Chapter I
Introduction
1.1 General
Road Transportation plays a pivotal role in India in bringing about greater mobility both within and between rural and urban areas. Through increased mobility it also contributes immensely to social and economic development of different regions of the country.
Realizing the importance of this link, the government of India, in course of time, has invested heavily in the development of a network of passenger transport services to link up towns and villages all over the country.
In India, as in many other parts of the world, investment in road transport is treated as a part of public provision of services whereby one of the key objectives of this provision has been to meet the social obligations at an affordable, safe and reliable bus service to the people, both in rural and urban areas. Accordingly, the Road Transport Act 1950 gave a boost to rural mobility. The promulgation of RTC Act enabled States and Central
Governments to take initiative to form the Road Transport Corporations. The RTC Act, thus made bus transport an integral part of social and economic infrastructure. Similarly, the Motor Vehicles Act 1950 was subsequently amended to make special provision for
State Transport Undertakings (STUs). This Act was further amended in 1969 for promoting State monopoly in passenger road transport services expeditiously.
The 67 public-sector transport undertakings (STUs) in India today own 1,16,000 buses with an investment of Rs.8,130 crores. These undertakings together operate 1,200 crore passenger-kilometers daily, provide direct employment to 7,22,679 people and carry about 2,442.68 lakh passengers daily.
The STUs in the country are set up under four forms – (i) Departmental Undertaking directly under the State Governments, (ii) Municipal Undertakings owned and controlled

by the Municipal Corporations, (iii) Companies formed under the Indian Companies Act
1956, and (iv) Road Transport Corporations formed under the RTC Act 1950.
As a change of strategy, in the VII Plan it was decided to encourage private sector participation as it was thought that STUs alone might not be in a position to cater to the growing demand for passenger transport services. This was however, not followed up with comprehensive Road Transport Policy and Regulatory Framework. The States took it as signal to reduce their support to STUs. However, for a number of reasons including policy gap mentioned above, the services of the private sector also could not be scaled up in the following years. A comparative analysis of private bus operators with STUs in terms of efficiency parameters is difficult due to lack of data relating to private operators.
The policy lacuna is has resulted in the retarded growth of the bus transport sector and the increased demand for passenger services is met substantially by the proliferation of personalized transport vehicles and also some unsafe modes of transport.
1.2 Role of STUs in passenger transport
Public road transport has been steadily shifting towards private mode and private operated public transport. However, if we go by the share of passenger kms, STUs hold major share. The number of buses registered in the country has gone up from about
34,000 in 1951 to about 600,000 by the end of 2005 (this refers to registered buses and many may not be in operation). The number of other motor vehicles registered in the country has, however, increased from about 306,000 to about 7.5 crores during the same period. Thus, in terms of the number of motor vehicles the share of buses has declined from over eleven percent in 1951 to only one percent today. The fleet strength of STUs as a share of the total number of buses in the country has also declined from about 45.4 percent in 1976 to about 20 percent today. However, the buses of STUs being mostly stage carriages operating with greater frequency than the ‘contract carriages’ or ‘tourist vehicles’ owned by private operators, there is reason to believe that the buses of STUs account for a larger share of the passenger trips in the country than is suggested by their share of the total buses registered.

However, a comparison between the STUs and private buses cannot be comprehensive due to non-availability of data with private operators on various dimensions. While there is a wealth of data on STUs, there is very little compiled data available on private operators. This renders impossible any effective evaluation of private operators in comparison with STUs. The performance of all STUs is discussed below followed by performance of select STUs. The summary of performance of 30 STUs on physical and financial parameters for the year 2004-05 is presented in Annexure I and II (Source:
CIRT).
1.3 Experience of private operators in India
The private operators are equally in a quandary about the policy of the government. Their position is discussed in the chapter on private operators. The service level provided by private operators are far from satisfactory and there are frequent complaints of overcharging, rash driving, rude behavior of crew, non-adherence to scheduled time tables, not starting services till the vehicle was fully loaded, very poor condition of buses. We have suggested that privatization has to be accompanied by appropriate regulatory frameworks and institutions.
1.4 Classification Of Transport Services
The passenger Road Transport Services in general could be broadly divided into four different categories as follows:
Inter State
Inter District
Intra District and rural and
Urban Operations
The analysis of the report broadly follows this classification as the characteristics of these segments vary requiring different interventions. The characteristics of each of these services vary widely with respect to vehicle utilization, time of operation, crew requirements, profitability and major players for the types of services.

Category
Inter
State
Inter
District
Intra
District
VU
( Kms/day )
>600
300-450
250-350
Service Types
Different
Players
Profitability
Main
Competitors to
STU
Volvo, luxury, Public &
Very high deluxe private
Luxury, express, Volvo
Express, ordinary, limited halt
Public private
Mostly private, maxi cabs
&
Private
Moderate and
Private high
Low and loss
Illegal contract buses, maxi making cabs
Urban 200-250
Ordinary, limited halt
Mostly private, IPT
( autos)
Mostly loss
Illegal contract buses, maxi making cabs, autos
1.5 Objectives of the Study
To understand the functioning of passenger transport services provided in India by STUs and private operators.
To obtain an insight into the needs and expectations of public in respect of passenger transport service in general.
To measure, based on certain parameters, the current level of customer satisfaction, with the transport services provided.
To come out with a plan for improved over all transport services.

1.6 Organization of the Report
The report is divided into five chapters. Chapter 1, Introduction deals with situation in general in India and the objectives of the study. Chapter 2 provides information on the performance of State Road Transport Undertakings in detail where as Chapter 3 presents a brief outline of private transport operations in India. Chapter 4 discusses the need for revitalizing the passenger transport sector in India. This chapter also deals with business plans for each of the category of services. Chapter 5 provides the pricy analysis and gaps in the current system. Chapter 6 details the support needed from Central and State
Governments in revitalizing this sector. Chapter 7 underscores the need for regulating body, data needs as well as making USO to be contributed by all the operators .
Chapter 8 provides the summary and conclusion.

Chapter 2
Performance of State Road Transport Undertakings
2.0 General
The growth of the fleet strength of private buses and those of STUs during 1976-
2005 shows (Table 2.1) that the share of STUs is steadily decreasing from 45.4 % during
1976 to 22.6 % by 2000 and to 20 % by 2005. It also indicates that the fleet strength, which was growing till the mid 90s, has remained more or less stagnant during the last ten years which can be attributed to central government policy. This runs counter to the need of the hour, given the accelerated growth of the economy and the corresponding growth in passenger traffic. Statistics also show that the average age of the buses owned by STUs has been increasing during this period which shows that overall, even replacement of aged buses is not happening in many STUs. Therefore, it is reasonable to assume that during the last ten years some of the passenger traffic may have migrated to private buses. The declining occupancy ratio caused by such migration, leads to poor revenue realization, which again restricts augmentation, and it becomes a vicious circle.
Table 2.1
Fleet strength of STUs between the period 1976-77 and 2004-05
YEAR
PUBLIC
SECTOR
BUSES
PRIVATE
BUSES
TOTAL
PERCENTAGE
OF PUBLIC
SECTOR
BUSES
1 2
1976 52200
1981 69600
1986 84000
1991 104106
3
62800
923000
143300
225000
4
115000
161900
227300
331100
5
45.4
43.0
37.0
31.4

YEAR
PUBLIC
SECTOR
BUSES
1 2
1992 107100
1993 109700
1994 111200
1995 111500
1996 111100
1997 113400
1998 115200
1999 116000
2000 118100
PRIVATE
BUSES
3
251300
271500
282400
314600
338700
468803
401980
402000
407500
TOTAL
PERCENTAGE
OF PUBLIC
SECTOR
BUSES
4 5
358200 30.0
381000 28.8
392100 28.4
424900
449800
583960
518000
520000
522500
26.2
24.7
19.4
22.2
22.3
22.6
2001 115000
2002 114700
2003 114900
411980
420980
435980
525680
535880
546380
21.9
21.4
21.0
2004 111400
2005 113300
450980
465000
564280
567790
19.7
20.0
2.1 Current Status of STUs.
While the overall size of the fleet owned by the STUs has remained stagnant over the last decade, the situation varies from state to state. In some States like Karnataka,
Andhra Pradesh and Maharashtra went for augmentation, in many states the fleet strength stagnated or declined. Madhya Pradesh closed down its operations in 2005 – 06 and

Orissa STU reduced its operations to mainly long distance services with a small fleet of about 250 buses.
It should be appreciated that in many states, the buses operated by STUs are the common mode of passenger transport and it is even more important to understand that the services of STUs are in many areas the only means of public transport to connect remote rural habitations. Also, in major cities like New Delhi, Mumbai, Hyderabad, Bangalore, and Chennai STU services form the backbone of urban transport services.
2.1.1Quality of Service provided by the STUs
Apart from providing connectivity and regular transport services in both rural and urban areas, the STUs are also rated higher than private bus operators in the matter of quality of service in many States. This perception of passengers is brought out in a study conducted by the Indian Institute of Management, Bangalore in the States of Karnataka and Andhra Pradesh. The Study by IIM Bangalore carried out is an extensive field survey spread across 16 districts in the state of Andhra Pradesh and Karnataka in the year
2005. It covered 20,000 samples consisting of commuters, opinion makers, and employees. The attributes of the service quality on which the opinion of commuters was surveyed in the study are shown in Table 2.2.
Table 2.2
Attributes Considered for Service Quality
Comfort and Schedule
Convenience Operations and Crew Behavior Fares & Others
Aspects
Overloading Notification of Courteousness schedules with passengers
Boarding and Following alighting schedule
Seating the Helping children and old age people
Notification fares
Returning change of small
Prompt service Appearance of the Adequacy of fares

Comfort and
Convenience
Schedule
Operations and Crew Behavior Fares & Others
Aspects arrangement during down break crew
Movement within the bus
Maintenance of Neatness vehicles and professionalism
Reasons for break down
Driving comfort
Cancellation of Attitude of the Charges schedules crew in general luggage for
Travel time
Arrival
Departure timings
/
First-aid service
Luggage allowance
Stopping at the bus stops
The analysis pointed out that the stakeholders rate public operators higher than private operators. Their preference is for both public and private operators combined to encourage competition but they are not in favour of only private operators being given exclusive rights.
Some critical observations that emerged from the study are:
The expectations of the public are growing and they are expecting better buses, infrastructure and amenities.
The growing expectation cuts across all segments. It is not just urban travelers who is expecting better services but also rural segment.

