Assessment of Subsidies in public transport: A case of Ahmedabad

Abstract

Subsidies to public transport are common forms of incentives in many developing nations and are frequently defended on claiming that it makes transport affordable, as opposed on grounds of effectiveness. The objective of this study is to challenge the popular perception that urban public transport is subsidised. The primary interest is to compare the relative subsidies enjoyed by the private modes of transport because it provides more benefits to the well-off and decreases travel options for the marginalised user of public transport. It is widely accepted that public transport requires lesser infrastructure, consumes less fuel and causes less congestion, pollution and accidents than private transport. However, estimation of the implicit and explicit cost attached to various modes of transport helps understand that public transport in India fails to meet its social objectives. The study brings into light the high incidence of taxation on the public transport than the private modes of transport. Paradoxically, the current tax policies in India are such that it exacerbates the financial instability of buses and acts as a catalyst for providing higher subsidies to the private modes of transport thereby marginalising the needier sections. Such tax component inflates the operating cost and reduces the revenue generation of public transport. The external cost imposed on the public transport due to disproportionate land under road space mostly occupied by private counterparts also increases the subsidies to cars and two wheelers. Land given for free parking is resulting in huge transport market distortion favouring the private vehicles more compared to public transport. The cost of land under road is not reflected in the current transport market. Such fiscal policies and incentives to the private modes of transport are contradicting to the social objective of the Government to promote public transport. In order to rule against these incidences, that speaks of a classic tale of how subsides using restrictions, rebates, can steer an economy in wrong direction thereby failing to provide the attention where required. Thus, the role of this study is to provide recommendations for the tax reforms and the economic policies that govern as a catalyst for providing more subsidies to private modes of transport.