued that with rupee sliding, current account deficit widening and enormous fiscal burden on account of crude oil and diesel import, it is not possible to sustain all kinds of subsidies.

Therefore, the message from the Court is that the bus corporations cannot typically look for subsidies and must pull up their socks to bring economic efficiency in their operations and reduce the need for subsidy. This case was triggered by the UPA government’s decision to allow the oil marketing companies to raise diesel prices  at the retail end in small amounts over time until the subsidy is fully pruned but increase the price for the bulk purchasers like the bus corporations  by Rs 10 a litre at one go.  

Unfortunately, the same argument has not been carried forward to stop misuse of diesel subsidy by the more undeserving customers—cars and SUVs. If buses that provide public transport services for the larger good are not entitled to fuel subsidy then why diesel cars meant for exclusive individual mobility with very high pollution and health costs are allowed to enjoy the subsidy for indefinite period. Once the bulk consumers—all our transportation systems including bus, trains and ships, are taken away, the retail end customers are predominantly cars and SUV owners. Why should government bear the fiscal burden of subsidy for diesel cars?

A strange dichotomy—buses cannot have preference over cars to get subsidised fuel for as long as it lasts when buses help to save fuel more efficiently than cars. 

Bus operations have to be kept solvent
We all agree that all subsidies that are abused create distortions in the market and weigh down the economy and that these must go. But this time we have lost the opportunity to solve the core problem of keeping buses solvent, affordable and within the reach of the masses and not let it collapse under the sheer burden of costs.

Fuel costs cripples bus operations. For Madras Transport Corporation Ltd, fuel costs are almost 30 per cent of all costs and 54 per cent of operational costs. For BMTC in Bengaluru, this cost is close to 65 per cent of operational costs and around 38 per cent of all costs.  In Delhi and Mumbai, the costs are comparatively lower because of lower CNG prices. But the CNG cost has also increased threefold since 2002 in Delhi. With the practice of automatic fare revision in several states, bus fares now increase every time the input costs like fuel costs increases. This year, Madras Transport Corporation, otherwise known for highest ridership among all corporations, has experienced losses in ridership. There are apprehensions in several cities that bus trips are being kept fewer to cut fuel costs.  Many buses under private operations in Kolkata are off the road as the rising fuel cost has made bus operations unviable. 

When such economic measures—removing subsidy only from the buses—are taken in isolation, and without rationalising its other costs, it has devastating impact on public transport ridership. Bus cannot compete with two-wheelers or cheaper shuttle service of autos. While minimum bus fares are a Rs 5, the running cost of a two-wheeler is a mere Rs 1-2 per km. This is bad news when cities are struggling to build and increase public transport ridership to address pollution, congestion and energy guzzling but experiencing heavy slide in their modal share. 

Equity impacted 
The equity impacts are even worse. The reason why we still have so many people walking and cycling to work in Indian cities is not because people have a choice. They are captive walkers and cyclists because they cannot afford any other mode of transport. This is a serious concern when quarter of urban population is still hanging on to the poverty line. For many households transport costs can be a quarter of the household costs and still rising when their spending on health and education remains stagnant. 

Our argument is not about holding on to diesel subsidy. But finding a fiscal solution for affordable reliable and efficient bus service without making the bus transport service providers bleed and compromise on the quality of service. 

If fuel subsidy must go and diesel price rationalisation is necessary, then all governments need to rationalise their vehicle-related taxation policy to cut tax burden on buses and make personal vehicle ownership and usage more expensive than public transport. This is needed to influence commuting choices and build public transport ridership. 

The apex court has reportedly asked bus corporations to “recover money from the public”. But the money from the public cannot be recovered on the assumption that fares will get exorbitant for smaller and smaller number of users.  But fares must remain affordable and come from a larger and larger base of bus users. 

Also, cities are now preparing for massive investments to revamp and modernise their services, improve its rolling stock, and build bus infrastructure. In fact, in Delhi, the total costs of revamp, including improved rolling stock of buses and bus infrastructure, is estimated at 1.6 times the total annual transport sector budget of the Delhi government. These costs cannot be passed on fully as fares to bus users as one would do in a commercial enterprise. Exactly the way metro cannot recover all its capital and operational costs from fares and looks for other revenue sources. 

Bus v metro 
It is ironical that despite providing the same public service, the buses are paying more central and state taxes than the Metro rail. The Delhi Metro Rail Corporation, for instance, is exempted from property tax, sales tax, capital gains tax, custom, excise, income tax and more. But bus pays property tax, octroi, excise, entry tax, VAT, central excise, custom duty, excise duty on consumption, excise and VAT on spare parts, motor vehicle tax, advertisement tax and more. This is mindless.  

It is is damning that the Indian cities treat bus transport as commercial operation and tax it high for carrying more people – its intended objective. This is perverse as that is what the buses are meant to do reduce pressure on roads, environment and on our lungs. The World Bank has already crunched the numbers to show that the total tax burden per vehicle km is 2.6 times higher for the buses than cars in India. Information from all states shows that as per the prevailing tax rates, cars and two-wheelers pay a miniscule amount as lifetime motor vehicle taxes whereas buses pay hefty annual taxes. The working group for 12th Five Year Plan has estimated that total taxation on buses can sometimes be as much as quarter of the total costs of bus operations. 

While withdrawing fuel subsidy the government could have taken additional steps to reduce the overall tax burden on buses – at both state and Central level. In fact, among all states, the state of Andhra Pradesh has made the most consistent plea for reducing taxes on buses. At its own level it has taken the measures to waive off state taxes on the new buses bought under the JNNURM programme. 

Bus corporations also have narrower revenue base than metro rail. Bus corporations rely predominantly on only fare box and advertisement revenue. But Metro service can earn from fare box, feeder bus service, consultancy, real estate and commercial development, carbon credits, and so on. Unless other sources of revenue are not explored and enhanced for buses, reliance on government subsidies and fare box for recouping the net losses will continue.

Tax policy reform needed
Revenue losses from tax cut on buses can be easily offset by increasing taxes on cars. In fact rationalisation of motor vehicle taxation is one of the reform conditions of bus purchase programme with Central government assistance under the JNNURM. But this reform has not been carried out in states. Therefore, the policy has to go beyond removing unsustainable subsidies and to upholding the principle of taxing the bad to fund the good. 

This matter is not about a technical point about the merit or demerit of providing fuel subsidy. This is about the spirit of justice and rights of the masses of urban India to have affordable, reliable, comfortable bus service to reduce dependence on cars and cut pollution, energy and health costs.