The public is willing to pay more for better services if the services can be improved. This opinion again cuts across all groups.
There is a positive perception about state owned public transport corporations.
In terms of preferences public prefers coexistence of state owned and private operators.
They are probably taking this as indicative of competition. Next they prefer purely public operators and there is low preference for purely private operators.
It also emerged from the Study that public rate state owned transport corporations higher than private operators on all the service attributes.
2.2 STUs Performance over the years
The performance evaluation is broadly divided into two components namely physical and financial. The following paragraphs deals these aspects in detail.
2.2.1Physical Performance : Fleet Utilization and Vehicle Productivity
Over the years, there has been a steady improvement in the performance of STUs in respect of several physical parameters like fleet utilization, vehicle utilization, fuel efficiency, etc in most of the states. Fleet utilization of STUs as a group, which was
87.7% in 1995-96, is presently at 92.1% by the end of 2004-05 as per the statistics collected by CIRT from 36 STUs. Table 1.3
provides these details.
Several STUs like, Andhra Pradesh SRTC, Maharashtra SRTC, UP SRTC,
Rajasthan SRTC, Karnataka SRTC, Himachal RTC, Haryana ST, Bangalore MTC and some STUs in Tamilnadu achieved an impressive fleet utilization of over 95%. There also STUs with poor fleet utilization, like North Bengal STC (52.9%), South Bengal STC
(65.6%), Tripura RTC (60.0%), Mizoram STC (50.9%, Calcutta STC (63.%%),
Ahmedabad MTS (67.3%), and Pimpri-Chinchwad Municipal Transport (58%). This is like a low hanging fruit which can be easily tapped through up gradation of rolling stock and adoption of better maintenance practices.
Vehicle utilization measured by the average Kms. of operation per day per bus is an important metric in judging the productivity of buses held. As seen from Table 3 below this has been improving over the years from 271 Kms. in 1995-96 to 304.8 kms in

2004-05. In recent years, the improvement in the quality of road network has been one of the contributing factors to the improvement in vehicle productivity. Here again the performance varies widely among STUs as in the case of fleet utilization.
Among the STUs, seven STUs of Tamilnadu reported vehicle utilization of 400
Kms. or more while STUs of Gujarat, two STUs of Karnataka, ST Haryana reported more than 350 kms. per day per bus held. The lowest vehicle utilization of less than 200
Kms. per day is reported by STUs of Bihar SRTC (172.5 Kms.), North Bengal STC
(128.7 Kms.), Tripura RTC (79.8 Kms.), ST Mizoram (64.4 Kms.), BEST (193.5 Kms.),
DTC (192.8 Kms.), Calcutta (137.7 Kms.), Pune MT (174.7 Kms) and Ahmedabad MTS
(140.5 Kms).
Even though there are wide variations across different corporations, the country as a whole witnessed increases in fleet utilization as well as productivity per bus. The details are presented in Table 2.3.
Table 2.3
Fleet Utilization & Vehicle Productivity
Year
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
Fleet utilization
Productivity
(Kms per vehicle held
Percentage per day): VU
1995-96 87.7
88.0
90.2
89.9
89.4
90.8
88.8
2002-03 92.1
271.0
270.0
278.0
279.0
281.0
284.5
282.8
296.2
2003-04 92.0 300.5
2004-05 92.1 304.8

2.2.2
Reduction in the Rate of Accidents
STUs have an appreciable record in controlling the rate of accidents. At the All
India Level accidents involving STU operations came down from 0.39 accidents per lakh km in 1995-96 to 0.18 accidents in 2004-05. Their record in reducing break down and cancellations of services is also commendable. The STUs also have an advantage in providing back up service in case of breakdowns and accidents in view of their huge fleet strength which private operators lack.
2.2.3 Occupancy Ratio
Occupancy Ratio (OR) is a critical factor in explaining the financial performance and profitability of STUs. The STUs suffered in this as a group, as it declined by about ten percentage points during the decade 1995-96 and 2004-05 from 71.04% to 60.96%.
This decline is attributed to the increased private bus operations and unauthorized operations of Jeeps, maxi cabs, and trucks carrying passengers. If concessional traffic is accounted for on normal season tickets basis, the occupancy ratio may go up to some extent but still this cannot explain the decline.
2.2.4 Manpower Productivity
There has been some improvement in the use of manpower as indicated by declining Staff per Bus Ratio, which improved from 8.06 persons in 1995 –96 to 6.90 persons in 2004-05. There are STUs with a low staff per bus ratio like, Rajastan STU with 5.43, Karnataka SRTC 5.75, North East Karnataka RTC 5.84 and Haryana ST 5.77.
There are also STUs with very high staff per bus of more than 10 like North Bengal STC,
Tripura STUs and ST Mizoram. The optimum Staff Bus Ratio is considered to be 5.50 and the present ratio of 6.9 for the STUs as a group is still on the higher side.
It is often pointed out that private operators operate with a lower staff ratio thereby minimizing manpower costs. However, inadequate staff to operate buses can endanger safety by forcing the crew to work for long hours and without adequate manpower being deployed on the maintenance of buses.
In recent years, there has been improvement in manpower productivity of STUs which increased from 37.9 km per staff per day to 49 km during this period (Table 2.4).
Several STUs however, have achieved manpower productivity (in Kms. of operation) of a

much higher order; for example, Karnataka SRTC (63.7 Kms.), Andhra Pradesh
(54.26Kms.), SETC Tamilnadu (74.21 Kms.) and Uttar Pradesh (50.14Kms.).
Table 2.4
Manpower Productivity in STUs
Years
Staff per
Kms/staff/day
Bus Ratio
1995-96
1996-97
1997-98
1998-99
8.06
8.08
7.71
7.74
37.9
37.6
39.6
40.7
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
7.56
7.26
7.46
7.03
6.88
6.90
42.0
43.0
43.9
45.7
47.8
48.9
2.2.5 Manpower Costs in STUs
STUs as a group are among the biggest employers in the country with nearly
700,000 people employed by them directly with substantial indirect employment also being generated by them. Further, STUs being seen as States' own agencies also employ their workers on terms similar to those of Government employees besides complying with the provisions of law relating to welfare of labour. The personnel costs of STU operations has steadily increased over the years from 395 ps / km during 1995–96 to 687 ps / km in 2004–05 at an annual compounded average increase of 5.69%. This increase is mainly the result of the periodical revision of wages to the workers which is necessitated when the State Governments revise the rates of dearness allowance to their employees.
The personnel cost across different sectors of Rural, Hilly and Urban transport services is presented in Table 2.5.

Table 2.5
Personnel Costs in STUs
Cost Per
Rural
Km
Hilly Urban Total
2000-01 2004-05 2000-01 2004-05 2000-01 2004-05 2000-01 2004-05
Personnel
529.96 592.32 997.85 1049.74 1248.11 1524.50 611.42 686.93
Costs
Total
Costs
1343.07 1569.38 1963.83 2166.96 2221.58 3167.34 1443.32 1729.32
Share of
Pers 39.5
Costs (%)
37.7 50.8 48.4 56.2 48.1 42.4 39.7
In spite of the frequent wage revisions, the proportion of personnel costs in the total costs of STUs has declined over the years. The share of personnel costs in the total costs at all India level was 42.4% in 2000-01 and 39.7% in 2004–05. The reduction in the personnel costs as a proportion of total costs has been due to productivity improvement of
STU fleets as mentioned above and due to the reduction achieved in the staff per bus ratio. It is also partly due to a steep increase in fuel costs in recent years, which has increased the share of fuel costs relative to personnel costs.
2.2.6 Fuel Efficiency and Fuel Costs
The fuel price pressure, has made STUs alert to the possibilities of savings through better fuel efficiency. STUs have managed to control the impact of price hikes of fuel to some extent by efficient fuel management. They are adopting various strategies for achieving fuel efficiency. Earlier the belief was that fuel efficiency was technologically determined and maintenance dependent. In the recent years the emphasis

has shifted towards better driving practices. This has shown tremendous improvements in fuel efficiency.
Overall fuel efficiency in STUs improved from 4.41 km per liter (kmpl) to 4.78 kmpl during 1995-96 to 2004-05. (Table 6). This represents about 8% saving in fuel costs. The STUs which have achieved a fuel efficiency of over 5.00 KMPL include the following: Andhra Pradesh SRTC 5.29, Karnataka SRTC 5.28, Gujarat SRTC 5.19,
UPSRTC5.03, Rajastan SRTC 5.00, NW Karnataka RTC 5.36 and NE Karnataka RTC
5.44. It is significant to note that several STUs are now focusing their attention on the use of bio-diesel or CNG.
In spite of substantial improvement in the fuel efficiency of STUs operations in the recent years, fuel costs have increased tremendously posing a major threat to the viability of STU operations. The share of the fuel costs at the all India level has increased from 25.20 % in 2000 – 01 to 30.48% 2004 – 05. In 2005 – 06 its share has
35.66% (Table 2.6). The share of fuel cost in Rural, Hilly and Urban in 2000 –01 and
2004 –05 along with the kmpl is given in Table 2.6.
Table 2.6
Variation in Fuel Costs
Rural
Urban
2000 –01 (Ps/km) 2004 –05 (ps/km) As of Sep 2004
(kmpl)
26.60
18.30
32.39
21.80
5.07
3.79
Hilly
Overall
23.84
25.20
29.50
30.48
3.59
4.78
The growth rate of fuel prices during the last ten years has been high at 14.94% per annum compared to the growth rate of WPI at 4.41%. From less than Rs.9 per litre in
1995-96 to about Rs.20 per litre in 2001 and about Rs.35 per litre in 2006. The following
Table 2.7 gives a picture of the increase in the price of HSD in comparison with the gradual increase in the prices of other commodities as reflected by the Wholesale Price
Index.

Table 2.7
Diesel Prices, Fuel Efficiency and Cost per Km.
Compared to Whole Price Index
Year
1
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
Diesel
Price
Rs./ Lt
2
8.86
11.45
11.55
17.50
19.43
19.66
21.96
25.2
30.86
35.66
(Kms.
Litre)
3
4.41
4.44
4.48
4.47
4.63
4.55
4.55
4.69
4.73
4.78
/ Cost per Km
4
2.01
2.58
2.58
3.91
4.20
4.32
4.83
5.37
6.52
7.46
WPI
5
121.6
127.2
132.8
140.7
145.3
155.7
161.3
166.8
175.9
187.3
Annual Ave
Increase 14.94 11.28 4.41
Source: CIRT, Pune
The steep increase in the price of diesel is also accentuated by the taxes levied on it by the Centre and the States. While the Central Government levies an excise duty of about
16% ad volerum on diesel, the States are levying sales tax at rates going up to 33% on the same commodity. This is shown in the cost structure of HSD given in Table 2.8 below. It can be seen from the Table that the share of the basic value of diesel ranges from 58% in
Mumbai to 71% in New Delhi. The share of excise duty ranges from 14% in Mumbai to
17% in Delhi. The implication of this is that every time there is a hike in the base price, there is a cascading effect on the overall price due to an automatic increase in the taxes levied on diesel.

Table 2.8
HSD Retail Selling Price – Rs/ KL
Mumbai New Delhi Kolkata Chennai
Basic Value 22,966 0.58 22,966 0.71 22,966 0.66 22,966 0.65
Excise &
Cess 5,684 0.14 5,343 0.17 5,561 0.16 5,342 0.15
Value +
Excise 28,650 0.72 28,309 0.88 28,527 0.82 28,308 0.80
Sales tax rate 33% 12.5%
Sales Tax
Amount 10,469 0.26 3,384
17%
0.10 5,859 0.17
23.43%
6,643 0.19
Selling
Price 39,672 32,246 34,952 35,504
2.3 Financial Performance
2.3.1 Financial Performance: Turnover of STUs.
The performance of STUs in financial terms is dismal but the burden borne by them is rarely appreciated. Also, they have been consistently adding to physical infrastructure in spite of poor earnings. Even though the capital base of STUs is estimated to be around Rs.8,000 crores, the value of the assets owned by all the STUs in the country may exceed about Rs.15,000 crores taking into account the rolling stock, the lands, buildings, and other items of infrastructure owned by them. Currently the total revenue earned by them is in the range of about Rs.20,000 crores per year on which they make a loss of Rs. 2,000 crores per annum. Some STUs like Karnataka SRTC, Bangalore
Metropolitan Transport Corporation, UPSRTC, Orissa SRTC, some Tamil Nadu STUs, etc. have been operating with profits during the last few years and have shown the way.
The poor financial performance of STUs in spite of their improving physical performance

is more due to the impact of the policies relating to motor vehicle tax, concessions and universal service obligations, unviable fare structure, and fuel price. The following paragraphs analyze these factors.
2.3.1Motor Vehicles Tax
STUs pay substantial amounts of Motor Vehicle Tax to State Governments, usually as a percentage of traffic revenue. The nomenclature, incidence and method of calculation of the tax vary from State to State. The amount of MV Tax paid over the years by STUs as a group at the All India level is shown in Table 10 below. The total tax paid in 2004-05 by 36 STUs for which data is available was about Rs.1,516 crores which represented 11% percent of their traffic revenue. For all the STUs together it is estimated to be around Rs.2000 crores per annum presently. It is rather significant that the financial losses suffered by the STUs annually in providing the much valued connectivity to people corresponds roughly equals the MV Tax. This point is illustrated in the Table 2.9 below.
Table 2.9
MV Tax - All India
(Rs. Crores)
Year
Total
Revenue
1995-96 9499
1996-97
1997-98
10088
11556
1998-99 12367
1999-00 14113
2000-01 15325
MV Tax
MV Tax rate
1135.22 0.12
1244.36 0.12
1347.93 0.12
1454.97 01.2
1541.95 0.11
1620.93 0.11
Losses
STUs
-1059.94
-1414.04
-1282.36
-1917.88
-2197.34
-1946.46 of
2001-02 16040
2002-03 16618
2003-04 18112
2004-05 19509
1635.20 0.10
1640.60 0.10
1810.26 0.10
1845.50 0.09
-2192.66
-1524.74
-1469.75
-1886.91

Thus it may be seen that the States have usually treated STUs as an important source of revenue while at the same time expecting them to provide inexpensive transport services to the people. This runs counter to public policy prescriptions of encouraging the development of affordable public transport. The impact of such high rates of taxes levied by the States is discussed later when individual corporations are discussed.
2.3.2 Reimbursement of Cost of Concessional Travel Benefits
Another factor that significantly affects the revenues of STUs is concessions granted by
State Governments to various categories of users of STU services. In most States, students as a category including those studying in technical institutions and courses of professional education are allowed to travel free or at nominal cost for a bus pass.
Similarly, many States have introduced schemes of concessional travel for physically handicapped persons, senior citizens, freedom fighters, etc. These concessions cost the
STUs heavily in terms of foregone revenue. According to statistics available with the
CIRT, the cost of these concessions to the STUs amounted to Rs.1,137 crores in 2000-01 and Rs.1,482 crores in 2004-05 (Table 2.10). While some States reimburse the cost of these concessions to STUs partly, in most cases such compensation by way of reimbursement is grossly inadequate. The following statement compares the cost of concessions to STUs with the overall losses sustained by them in their operations. It should be mentioned here that while the STUs are expected to provide affordable transport to students these cannot be expected to bear the full burden of the costs.
Year
Table 2.10
Trend of Concessions – All India
(Rs Crores)
Revenue Losses Concessions
Losses net of
Concessions
2000-01 15325 -1946 1137
2001-02 16040 -2193 1313
2002-03 16618 -1525 1525
2003-04 18112 -1470 1273
2004-05 19509 -1887 1482
-809
-880
0
-197
-405

2.3.3 Uneconomic Fare Structure
The rising operational costs, taxes, and the burden of concessional travel schemes introduced by State Governments are seldom adequately compensated in the fare structure of STUs which is also determined by the State Governments. For political and other considerations the State Governments are reluctant to allow STUs to revise their fares with a regular periodicity. This situation was noted by the National Transport
Policy Committee as far back as in 1980 when they noted that "many State Transport
Undertakings are presently operating at a loss, mainly on account of uneconomic fares which have been kept low as a deliberate policy of Governments. Such low fares are not in conformity with the principle of covering short term marginal costs. We therefore strongly recommend that fare structure of State Transport Undertakings should be revised and brought in line with costs structure. We also urge that within the broad policy frame which may be laid down by the proposed National Transport Commission, each Public Sector Undertaking should have the freedom and flexibility to revise and adjust its fare structure"
Thus, the fare structure of STUs in most cases is always found to be lagging behind their operational costs thereby forcing the STUs to operate at negative margins.
This is in spite of the fact that the operational costs of STUs were increasing at a much higher rate than the consumer price index or wholesale price index mainly on account of the steep increase in the prices of HSD. Therefore, the Earnings Per Km. (EPKM) of
STUs as a group were lower than their Cost per Km. (CPKM) as shown in Table 2.11 below:
Table 2.11
Profit / Loss Per Km (All India)
Years
EPKM
(ps / km)
Profit /
CPKM
(ps / km)
Loss
(ps/km)
1995-96 886.2
1996-97 941.8
985.1
1073.8
-98.9
-132.0

Years
EPKM
(ps / km)
Profit /
CPKM
(ps / km)
Loss
(ps/km)
1997-98 1026 1139.8 -113.8
1998-99 1051.5 1214.5 -163.0
1999-00 1157.7 1337.9 -180.2
2000-01 1280.7 1443.3 -162.6
2001-02 1335.4 1518 -182.6
2002-03 1419.6 1549.9 -130.3
2003-04 1460.6 1579.1 -118.5
2004-05 1576.8 1729.3 -152.5
Also, they are expected to operate on interior rural routes, hilly and remote areas which are highly subsidized. The STUs seek to cross subsidize such operations with the revenue generated on bus routes with better load factor. The scope for even such cross unremunerative is getting eroded in many cases with State Governments permitting private operators to operate the more profitable routes in competition with the STU buses.
2.3.4 Competitive Advantages of STUs
In the present situation it is obvious that the development of well coordinated public transport services required both the State Transport Undertakings and the private sector bus operators to play a major role in the coming years. However, so far the country has not been able to develop any major players in the private sector to run coordinated bus transport services. This sector is still dominated by small ownership fleets with very little investment in terms of infrastructure needed for running reliable and responsible public transport services. The levels of training and the working conditions of labour in the unorganized private transport sector are extremely unsatisfactory. Finally, the road safety

record of small fleet operators with ill trained workers can not be said to be satisfactory.
In such an environment it is the State Transport Undertakings which give public transport an element of reliability and coordination. The STUs have many strengths which need to be built upon in the coming years. They have a vast pool of professional managerial talent with long experience in running public transport systems. They have also built up in most States extensive infrastructure facilities for bus operation on a large scale. The
STUs have successfully operated uneconomical routes in rural areas cross subsidizing them with surpluses from the more remunerative routes. Indeed, there are examples of
STUs in our country running some of the largest bus operation networks in the world
(APSRTC owns the largest bus fleet operated by a single entity in the world). In spite of operating buses manufactured with outdated technology STUs have achieved very high rates of vehicle productivity, fuel economy, and manpower productivity. They have succeeded in training and employing a huge work force of skilled manpower which is approaching the one million mark in terms of directly employed workers. They have also achieved one of the main objectives of nationalization, namely, ending exploitation of workers in the transport sector by providing terms of employment which conform to accepted norms of labour welfare and labour laws. The STUs are also playing an extremely valuable role in many States in promoting social and economic development.
To cite but one example, the spread of education in rural areas (particularly among girl children) is greatly aided by the concessional travel facilities offered to students by the
STUs. It is our view, therefore, that these strengths of the public undertakings in this sector should be profitably used for developing public transport services in the country in combination with the private sector bus operators.
2.4. Technology
STUs have several advantages in adopting new technologies as they typically operate large fleets. They can introduce superior quality buses like Volvo as they have good in-house maintenance facilities. This is one area in which private operators lag behind. STUs have also started using extensively information technology for better commercial applications. STUs can therefore increasingly use technology as the differentiator if they have to leverage and showcase their huge fleet. Some STUs like

Karnataka SRTC have started using IT for Internet ticketing. Karnataka SRTC also has the distinction of being the first bus operator in the country to introduce Electronic
Ticketing Machines on all their buses. The websites of STUs also function as good sources of information to the public. The XI plan period should see the STUs adopting improved technologies in the operation and maintenance of their buses besides universally adopting information technology solutions in the management of their business.
Use of alternative fuels is another area which calls for major initiatives during the
XI plan period. With the prices of crude oil increasing to unprecedented levels, STUs need to make investments in technologies for use of alternative sources of energy. Use of electric trolley buses for urban transport services is a very viable option from this point.
Use of CNG and bio-fuels is already gaining acceptance with STUs. It would be most desirable for the Central and the State Governments to introduce schemes for providing incentives to encourage cultivation of bio-fuel crops and to support use of bio-fuels in public transport.
2.5 Summary of STUs Performance
We can summarize the analysis of this section so far as follows:
The fleet strength of STUs have stagnated in the last decade, may be due to the policy of center to encourage private operators. In many states even fleet upgradation programme have suffered.
The physical performance of STUs have been improving over years especially in the last decade.
There is wide variation in the performance across STUs with some states doing quite well and some states quite below benchmarks. It needs to be studied why these states are not able to catch up with the rest.
The improved physical performance of STUs is not getting translated into positive financial performance. Barring few corporations, most are loss making. This is being

attributed to high MV tax, concessions and cost of bearing social obligations, spiraling fuel prices and sticky unremunerative fares. In this context what is to be appreciated that some STUs like BMTC, KSRTC manage to make profits on the face of all these handicaps. It shows that while some share of the blame for poor performance can be placed on policies, poor management is also responsible for this.
2.6 Capital Structure and Investments of STUs
In spite of the absence of a clear policy to strengthen the capital structure of the
STUs, these organizations have been managing to improve their asset base. They have not been augmenting their buses but they have been trying to upgrade their buses. Here again some STUs like KSRTC, BMTC have been aggressively acquiring buses including the expensive Volvo buses while others are stagnating. In fact, the more profitable STUs are in the forefront of modernizing their fleets, which is indicative of a strategy for improving profitability. It is also noteworthy that the STUs have been consistently providing for depreciation reserves of substantial amounts, which was in the range of about Rs.900 crores to Rs.960 crores during the period between 2000-01 and 2004-05.
2.6.1Capital contribution to STUs.
In the wake of the formation of State Road Transport Corporations, the Central
Government had introduced a scheme for making capital contributions to the STUs to strengthen their capital base. Under the scheme the State Governments also had to extend corresponding budgetary support towards the equity of the Corporations. The
Central Scheme of capital contributions to STUs has not been operated since the year
1994-95. Unfortunately the State Governments too have found it convenient in most cases to discontinue their capital contributions to the STUs. This coupled with the losses sustained by the STUs due to the factors discussed above have almost completely eroded the capital base of most STUs in the country. Thus, the STUs are forced to continue with accumulated losses on their balance sheets and managed their operations with borrowed funds and occasional grants from State Governments. Borrowing of funds by the STUs with their negative net worth has also proved to be difficult and expensive. The combined

outstanding borrowings of all the STUs for the year 2004-05 stood at about Rs.8,000 crores with a debt servicing liability estimated at Rs.855 crores.
2.6.2 Replacement and Augmentation of Rolling Stock
The cost of rolling stock, spare parts, tyres and tubes, etc. have been steadily increasing over the years. Given the operating conditions in India the buses need to be replaced over a much shorter period than is the case in other countries. The STUs therefore find it necessary to replace about 12 to 15% of their rolling stock every year to ensure that the over aged vehicles are phased out from their fleet. Further, there is also the need to augment their rolling stock at the rate of at least about 10% every year to meet the demand for increased passenger services. Thus, the STUs need to acquire new rolling stock every year to the extent of about 20-25% of their current fleet strength if they have to provide satisfactory service. The demands of long distance bus users and the urban commuters for buses of superior design and comfort have made it necessary for the STUs to invest substantial amounts to acquire new rolling stock of a superior quality.
The above factors go to show that the STUs need to invest in acquiring about
25,000 to 30,000 new buses every year to sustain efficient operations. These resources have to be generated annually out of their depreciation reserves and profits. A significant part of the cost of the rolling stock is accounted for by Central and State taxes. The excise duty levied by the Central Government at 16% on the bus chassis and the sales tax/VAT levied by the State Governments on the chassis as well as the bus bodies amounts to about 25% of the total cost of a bus acquired by an STU. The incidence of tax on the cost of a typical bus is shown below Table 2.12:

Table 2.12
STATEMENT INDICATING EXTENT OF EXCISE DUTY
& VAT PER BUS *
(In Rupees)
Items of cost Basic Price Excise VAT Total
Chassis 507000 93589 75074 675663
Bus Body
Labour cost with overhead
265000 42400 36888 344288
165000
Per Bus 772000 135989 111962 1184951
Total ED+VAT/Bus Rs. 247951 (20.92% of cost of bus)
2.6.3 Investment in Infrastructure
While the State Transport Undertakings operate only about 20-25% of the bus services in most States (in States like Andhra Pradesh, Tamilnadu, Karnataka, Maharashtra, STUs operate more than 50% of bus services), they are required to provide the bulk of infrastructure facilities like bus stations, bus shelters, and other passenger amenities.
The STUs are usually required to meet these obligations out of the revenues generated by their operations. In addition, the STUs also have to invest on the construction of bus depots in different parts of the State and provide workshop facilities in order to be able to provide reliable transport services to the people. This is in contrast with the private bus operators who are not expected to invest on bus stations, bus depots, etc. owing to the small size of their fleets in most cases. While we do not have any reliable estimates of the investments made by STUs in respect of infrastructure, it may be reasonable to assume that such investments account for at least 20% of the value of the rolling stock owned by the STUs or about Rs.2, 500 crores. The STUs in many cases have borrowed funds or used their own revenues for making such investments on infrastructure and they incur substantial finance costs on such investments made for the benefit of the traveling public.

2.7 Inter STU Comparison
In this section, we discuss performance of select STUs on the parameters discussed above for deeper understanding. At STU level we find that each The STUs were chosen to represent different categories of operations: (Refer Exhibits)
State wide: APSRTC, KSRTC, Gurajat RTC, Rajashthan RTC, Uttar Pradesh RTC.
Urban Transport: DTC, BEST, Chennai Transport Corporation, Ahmedabad Transport
Corporation
Hilly Area: Uttranchal and Himachal Pradesh.
We have also presented the Tamilnadu State Express Transport Corporation as a case of long distance operations. We have presented in Table a comparative picture of performance of these corporations for the period 2004 -05.
In all the State level Corporations we observe the fleet strength has remained stagnant or actually came down. Some of them should have been even managing by extending the age of the fleet than replacing older fleet. At the same time passenger traffic should have been growing at steady rate. It means their traffic has been weaned away by the private operators and none of these states have any stated policy for encouraging private participation. So it has been happening by default. So, it is difficult to say this is due to the result of encouragement given to private operators as no tangible actions have been taken during this period.
It can be observed that even the physical count of passengers traveled have been going down. The STUs suffered in terms of occupancy rate also. This is attributed to both competition from private operators of all categories and old fleet. We find this happening irrespective of the segments.
At state level all corporations made losses excepting Karnataka, Punjab and UP which managed to break even. Pepsu incurred a nominal loss. This is more or less a repetition of all India level story. The physical parameters in areas like fleet utilization, vehicle

utilization and fuel efficiency are reasonably good excepting Punjab. There is significant difference among them in Bus Staff ratio with states like AP and Karnataka on the higher side and Maharashtra and Gujarat on higher side. There is but wide variation in the cost per km (CPKM). Some states are unusually high at Rs.21.42 (Punjab) and Rs.17.65
(Pepsu). The high cpkm could be due to lower vehicle utilization as much as due to higher cost structure.
One general observation that can be made is that ban on augmentation itself could have acted as the cost driver. Ban on augmentation without a VRS scheme would have only resulted in higher BSR and administrative expenditure per bus or per km. The productivity gains may not get translated into financial gains as the expenditures are committed.
In urban operations BMTC is the only profit making corporations. It has been on expansion path and has been able to keep the costs down. Its BSR is among the lowest. In fact the statistics on BSR is quite revealing. The BSR in Delhi, Mumbai, Ahmedabad are very high indeed. The share of the personnel cost is also very high. The personnel cost in urban centers are bound to be high because of higher emoluments but this should controlled through leveraging on high density traffic and time management. These are also the corporations which remained stagnant in terms of fleet strength. Their fuel efficiency, excepting Bangalore and Chennai are poor. These corporations would need hard review and there is immense scope for improving the operational performance.
In fact the losses and extent of losses defy predictions. Himachal Pradesh STC operating in the hilly terrain is making losses only marginally at Rs.27 crores in 2003 – 04. It its fleet utilization is high but occupancy rate is low at 46%. Its BSR is quite impressive at
4.89. Its fuel efficiency is low and that may be because of the terrain. But we find that its fuel efficiency is same as the one in urban centers, though it is common to blame fuel cost for uneconomic operations on hilly terrain. The fuel efficiency of Uttranchal is quite good at 4.74 km pl. Its losses are also only marginal.

In general it can observed that that load factor or the occupancy ratio has been going down. This is bound to happen as the share of private operators start increasing as their frequencies will be increasing over time. The impact of these on revenue potential finally gets reflected on the EPKM which has been showing only incremental growth.
2.8 Inter State variation in MV tax
There are wide variations in MV Tax rates among States ranging from 17.35% (Uttar
Pradesh SRTC) to 5.5% (BMTC) as of 2004-05. In States like Gujarat and Maharashtra also the Motor Vehicles Tax is as high as 17% of the turnover of the STUs. In Rajastan,
Motor Vehicles Tax is assessed as a 2.1 percent of the current cost of the bus chassis to be paid on a monthly basis. This works out to about 25% of the cost of the chassis per annum. Thus, over a span of eight to ten years the RSRTC pays more than four times the cost of the chassis on each bus. It is reported by the Rajastan STU that due to an unscientific formula used for assessing M.V. tax on the basis of reported vehicle utilization, the Motor Vehicles Tax of private operators is assessed at about 25% of the rate applicable to buses operated by the Rajasthan STU. Most private operators report a low vehicle utilization of less than 100 to 150 Km/day and pay M.V. Tax at very low rates. The RSRTC on the other hand, has to pay M.V. tax at a much higher rate reporting a higher actual rate of vehicle utilization. Such differential rates of tax discriminating against STUs are to be found in other State also. In Uttar Pradesh, the average passenger tax levied on the UPSRTC was about Rs.2.35 lakh per bus in 2004-05 while during the same year the private bus operators had to pay only at an average of Rs.0.85 lakh. Also, in Haryana, the passenger tax is levied at 60% of the basic fare while in Punjab the State collects M.V. Tax at Rs.650 per seat per annum in addition to a Special Road Tax of 5 paise per Km. per seat which together works out to an average tax liability of Rs.3.93 lakh per bus owned by the STU in the year 2005-06. During the same year private operators had to pay Rs.2.80 lakh per bus which was 29 per cent lower than the tax paid by the STU.

2. 9 Impact of ‘No Growth’ Policy
We pointed out the impact of no augmentation of fleet policy on the revenue side. It does not seem to contribute to control of costs also as many costs are committed costs. We find that in most of the corporations fuel efficiency has been showing improving trends, but when it comes to personnel costs the improvement is only marginal. In all corporations it can be observed that BSR has been coming down though there are some corporations still with high BSRs. BSR has been very high and achieving some improvement is like tapping a low hanging fruit. However, may be because of the labour laws and the fact of operating in public sector, the productivity gains are not getting translated into trimming staff strength or saving in costs. For saving in labour they have to wait for natural attrition, as the option of firing of labour does not arise. Even VRS has been rarely attempted in this sector. It can be observed that in absolute terms of number of employees have remained the same or have marginally come down. The salary bills have been increasing mainly because of increasing wage rates. Their salary levels are generally dovetailed to the employees of government and not to their productivity. So, this is again an externally imposed constraint.
The overhead have a tendency to build on itself. For example, we find that the cost of spare parts and components per km has remained the same or reduced due to better buses, roads and maintenance. But the maintenance expenditure has remained more or less stagnant as the maintenance personnel cost or expenditure of infrastructure do not come down easily.
One way of improved productivity could have translated into saving in cost is if the organization is on expansion path as the same infrastructure could been used to cater to larger fleet. Since the organizational growth has been restricted, the sticky personnel cost and overheads has lead to only higher share of overheads per km.
This ‘no growth’ policy should have been followed by VRS policy. In the case of
Madhya Pradesh, the stagnant growth lead to only huge accumulated losses and loans.
The story of MPSTC is presented in a BOX. Here the cost of winding up was also equally

capital intensive. The overall cost of winding up was Rs.1600 crores. It is still to be seen if this has lead to better situation.
Each state has had its own committees at various point of time. The gist of Committee set up by Maharashtra Government is produced in Annexure III. There are variations in the policy on nationalization, privatization of routes, privatization of operations, concessions and compensation, etc. The policies and thrust can also change from government to government in a state. These determine the operational viability and financial viability of these STUs. Each state has a system for issuing permits and regulating routes. All these call for national policy, which can set the guideline and benchmarks and institutions.

Chapter 3
Private Transport Operators
3.0 General
Private operators have been a complementary role and they have been aggressively occupying the space vacated by state operators. They have developed a wide network of operations and run through all major centers of the country. It has lead to a generation of large entrepreneurial group, like the road cargo sector. If we also include the unauthorized operators like jeeps, maxi-cabs, and even trucks, the reach of private operators is even more. They run even in interior rural areas and hilly areas. The major lacuna of this development has been absence of organized large-scale players in the field. This field has been mostly occupied by unorganized small fleet operators barring some whom we can call at the most call as medium sized operators. The challenge to policy makers lie in reigning in these unorganized operators and making the sector attractive to large scale players. We present below the industrial structure of private operators and their operational characteristics.
3.1 Private Operators Role in Select States
3.1.1. Rajasthan
1n 1979 the Rajasthan Government issued 64 permits to private operators to operate bus se1rvices along side RSRTC buses in Jaipur. In two years the private operator’s share of buses increased to 122, which resulted in unhealthy competition forcing RSRTC to withdraw its services in 1984. Subsequently, to meet the increasing traffic demand the
State Government issued permits to private operators to operate different kinds of services and as on 31.12.1990, Jaipur had 2750 auto-rickshaws, 223 vikram taxis, 700 tempos and 289 mini buses.
The service level provided by private operators was far from satisfactory and there were frequent complaints of over-charging, rash driving, rude behavior of crew, non-adherence to scheduled time tables, not starting services till the vehicle was fully loaded, very poor

condition of the vehicle and the resultant breakdowns and overloading almost twice the capacity of the vehicle etc. This situation compelled the Rajasthan State Government to convene a meeting and directed RSRTC to restart its services in Jaipur.
3.1.2 Orissa
During the later part of 1970’s private operators-owned and operated 2160 buses in
Orissa state while the state-owned Orissa Sate Road Transport Corporation (OSRTC) had operated only 712 buses. Between the period 1978 and 1988 the fleet strength of the private operators doubled while of RTC’s fleet declined. OSRTC’s fleet utilization was one of the lowest in country during 1991-92. With major share of buses with the private operators, they were very powerful and influential. While the private operators cornered
91.3% of the total profitable routes in the State, OSRTC was forced to operate all other non-remunerative routes spread all over the State. Taking advantage of this situation, the private bus operators demanded a fare increase from 10.0 to 20.0 paise per passenger km which the government could not agree, forcing the private operators to go on strike.
3.1.3. Mandhya Pradesh
In Bhopal city, largely private operators provided public transportation while the Madhya
Pradesh State Road Transport Corporation (MPSRTC) was providing services only to government servants and school children at concessional rates. About 400 mini buses,
417 tempos and 4600 auto-rickshaws were involved in providing public transport requirements in Bhopal city. Since the fare structure in respect of various modes differed, public interest was the first victim in the ensuing heavy cut throat competition. Major causes for the large number of accidents by private vehicles were rash driving, dangerous overtaking, and the poor quality of the drivers employed by the private operators.
3.1.4 Andhra Pradesh
Private operators till 1978 provided the road passenger services in Vishakapatnam. They were operating 44 routes with 124 buses. The bus operation was found to be tardy and there were frequent accidents involving private buses. During the year 1978, the
Visakapatnam city witnessed a large-scale public agitation and law and order problem on

account of the poor bus service in the city. The agitation compelled the State Government to issue directions to the Andhra Pradesh State Road Transport Corporation ( APSRTC) to introduce bus services in Visakapatnam. Ultimately APSRTC had to introduce 100 buses with effect from 11.12.1978, which was subsequently increased to 129 by
20.12.1978.
In Vijayawada private operators provided passenger services. The traveling public was not satisfied with the services provided by the private operators with the result
Vijayawada witnessed a series of agitations leading to law and order problems. Thus
APSRTC introduced bus services in Vijayawada.
Prior to 1987, private operators were providing bus services in the district of Srikakulam.
There were numerous public complaints about private operators that their services are not reliable, not safe, not punctual, inadequate, poor quality and they are only interested in making quick profits, etc. This situation forced the Andhra Pradesh Government to nationalize the bus services in Srikakulam in 1987. After the nationalization the fleet of buses in Srikakulam started increasing on an average of 15.1% compared to the 5% increase before nationalization. With appropriate scheduling and increased fleet APSRTC operated 1.08 lakh passenger kms daily compared to 53,311 passenger kms per day operated by private operators prior to nationalization. A random survey revealed that the public in Srikakulam district are happy with nationalized passenger services of APSRTC compared to private operations.
3.1.5 Kerala
In Kerala both state-owned Kerala State Road Transport Corporation (KSRTC) and private operators provide passenger bus services side by side. While the private operators share in the total passenger buses in the state is around 89%, the KSRTC’s share is only about 11%. Because of their major share in the total fleet of buses the private operators are very much organized and are very influential. In the beginning of 1990’s the private operators in the State went on an indefinite strike pressing for an increase in the existing

fare structure. The strike went on for a couple of days forcing the State Government to increase the fare from 12.5 to 14.0 paise per passenger km.
3.2 Factors influencing private operators
The following factors in general are influencing most of the operators. These factors were identified based on discussions with a number of private operators located in Hyderabad,
Bangalore and Pune.
3.2.1 Easy Entry – Easy Exit
The passenger road transport sector is characterized by free play for small time operators, if we leave out the state transport services. Anybody, even with one bus can start a service. They can almost operate at will. There are certain routes which have been de-nationalized in which they can operate. But they may just take license for one route and operate on some route which they find profitable. They start as contract carriers but operate more as stage carriers. They are also fleet footed. The moment they find a particular route unprofitable they shift to another route. They can cut frequency and change routes depending upon traffic flow. In fact, even the larger players in this industry complain about these small fleet operators. They are also threatened by substitutes. Just as state transport operators complain about private operators these unauthorized bus operators complain about maxi cabs and autos that are also unauthorized.
3.2.2 Low Investment – Low Technology
It is a low investment industry and bankers are willing to fund bus service operation. The performance of these buses should be good and that is why the bankers are willing to lend. The performance is good because these operators are not bound by any route restrictions or service obligations and pay lower taxes. The technology has been mostly stable excepting in recent times when Volvos started flooding the market. Maintenance is simple and can be outsourced. Often they don’t even maintain a garage.
3.2.3 Faster Pay Back
Unlike other services, bus services start fetching returns from day one. It generates cash daily and if we consider passes, these are in fact advances. That is why debt servicing is

also not a problem for them. Their operations can in fact be characterized as highly liquid by unviable.
The main issue about these operators is that they lack any long-term stake in the sector.
They are there to reap short-term gains. This attitude is antithetical to management public utilities.
3.2. 4 Control
The dominance of small fleet operators has made any regulatory efforts a big failure. It is very difficult to monitor and track these operators. There is complete lack of any information about their operations. That is why it is difficult to monitor their schedules, frequencies, and traffic patterns.
Most of these operators are proprietary concerns and they maintain little physical or financial data. This nullified practically any critical analysis of their revenue model or their cost structure from our study point of view.
3.2.5 Revenue Model
It emerges from the study that organized operators mostly prefer inter state operations as that is the most profitable. Very few organized players are there in the intra state segment. They are very adept in identifying profitable routes and are flexible in scheduling. They are also aggressive in their pricing. They follow different pricing depending upon the peak hours and peak days. They also work through a network of booking agents. There are some states like Karnataka which have denationalized intra district routes. Here they are expected to operate on scheduled routes and frequencies.
It also emerges that these operators also operate on thin margin. In Karnataka it was found that the moment KSRTC allowed flexi fare decision to its Divisional Controllers, the private operators could not face the stiff competition from them. Similarly, they again found that the moment KSRTC introduced new buses the private operators finding it difficult to compete with them. Many of the operators simply moved away to other routes. They also could not cope up with the recent fuel hikes, as the RTCs did not follow it up with fare hike.

It also emerges that in each state there are very few operators with more than 50 buses.
They all mostly own in the range of 5 to 10 buses. This may be because recent hikes in fuel costs and RTCs stubbornness in not hiking fares has made many of these services unviable even for private operators. This again establishes the point that this sector is still unattractive for organized players. Even in cargo movement we find organized players like TCI, TVS etc, but in bus services we hardly find any organized players.
They try to complement their earnings through revenues from unaccompanied luggage.
This is especially lucrative in the case of inter state movement. The contribution from this source can range from 15% to 25% depending upon the aggressiveness of the operators.
They work on the principle of earnings per bus and as long as it covers the cost of running they are satisfied with it. Their earnings per km may work out like this. Their average VU per month is about 600-625 km/day. They also assume revenue from lugguage to the tune of 15% to 25% of the traffic revenue. Many operators opine that the latest high technology buses may not be viable on many routes. The business model of these high tech buses is yet to be established. These may succeed as long distance inter state operations or as tourist buses.
3.2.6 Cost Structure
The study sought to construct the cost structure of private operators but found it extremely difficult. It was observed that the operators hardly maintain any physical or financial information. Also, since these are proprietorship they do not have to disclose financial information. They work with basic information like average vehicle utilization in a month, earnings per bus per trip, earnings through lugguage, crew salaries, fuel efficiency, bus cost, etc.
We tried to normatively construct their cost structure. They provide for double crew on long distance. They are engaged beyond normal hours. They may not have conductors on these trips. Their fuel efficiency is low as they are not so much focused on this as their maintenance is not professionally managed like RTCs. Excepting the large operators rarely they own any maintenance depots. Their overheads are low as they are mostly

owner managed. They do not maintain huge office infrastructure. They maintain meager infrastructure for maintenance. They are at an advantage when it comes to MV tax as they pay per seat per quarter.
The cost per kilometer of Volvo and luxury bus has been worked out as presented in
Table 3.1. We constructed this cost structure normatively based on the information supplied some operators. On an average the cost structure is expected to behave on the pattern depicted in the Table. It is based on the assumption that Volvo will be running
500 km per day and luxury bus 350 km per day.
Table 3.1
Economics of Private Operators ( Rupees)
Component
Volvo
Rs / Km
Share of cost %
Luxury
Rs / km
Share of cost %
Fuel
Personnel
Maintenance
Depreciation
Interest Cost
Misc
Total
Earning Per Km
Profit Per Km
12.60
2.10
2.80
5.60
3.40
2.10
11.89
7.34
28.60 100.00
36.00
7.40
44.06
7.34
9.79
19.58
8.00
2.50
1.75
1.85
1.50
1.60
17.20
21.00
3.80
46.51
14.53
10.17
10.76
8.72
9.30
100.00
They try to manage cost by controlling personnel cost, maintenance and overheads. Their cost of bus and depreciation have been going up as competition is getting severe. They are competing on bus brands like Volvo, and interiors and facilities. The cost structure of organized operators is slightly different as they maintain marketing office and have better maintenance infrastructure. Of course they are not under any obligation to build any infrastructure for passenger amenities or bus stands or depots.
3.2.7 Quality Parameters
The stress on bringing in organized players is to usher in professionalism and concerns for quality. It may be fashionable to say that market will determine the quality aspects of

service. The absence of credible alternative public mode, has left the public with no option except to go for any service that is in operation. For example, they may not even have spare bus in case of break down or accidents. They fail miserably on quality parameters like:
Bus conditions
Reliability of service
Crew Behaviour
Accident rates
Passenger amenities
Maintenance infrastructure
The services provided by private operators are a far cry, excepting select leading operators in each state as pointed out by the survey conducted by IIM Bangalore.
3.2.8 Competitive Edge
The competitive advantage of private operators is very clear. They are entrepreneurial and market driven. This they are able to adopt because as of now they are not burdened by any social service obligations. They are cost effective. Because these are entrepreneurial they are cost conscious and try to control, build up of overheads. The share of personnel cost is quite low compared to STUs. They may lose some of these advantages if they are brought under regulation and are asked to follow labour laws, quality parameters and service obligations.
3.2.9 Policy Issues Confronting Private Operators
Discussions with them indicate that they are equally concerned about Policy Dilemmas.
The large players among them feel that they are also providing a useful service, which goes unrecognized. They would like to have clarity on their role and what is going to be the policy on privatization of routes. They feel piecemeal privatization will not help. In the absence of clarity on this they are not definitely willing commit resources to this sector. They are open to operating on intra district routes and intra state routes if they are provided with appropriate policy and tax support. This is discussed under USO under policy section. They also would like to see a strong regulatory body as with in their

group organized operators face difficulties with unorganized operators. They feel they should be control on the number of players who can operate in each segment. Too many players can spoil the case. They are wary of concessional segment though they are willing to cater to them as long as the subsidy is compensated. They agree that they cannot provide infrastructure the way STUs have built up. They also opine that they should be given access to bus stands for which they can be charged a fee. They quote
Chennai Model as the case.
3.2.10 A Relook at Privatization Options
The primary objectives of privatization in this sector will be to encourage competition and to encourage large scale organized players to enter the field. This can only ensure economy of operations, fresh injection of funds in the sector and professionalism in the field. Otherwise it will be RTCs at one end of the spectrum and a host of small fleet operators at the other end of the spectrum. Both groups are difficult to be managed through government control mechanism. It is important to expose the RTCs to competition but at the same time ensure level playing field. These also need to be freed of controls if they have to face competition. One group alone cannot have unbridled freedom.
The privatization has to be thought segment wise. The segments that we would like to prescribe for policy making is:
Inter State
Inter District
Intra district
Urban
Interior rural and Hilly.
Each one of these segments would require tailor made approach and solution.
Privatization also has to proceed keeping this segmentation in mind.
Of course, in all cases of participation by private parties the governments should prescribe minimum number of fleets that should be owned by them and corresponding infrastructure. It should also specify quality parameters and labor requirements. It should

also specify maximum number of players who can operate in a segment. We suggest three to four players in each segment of which one should be government operator. This helps to control if they tend to operate as oligopolists and will also help to set benchmarks. While privatizing routes, an exercise has to be taken to asses the traffic needs. This should be in fact a continuous exercise. It should avoid excessive competition or lack of service.
Small fleet operators can join together under a banner and compete. One can as such prescribe that each operator should have at least 50 buses which can be scaled up later.
They can have it either on their own or come together. This will ensure some economy for them also. This will also ensure that they maintain certain level of infrastructure. The policy should have sufficient Entry Barriers so that everybody cannot enter the field at their will. It should also depend upon due diligence of the operators. They should also exhibit better management practices in terms of crew training, information system and accounting, compliances and engineering.
The licensing will be based on agreed upon norms for fare fixation, traffic flow and productivity, like it has been implemented in highways sector.
Inter state routes are the most lucrative ones. These routes can be auctioned and the surplus from this can be put into a fund, which can help subsidize operators who work in loss-making routes. They can be auctioned on the basis of rent which they are willing to pay for the quarter. It can be per bus or per schedule.
Intra state or inter district is also fairly profit making operations. Here also it can be auctioned. Alternatively, inter district and intra district can be combined as these run parallel in many segments. The government can form Blocks of these routes and can auction the entire block. As mentioned before each block can have three players of which one will be RTC. The Blocks should be formed such that it should include also lossmaking routes. The operators are expected to cross subsidize and still return a surplus to the government.

Purely loss making routes like interior rural routes or routes covering remote areas or hilly areas can be treated separately. These would form the Universal Service
Obligations. These can be auctioned on what kind of support that would be needed. They can ask for Tax waivers or for financial support. This is supposed to be met through generated from profit making routes.
In urban sector again some support may be needed. Here again they can form Blocks and auction these. Here the operations may not be viable as it will have huge concessional segment, low Vehicle Utilization and off peak operations.
Alternatively, each route can be auctioned. Here if a route is identified as profitable it should be on the basis of license fees that an operator is willing to pay. If it is expected to be a loss making route then it should be based on the support that they would require.
This principle is followed in London transport. Here again it will lead to proliferation of operators.
Another alternative which can be anyway pursed is that RTCs should increasingly outsource their operations. They can hire buses instead of owning all the buses. They can easily hire up to 25 % of their fleet strength. This will also meet the objective of involving private entrepreneurs in this sector. There are various practices for compensating these bus owners. Each RTC can device its own practice. It can also outsource maintenance activities which are non critical. It can even outsource its existing maintenance infrastructure and which have huge excess capacities. O & M can be left to private operators. This will also help in reducing costs. In facts many states have their own tyre-rethreading units also.
Privatizing operations and allowing private parties will in fact lead to better tax realization as they are now operating illegally.

In privatization, globally the experience has been that it is equally necessary for governments to ensure viability of both state run corporations and private operators.
Initial responses will be towards curtailing RTCs but it should take care that it does not lead to sickness of RTCs.
One suggestion that is made is that RTCs themselves can act as the licensing body. It can decide which routes to be privatized and the license fees. It is felt this might lead to conflict of interest and it may not lead to the desired result of aggressive privatization.
Here RTC itself is a stakeholder and so they may be viewed always suspiciously both by the private operators and general public.
3.3 The Global Trend
The policies of Government have also been going against global trends and local needs. The global trend is to treat public transport as a public utility and as a contributor to overall development. Public transport services whether provided by State or private operators, are subsidized in most countries. For example, in European countries like the
U.K., France, Sweden, and Switzerland, the cost of operation of public transport buses is subsidized by the States from about 40% to 75%. In some European countries there is a practice of imposing taxes on private vehicles or on firms employing more than a minimum number of people to raise resources for subsidizing public transport facilities as bus transport is treated more as a public utility service than as a commercial undertaking.
The global trend is also to encourage public transport and discourage private owned vehicles. In India the policy appears to be working against both these propositions. It encourages private owned vehicles by offering tax exemptions/reductions and is punitive in its taxation of public transport. Within public transport, it is more supportive of private than state owned providers.

Chapter 4
Revitalizing Passenger Transport Sector in India
4.0 General
The data presented and analysis carried out in chapters 2 and 3 clearly brings out that all is not well with public passenger transport sector in India. Even though, the sector is opened up 15 years back and many administrative measures were taken to encourage private participation in this sector, the reach and scale of operations are not impressive.
This chapter presents the steps that may be initiated in the 11 th
five year plan to revitalize this sector in the interests of commuting public. Incidentally, encouragement to this sector positively contributes in conserving energy usage and environment.
4.1 Policy Analysis & Gaps
The analysis of the performance of the STUs goes to show that the STUs have been greatly constrained in providing adequate service to the people mainly by the policy environment in which they have been functioning. They are burdened with social obligations but get respite in taxes or financial support. Though a major employment generating sector the bus operators do not get concessional rates of excise duty and their vehicles are in fact taxed higher. In fact the recent announcement of reduction of excise duty in respect of certain segment of Cars seems to actually favour personalized transport vehicles vis-à-vis public transport vehicles. Even though they were set up as public undertakings with capital investments from both the Centre and States the capital contributions from these Governments have been stopped in the recent years. Finally, due to poor regulation of bus transport system the private sector bus operators are encouraged to poach on the remunerative routes of STUs often without valid permits.
The situation took a turn when the Planning Commission came to the conclusion in its mid term appraisal of the 7th Five Year Plan that the
" ….demand for passenger services is not likely to be met in full and satisfactorily through State Owned Systems.
Over the next twelve years the road passenger traffic, both inter-city and intra-city is

projected to treble. In this context the issue of inducting private sector to augment passenger services assumed importance. The 7th Plan visualizes this position and envisages a more stable regime regarding the role of private transport ".
Subsequently, the enactment of the new Motor Vehicles Act, 1988 paved the way for large-scale entry of the private operators who were granted stage carriage permits under the liberalized regime of the new legislation. This created hurdle for STUs to grow but there was no concomitant policy to encourage private sector. This lead to vacuum in service which got filled up by unauthorized operators of all modes.
The development of public transport facilities in the road transport sector greatly suffered thus more due to the absence of a comprehensive policy which should have spelt the role of both public and private trasnport. In the rural areas many commuters are even today forced to use unsafe and unauthorized modes of transport. In urban areas inadequate provision of public transport has resulted in the proliferation of two wheelers and other personalized modes of transport vehicles. This has also added to atmospheric and noise pollution reducing the quality of life in our cities. Inadequate financial support to the development of public transport has also prevented the technological up gradation of public transport vehicles in the country even though state-of-the-art cars and other vehicles have become common. All these factors go to show that the country has so far not been successful in developing adequate, affordable and responsible public transport services to meet the needs of our fast growing economy.
The performance evaluation of both public and private operated transport system show gaps in policies. To begin with it is important to have an idea of what is the resource gap and who should play what role. It is important to make an estimate of demand for various segment of transport services as mentioned before and identify the gaps is service. In this connection it is important to assess the suitability of each player and decide who best fit to serve which segment. The segment discussed earlier are: inter state, inter district, intra district, interior rural, hilly and urban segments. Different approach will be required for each segment. Presently the void created by the lack of growth and provision is being filled by private operators more by default than by design. In the section on privatization

we have discussed various methods of privatization and engagement rules for private operators. We also earlier discussed the competitive advantage of private and public operators. The above discussion might broadly provide the guidelines for deciding on respective roles and rules of engagements.
Presently the policy framework hardly spells out clearly on many areas. There is no fare for public transport. At another level there is no policy for protecting them against fuel hikes or allowing them to revise fares to compensate fuel price hike. Each state decides on its own and final outcome depends upon states’ priorities. There is no guideline for fixing fares and these are infrequently fixed subject to government approval. The fares hardly reflect the reality of cost pressure and service obligations. There should be fare policy which should specify operational benchmarks like break even points, returns, and service obligations. Even on service obligations there is no consensus on how much the
STUs should bear and how much the other stakeholders should bear. Compensation for these are sporadic and ad hoc.
It is also not clear from the levy of motor vehicle taxes in various states about the philosophy behind these taxes. Many states seem to see it as a vehicle of indirect tax and as a source of revenue. Its relation with the expenditure of roads and other infrastructure is not clear. It is not clear why private modes of transportation get more support than public mode and within that private operators.
We would like to stress the importance of creating healthy competition in this field which would mean positive encouragement to privatization. The focus should be on creating level playing field between these two players. STUs may need to be freed of their shackles and private operators may need to be provided protection for their investments and encouragements. The focus should be on attracting organized large scale operators into the field. There is also a need for policy specification on bus technology and road map for the same. Similarly, also for pollution control. A study of road transport operations across the states show that either these policies are absent or there is significant variation.

4.2 Future Scenario of Development of Passenger Transport Sector
Having assessed the present status of the sector and the shortcomings of the policies pursued in the past it is necessary to set down the objectives for developing public transport in the near future. The overall objective would be to provide adequate public transport service which would meet the growing aspirations of the people in all parts of the country at costs affordable by all sections. We discuss below the growth path for this sector which would help identify the resource gap and enunciate policy measures.
The inadequacy of the existing public transport services can be remedied in the short to medium term perspective by the expansion of the bus transport services both by the STUs and private operators. The automobile manufacturing sector in the country has made great strides in the last ten years and the sector is capable of expanding its capacity for producing buses within a short period if adequate demand is assured. According to the
Society of Indian Automobile Manufacturers the bus manufacturers are at present producing about 30,000 units per year which is less than 10% of the total number of buses in operation in the country. This needs to be increased to about 60,000 per year to meet the replacement needs of the existing fleets of both STUs and private operators.
Further, new bus manufacturing units also need to be encouraged to enable significant augmentation of the existing number of buses in the country.
4.2.1 Fleet Modernization
The present rolling stock owned by the STUs and private operators is based on somewhat inefficient technology and there is an urgent need to upgrade the quality of buses. The STUs need not only augmentation of its fleet but also up gradation of its existing fleet. Many STUs have already demonstrated that buses incorporating improved technology even though more expensive than the conventional buses can be operationally viable as there is a segment of the passenger community which can afford the higher fares. The STUs need to go for large up gradation of their ageing fleet which has suffered from lack of resources.

4.2.2 Passenger Amenities
For the proper development of the public transport sector it is necessary to vastly upgrade infrastructure in terms of bus stations, bus depots, passenger information and reservation systems, and wayside amenities for passengers. This would call for considerable public investment which needs to be promoted with appropriate budgetary support and public private partnership.
4.2.3 Measures for Reinventing and Revitalizing STUs
The Policy Makers and administrators have to see STUs as service organizations than as source of revenue or ‘for profit’ organizations. If some STUs are making profit it is due to the combined effect of favourable policy environment at state level and better management. We have to see how this can be scaled up to entire country. To enable this we would like to propose financial assistance and fiscal support apart from policy support. It is also our view that these measures need to be initiated without any further loss of time in order to avoid the risk of the organizational strengths of STUs are irreparably weakened or lost as has happened in the some States (Eg.Madhya Pradesh,
Orissa) where the STUs are either being closed or greatly reduced in their strength.
4.2.4 Infusion of Capital
The first step towards revitalizing STUs will be to create clean balance sheets.
STUs carry huge accumulated losses on their balanced sheets for reasons discussed so far. These losses are more than their networth and seriously erodes their financial strength. It makes borrowing much more difficult. Government has to step in and help them tide over this crisis. It needs to inject funds to inspire confidence among banks and
FIs. Infusion of equity capital in the form of capital contribution from the State and the
Central Governments is a measure which needs to be initiated immediately during the XI
Plan period. The earlier Plan scheme of capital contribution to STUs should be resumed immediately pending a detailed evaluation of each STU to determine the quantum of capital infusion necessary to make them viable units before the end of the XI Plan period.
The capital infusion needs of each STU should be assessed keeping in view their long

term viability. This would enable the State Governments to prepare a long term investment plan for each of the STUs and provide the required funds accordingly
It is suggested an outlay of about Rs.1,000 crores per year during the XI Plan period which would enable the STUs to meet about 50% of the cost of the new buses to be procured to replace their overaged rolling stock. The STUs will raise the balance 50% by borrowing from institutional sources or by using their depreciation reserves. After the resumption of the scheme for making capital contributions,.
Experience of Madhya Pradesh
At this stage it would be appropriate to mention the case of the Madhya Pradesh
State Road Transport Corporation which is being wound up. It is learnt that an expenditure of Rs.1,050 crores is being incurred for discharge of the liabilities of
MPSRTC, including the VRS benefits for its workers. It is possible to argue that in the case of most STUs infusion of capital of a much smaller amounts will make them viable financially and provide the much needed public transport services instead of being wound up at a huge cost. Winding up STUs would also result in the huge organization capital being lost irretrievably.
4.2.5 Policy Towards Debt Burden
The STUs have been primarily financing their deficits through borrowings in the absence of support from governments. This has now grown to be quite huge and they have reached the stage when most of their borrowings go into debt servicing itself. This cycle has to be broken. Debt servicing is one of the important items of cost for STUs after considering major costs like fuel and personnel. It is therefore necessary to reduce the debt burden of the STUs, currently estimated at a total of about Rs.9,000 crores as shown in Table 4.1 below :

Table 4.1
Outstanding Debts ( Estimated)
(Rs Crores)
Year
2000 - 01
Estimated
Interest Outstanding
570
2001 - 02 767
2002 - 03 741
2003 - 04 819
Debts
4071
5900
6175
7445
2004 - 05 855 8550
The Group is of the view that 50 per cent of the outstanding loans of the STUs should be taken over by the Central and the State Governments. Financial relief through debt - take over by the Government has in the past been given in the case of State Electricity Boards to enable them to participate in a programme of power sector reforms.
4.2.6 Institutional Finance for STUs
Presently, the STUs as well as private bus operators depend upon the commercial banks for their credit needs where the terms of credit and the requirements of collateral, etc. are quite stiff. This requires specialized knowledge and accelerated infusion of funds would require establishment of a special institutional arrangement for funding public transport. The Group would like to recommend the establishment of a fund on the lines of infrastructure or highways sector. This fund can be backed and administered by a public sector financial institution like the IDBI, HUDCO or the UTI. Currently NABARD funds a number of infrastructural projects in the states through RIDF. Public Transport provision is to be considered as a basic infrastructure and RIDF funds may be made available to this sector.

4.2.7 Fiscal Support
States impose taxes on public transport consisting mainly of Motor Vehicle tax, and including passenger tax and Special Road tax, etc. One anomaly of the tax of policy of states is that the taxes are favourable to private transport than public transport, and with in public transport it is loaded against state undertakings.
In levying these taxes on buses, it should be kept in view that public transport buses are the most economical users of road space and they can actually reduce the wear and tear of roads if used in place of personalised modes of transport. Motor Vehicle Tax on buses may also be said to be regressive as it imposes a burden on the poorer sections and middle class passengers. Thus, MV tax rate poorly on the various dimensions of scale, equity, and signaling effect.
STUs pay tax per bus ranging from Rs.1,00,000 to Rs.3,00,000 (Ex. Gujarat,
Maharashtra, Karnataka, APSRTC, UPSRTC, Punjab, Rajastan and Haryana). The high rate of M.V. tax results in STUs paying on each bus 100% to 300% of the cost of the bus as tax during its life. This is in glaring contrast to the life time tax of about 10 percent of the invoice value paid on cars and motor cycles which are used as personalized transport.
Considering the above factors, the present average level of M.V. Tax on STUs as a group which is about 11 per cent of their turnover should be replaced by a tax structure with a maximum M.V. tax rate of 5.5 per cent in the coming years. It would also be desirable to get the States to move towards introducing a life time tax of about 10 percent of the cost of a bus to encourage the growth of public transport buses in the country. The financial implications to States of reducing the M.V. tax to about 5.5% are shown in the
Table 4.2 below :

Year
Table 4.2
Financial Impact of Introducing Standard
MV Tax Rate of 5.5 % (Rs Crores)
Revenue Tax
Current
MV Benchmark Loss in
1
Collected
2 3
2000 - 01 15,326 1621 0.106 rate (5.5%) Collection
4
842.93
(2 - 4)
778.07
2001 - 02 16,041 1635 0.102
2002 - 03 16,618 1641 0.099
2003 - 04 18,112 1810 0.100
882.255
913.99
996.16
752.75
727.01
813.84
2004 - 05 19,509 1845 0.095
Average Loss in Collection
1072.995 772.01
768.73
4.2. 8 Taxes on Fuel
The spiraling cost of diesel in the recent years has become a major threat to the viability of public transport services. This is especially so as they are not allowed to revise their fares in response to hikes in fuel prices and they are expected to absorb the shocks. The retail prices of diesel which were at about Rs.2,100/- per kilolitre in April
2003 have gone up to about Rs.3,500/- per kilo litre by June 2005. It is understandable that the basic fuel prices are linked to international prices. The Governments at the Centre and States can come to the rescue of the STUs by reducing the taxes on diesel. In Table
2.8 It is presented the price structure of diesel which shows that the tax component alone ranges from 42% to 29% in the four metros. Each price revision also has a cascading effect on the final prices as the taxes are ad volerem. Governments can levy lower taxes on diesel supplied to public transport through some suitable mechanism. Central
Government may therefore consider granting a rebate of 50% in the excise duty on diesel supplied to the State Transport Undertakings and the states can follow the same principle to reduce sales tax on diesel supplied to STUs.

4.2.9 Excise Duty on bus chassis
It is recommended that a massive augmentation of buses in both public and private sector. In order for the State Transport Undertakings to embark on such renewal and augmentation of their fleets, it is necessary to reduce the cost of rolling stock. At present the STUs pay about Rs.90,000/- to Rs.1,30,000/- per bus by way of excise duty on the bus chassis excluding the duty on the body and seating systems. This would go a long way in encouraging these major operators in the bus transport sector to augment their fleets to offer increased and improved transport facilities for the general public.
This will also give fillip to the bus chassis manufacturers.
4.2.10 Sales Tax on buses and parts
Many State Governments had granted Sales Tax concessions to State Transport
Undertakings earlier. These concessions have now been withdrawn in some States after the introduction of the Value Added Tax. This has increased the Sales Tax on vehicles, equipment and materials purchased by these Corporations from about 5% earlier to about
12.5% (Example : Karnataka). In order to extend government’s support to the public transport sector, the Central Government may consider advising the States to introduce
Sales Tax concessions on purchases made by State Transport Undertakings of chassis and materials like tyres, tubes and spare parts.
4.2.11 Reimbursement of cost of Concessions
Students concessions have become an universal service obligations for STUs.
Initially the coverage was limited and the burden was nominal to the STUs and states.
But over the years as the student population increased the losses from this source along became alarming for the STUs. This is being seen as a strategy to promote education in rural areas and to discourage dropouts. For example, in Andhra Pradesh all girl children studying up to 12th standard are provided free passes mainly to encourage them to continue education. In Karnataka, over one million children travel on concessional passes every day with Government reimbursing only 50% of the cost assessed in this regard.
While the results of this policy have been highly beneficial to the society in general, it has resulted in an unreasonable burden being imposed on

A national Policy prescribing eligibility norms and compensation has to be first brought out. It should also be equally shared among the students, STUs and state governments. The reimbursement has to be provided by the states as it is their obligation.
The State Governments should provide for adequate outlays in their Plan budgets in the sectors of Education, Social Welfare etc. for fully reimbursing the cost to STUs of concessional travel facilities. It is estimated that this would amount to about Rs.1500 crores per annum a part of which is already being given to the STUs in many States.
4.2.12 Policy on of Fares
Bus fares are often decided at the government level and is seen as a policy decision. These are decided with no consideration for commercial principles. The policy on fares should specify basis for fixing fares taking into consideration segment, break even pints, cost trends and desired mark up. Also, there should be some system of aligning fares to fuel cost and personnel cost. States should also consider absorbing their losses if STUs are not allowed to revise fares whenever there is a fuel hike. They can specify a band for the fuel price and if it goes beyond they need to be compensated.
The infrequent revision leads to further stickiness as the viability gap widens and later steep increases attract public resistance. More frequent revisions and with less pronounced effect would be a better strategy than more pronounced revisions at infrequent intervals. The fare structure should fully cover the costs of operation and leave about 5% to 10% margin to the STUs to enable them to make investments needed for upgrading their rolling stock and infrastructure.

Table 4.3
Fare Structure
3
4
5
1
2
Sl.No. Corporation Ordinary
Paise Per km
Express Luxury
KSRTC
MSRTC
35
56
44.5
56
63
74.16
APSRTC
TNSRTC
35
28
Kerala SRTC 42
40
32
46
52
53.3
63
6 GSRTC 37.7 39.7 NA
7 UPSRTC 49.52 54.47 NA
The fare structure should be linked to the cost of inputs and every year the fares may be revised rather than steep hikes abruptly.
It is desirable that States should restrict themselves to deciding on fares for rural services and concessional segments, and leave the rest to the STUs to determine based on commercial principles. Fare structure of select STUs is given in Table 4.3. Presently some states operate even inter state express services at loss which should not be the case.
4.3 Universal Service Obligations
Presently the practice of compensating STUs for universal service obligations is not in vogue in the transport sector. The STUs take care of the equity aspect both by providing access to the entire breadth of their respective states through their network of operations; and by subsidizing operation of ordinary services, services in rural and hilly areas and concessional travel by students. Private operators have no such obligations.
Given the costs being borne by them in this regard, STUs can be compensated for this by paying them per km of operations, after fixing benchmark targets to be achieved in terms

of cost per km and earnings per km. The government can recover this cost through a levy of Deficit Charges on profit making routes like luxury and express services, Volvo services and inter state services. This can be kept in a pool from which the STUs can be compensated.
For urban transport, there are several suggestions like recovering part of the cost from employers, and urban local bodies. Provision of bus services contributes to appreciation of real estate value which should lead to higher property value. So, urban local bodies and development authorities can also to some extent bear the burden.
4.4 Overall Financial Implications for Governments and STUs
The financial implications of suggestions made above for the centre and the states governments and STUs for XI Plan is summarized below in Table 4.4. This will indicate the extent of financial support that would be required from various governments.
The above measures will go a long way in developing public transport facilities to play their assigned role in speeding up the economic and social development of the country.
Table 4.4
Items
MV tax
Students
Concessions
Suggestion
Financial Contribution
Implication from Centre
Contributio n from STUs
States
Benchmark
MV tax Rate
Above this
Rs.800 crores per governments year has to bear
Loss to be compensated by Centre for
Three years
States to
Bear the
Loss after three years
Policy for revision of fares
No indiscriminate issue passes of
Rs.1500 crores annually
No obligation
STUs to
States to bear one third of bear one the costs third of the
Students costs s to pay one third

USOs
20% of the losses of all
Service goals corporations to be specified can be benchmarks
To support attributed to national urban services this
To prescribe
States to
STUs compensate will be
STUs for compens losses ated only incurred on based on this achieving
It can some collect cess benchma on luxury rk and express performa services nce buses for standards this
Fleet
Augmentation
Fleet Rs.10,000 Centre to bear States to STUs to
Augmentation crores total 50% of this. bear 25%. raise plan to be for made years five Also to reduce Also to from FIs duties and reduce ST
Capital
Support excise on bus on bus body chassis building and spare parts
States to guarantee loan
To sheet create Aggregate clean balance cumulative borrowings of all states
Centre the accumulated
Rs.8000 crores (estd) borrowings to States to STUs to share 25% of share 25% service of the 50% accumulated borrowings balance borrowin gs

The financial implications of all the measures proposed above do not add up to more than
Rs.11,400 crores for the entire period of the XI Five Year Plan for the Central
Government. Similarly the commitment from the all state governments put together will come to Rs. 13,600 Crores for the entire plan period. Thus the annual commitment from
Central Government is only Rs.2,350 crores and from the state governments about
Rs.2720 crores annually. Investment of this amount for improving the public transport system is completely justified in view of the benefits that would accrue to over 20 million passengers using STU services on any given day. This is also a most cost effective investment compared to the investment of about Rs.10,000 crores to Rs.15,000 crores required for building a Metro rail system in a single metro in the country which would probably cater to only about one million passenger trips per day.
4.4 Institutional Strengthening of STUs
Apart from extending financial support and reducing the impact of certain liabilities mentioned above, the State Transport Undertakings need to be given greater functional autonomy than is available in some States. Strategic and operational freedom is an essential ingredient of a successful corporation. To ensure this freedom combined with accountability, we suggest the adoption of the mechanism of well conceived MOUs between STUs and State Governments. The MOU will spell out specific commitments from the State ( and Central) Governments in matters relating to financial support and regulatory environment. These will include policy on reimbursement of cost of concessions, formula for revision of fares, capital contributions, universal service obligation payments, etc. The MOU will also spell out the financial and operational performance expected from STUs including quantitative and qualitative aspects of services, technology upgradation, development of infrastructure, etc. The financial support of the Government can be tied to the STUs achieving specified milestones in respect of their performance parameters. It is felt that such an arrangement between the
STUs and the Government will go a long way in removing the uncertainty and arbitrariness in the policy environment for STUs. This will in turn encourage them to strive hard to reach the milestones.

4.5 Exclusive Corporation for Infrastructure Management
STUs have been over the years building infrastructure whether it is in the form depots or maintenance workshops or bus stations or driving schools. Considering their fleet strength these are indispensable. This has also helped in building expertise in maintenance, engineering, driving, body building etc. In many states in many instances these properties have been built on lands taken on lease from government or bought from government on nominal terms. These run through the length and breadth of states and are often in prime locations. So, these constitute valuable assets of STUs though these are not reflected in their balance sheet.
One suggestion often mooted in this context is that these assets can be handed over to a common organization which can they take steps to exploit the real estate value of the property apart from providing its basic service, ie as bus stations or as depots. A related suggestion is that this new Agency should give access to private operators also. They are suggesting on the lines of Airport Authority of India at state level for state transport system. It has found favour with many constituencies excepting STUs. STUs see these as valuable properties which they feel they have built over time. Also, at present they feel they may not be able to handle the competition if these are thrown open to private operators also.
One possibility is these properties can be handed over to another agency for which the
STUs should be compensated. That might take care of some of their financial burdens.
The new organization can charge both the STUs and private operators for providing these services. This alone cannot however help this organization to service the capital that it may have to inject. So, it has to obviously look for avenues to exploit real estate value of the infrastructure. This seems to be the most feasible option for exploiting the assets of
STUs which so far has not got much attention from STUs. This could be one way of covering their losses. The new Agency should provide better amenities in the bus stands and can even go for yatri niwas type of hotels. The financial implications and the deal structure have to be worked out for each state separately.

4.6 Regulatory Frame work
A strong regulatory mechanism is required to enable this sector to scale up. For that it requires a clearly spelt out National Policy on Public Road Passenger Transport sector.
The inputs for this policy framework have been extensively discussed in the Report under various sections. There should be similar policy also for private operators who operate under the schemes of state governments.
The National Policy Statement has to address the areas of:
Role of State and Private Owned operators and creation of level playing fields
It needs to assess where the state owned enterprises can play a role and the private operators have to be encouraged. Instead of seeing the whole sector as one segment, the
Policy Makers have to view it from the perspective of various segments. These can be:
Inter State Traffic
Inter District
Intra district and Rural operation
Urban Services
The policy should address all these areas and state clearly where which operator is expected to play a dominating role and a supporting role. This should be based on the competitive strength, demands of the segments, viability of the operations, suitability of the operator.
4.6.1 Structure of Regulatory Body
A Regulatory Body should be set up in each state. Presently transport department plays multiple roles as policy making and regulatory body, and in some states as even transport operators. RTOs operate as the operating arm of Transport Department, they enjoy only restricted powers, and there is also scope for conflict of interest. The department also looks after their RTCs. This arrangement needs a complete review. Regulatory Body will also help to bring in professionalism in decision-making. We would like to recommend independent regulatory body on the lines of electricity regulatory authority.
The Regulatory Body can consist of :
Chairman, who will be a retired bureaucrat

Member Traffic / Engineering
Member of Finance
It can be aided by a group of professionals and representatives consisting of:
MDs of state RTCs and neighbouring states
Representative of private operators
Representative of Railways
Representative of Public
Representative of Elected Representative
Academicians
Experts from transport sector
It will also have an operating arm which will assist it in ensuring implementation of its prescriptions and vigilance.
It will be regulating in the areas of:
4.7 Privatization
We have already discussed at length the need for more aggressive involvement of private operators. The Policy should the concerns of organized operators and the emphasis should be towards making it attractive for large players and discouraging small fleet owners. We suggest in each segment there can be 3 to 4 players of which one of them has to be STU. The Policy should spell out the modus operandi of privatization and should also ensure transparency of the operation.
4.8 Financial Support
The policy should specify the type of financial support that is to be extended to STUs and private operators. It can be in the form of equity support, access to financial institutions, tax subsidy and through categorizing it as priority sector. A comprehensive financial package has to be devised to improve the viability of both public and private operators.
Center should also indicate the extent of support that it would be willing to extend to the states. Center should also insist on certain Governance Mechanism and operational performance including VRS for the support that it would be extending to the state.

4.9 Fare Policy
It should set benchmarks for setting fares for different services. It should be pegged to productivity levels, personnel cost, fuel cost, and capital cost. It should also vary with the type of services like interior / rural services, urban services, ordinary services, etc. There should be guidelines devised for periodic revision of fares and budgetary support has to be provided if there are any binding constraints in revising fares.
4.10 Fuel Policy
Fuel cost will become prohibitive in the years to come for STUs which they may not be able to pass to the customers all the time. RTCs may not be successful in passing on all the cost fuel hikes. Government should seek to cushion the RTC buses against such hikes at least till the next revision. It should be again benchmarked against fuel efficiency norms to be achieved.
4.11 Concession Policy
The Policy should state groups and their eligibility norms for the states to extend concessions. It should be equally shared by the beneficiaries, operators ands states. To expect the state or the operators to fully bear the cost is unreasonable. It should also have a policy for supporting private operators who are willing to extend these services to concessional clientele. If a state announces concessions beyond the eligible groups it has to compensate the STUs for it. Else states will always have urge more groups under concession category.
4.12 Quality of service
The policy should spell out clearly the service quality norms and eligibility for bus operators to operate under state government policy. The financial support to public and private operators should be tied down to these operators meeting the stringent norms of service quality.
4.9. Creation of Level Playing Field: Privatization of Routes
The state government may decide on the privatization of routes and this Body should have powers to look at it from regulatory point of view of creating a Level Playing Field.

It can look at the norms of privatization. It has to take care that the STUs are viable but at the same time the private operators are motivated. It should also take care that the private operators do not violate the conditions of licensing. They can operate as per license conditions only.
Fare fixation
It will recommend to state government fares for regulated services. It will ensure that private operators do not violate fares which have been agreed upon.
Concessions
It will monitor the implementation of policy on concessions. If any state announces concessions beyond what the policy prescribes, it can intervene and make the state pay for it. Similarly, it can also look at abuse of passes both by the beneficiaries and STUs.
Quality of Service
This will be a critical aspect of regulation. The Regulatory Body has to monitor the services for:
Regularity
Reliability
Passenger amenities
Bus Quality and conditions
Maintenance support
Crew training and Behaviour
Complaints
4.13 Summary
In conclusion, it is felt that the accelerated growth of the Indian economy at the present juncture requires a rapid expansion of quality public transport. Assuming the elasticity of demand for passenger transport at 1.25 of the growth of GDP (as estimated by the World
Bank), we need to expand the passenger transport services by over 10 per cent per annum to meet the growing demand, and any shortfall in expanding these services may act as a constraint on the development of the economy both in the rural as well as the urban sector. Further, bus transport offers the best means of augmenting these services at least capital investment compared to either the Railways or the personalized modes of

transport. Also, it is capable of being expanded within the shortest span of time without calling for any significant additional investments in terms of infrastructure. In fact, the augmentation of the bus transport sector will make the most optimum use of the existing infrastructure like the national highways. It is therefore imperative that the country makes the necessary investments at this juncture in strengthening the State Transport
Undertakings to play a strategically important role in aiding the economic development of the country.

Chapter 5
Development of Business Plans
5.0 General
A business plan seeks to make a capacity planning and capital budgeting keeping in view the future requirements for 10 or more years and the present status. In transport sector we need sound methodology for forecasting the transport requirement. The planning model we feel has to be along different market segment as the utilization of these segments are different. The operations of a road transport undertaking could be broadly divided into the following sectors in transportation:
Urban Operations
Intra District and Rural Services
Inter District Services and
Inter State Operations
The characteristics of each one of these services are quite different with respect to frequency of service, time of service, service quality, willingness to pay and the expectations of the public etc. An attempt is made to develop separate yardsticks and business plans for each of these categories. Most of the State Road Transport
Undertakings in India are incurring losses in their operations under Category 1 and 2.
Profits are generally made through the operations under Category 3 and 4. The only exceptions are BMTC, which operates exclusively in Category 1, and Hyderabad City
Operations of APSRTC are making profits.
5.1 Business Plan for Urban Operations
Urban areas contribute nearly 60% of GDP of India. Provision of Public Transport is crucial in cities with more than one million population. As per 2001 census, there are 35

S.no Name
1
Greater
Mumbai
2 Kolkata cities with more than one million population. It is necessary to estimate the demand for
Public Transport and provide such number of Buses in these cities so that congestion of road system, as experienced in big metros, could be avoided. As per the norms developed by CIRT, Pune, demand for buses per lakh of population is presented in Table 5.1.
Table 5.1 Busses needed per lakh of Population and City Size
Busses
Required/Lakh
Pop. Range Scenario1 Scenario2
> 40 Lakhs 50 40
20-40 lakhs 40 30
10-20 Lakhs 20 15
Two Scenarios are considered, Scenario1 is as per the norms developed by CIRT Pune.
During the last decade, due to rapid economic growth and liberalized lending policy of banks, vehicle ownership rates have increased considerably. So, we considered one more
Scenario 2, in which the norms are 75% to 80% of what was considered by CIRT in late eighties. The requirement of buses in urban areas of India for the years 2006, 2011 and
2016 under Scenario 1 and 2 are presented in Table 5.2.
Table 5.2 Busses needed in urban areas
As Per 2001 Census 2006 2011 2016
Scenario1 Scenario2 Scenario1 Scenario2 Scenario1 Scenario2 Scenario1 Scenario2
Population
Population
Busses Busses Busses Busses Busses Busses Busses Busses in Lakhs
16,368,084 163.68 8184
13,216,546 132.17 6608
6547
5287
10230
8260
7529
6080
12788
10325
8659
6992
15984
12907
9958
8040

3 Delhi
4 Chennai
5 Bangalore
12,791,458 127.91 6396
6,424,624 64.25 3212
5,686,844 56.87 2843
6 Hyderabad 5,533,640 55.34
7 Ahmadabad 4,519,278 45.19
8 Pune
9 Surat
3,755,525
2,811,466
37.56
28.11
2767
2260
1502
1125
10 Kanpur
11 Jaipur
12 Lucknow
13 Nagpur
14 Patna
15 Indore
2,690,486
2,324,319
2,266,933
26.90
23.24
22.67
2,122,965 21.23
1,707,429 17.07
1,639,044 16.39
1076
930
907
849
341
328
16 Vadodara
17 Bhopal
1,492,398
1,454,830
14.92
14.55
18 Coimbatore 1,446,034 14.46
19 Ludhiana
20 Kochi
1,395,053 13.95
1,355,406 13.55
21 Visakhapatnam 1,329,472 13.29
22 Agra 1,321,410 13.21
23 Varanasi
24 Madurai
25 Meerut
1,211,749 12.12
1,194,665 11.95
1,167,399 11.67
26 Nashik
27 Jabalpur
1,152,048
1,117,200
11.52
11.17
28 Jamshedpur 1,101,804 11.02
29 Asansol
30 Dhanbad
31 Faridabad
1,090,171 10.90
1,064,357 10.64
1,054,981 10.55
242
239
233
230
223
220
298
291
289
279
271
266
264
218
213
211
182
179
175
173
168
165
224
218
217
209
203
199
198
164
160
158
807
697
680
637
256
246
5117
2570
2275
2213
1808
1127
843
303
299
292
288
279
275
373
364
362
349
339
332
330
273
266
264
1345
1162
1133
1061
427
410
7995
4015
3554
3459
2825
1878
1406
379
373
365
360
349
344
466
455
452
436
424
415
413
341
333
330
1682
1453
1417
1327
534
512
9993
5019
4443
4323
3531
2347
1757
209
206
201
199
193
190
257
251
249
241
234
229
228
188
184
182
928
802
782
732
295
283
5884
2955
2616
2545
2079
1296
970
240
237
232
229
222
219
296
289
287
277
269
264
262
216
211
209
1067
922
899
842
339
325
6767
3399
3008
2927
2391
1490
1115
473
467
456
450
436
430
583
568
565
545
529
519
516
426
416
412
2102
1816
1771
1659
667
640
12492 7782
6274 3908
5554 3460
5404
4413
2934
2196
3366
2749
1714
1283
1228
1060
1034
969
390
374
276
273
266
263
255
251
340
332
330
318
309
303
301
249
243
241

32 Allahabad
33 Amritsar
1,049,579
1,011,327
10.50
10.11
34 Vijayawada 1,011,152 10.11
35 Rajkot
TOTAL
210
202
202
157
152
152
262
253
253
181
174
174
328
316
316
208
201
201
410
395
395
239
231
231
1,002,160 10.02 200 150 251 173 313 199 391 229
107,881,836 1078.82 44133 34713 55166 39920 68958 45908 79301 52794
5.1.1 Demand Estimation for Metropolitan Cities
The model suggested above was applied for seven metropolitan cities of India to the test the norms and see how it fares against present availability. Some cities especially
Bombay, Chennai, Calcutta and Delhi are equipped with metro system, which will be able to take part of the commuter load. Some correction based on judgment was applied to account for these systems in estimating the demand for bus system. Additional bus fleet required by 2016 for the two scenarios is presented in Table 5.3. As per Scenario1, the demand is estimated at about 79000 fleet where as under Scenario 2 estimated demand is about 52800 by 2016.
Alternatively the requirement of buses could be calculated on the basis of present carrying capacity of a city bus in a day and the total demand for urban bus passengers. As per the travel demand projections by ITES in their study report 1994, it estimated that the urban passenger trips per day by 2016 would be of the order of 107 million as per the information presented in the journal of Transport Management. Information provided by many STUs indicate that a bus in urban areas normally caters to1000 to 1100 passengers per day. On the basis of this information the requirement of buses to cater to the needs of urban commuters will be the order of 90,000 to 1,00,000 buses by 2016. Thus, the additional fleet required will be around 70000 to 80000 since there are about 17000 buses are currently in operation. Any short fall in the provision of adequate number of buses for urban operations may lead to further proliferation of personal vehicles resulting in congestion and delay in most of the urban areas.

The additional buses needed for seven metropolitan cities alone considering the existing fleet strength of 17,000 currently in operation, will vary from 6000 to 13000. Thus it can be seen that the present fleet strength is quite disproportionate to the requirement. ( Table
5.3)
Table 5.3. Requirement of Busses for Metropolitan cities in India
Busses as
Requirement Correction Net Requirement Deficit for Rail
Name of city on 2005 Scenario1 Scenario2 Network Scenario1 Scenario2 Scenario1 Scenario2
Ahmadabad 540 2825 2079 0 2825 2079 2285 1539
Bangalore 3925
Chennai 2737
Delhi 2434
3554 2616 0
4015 3212 30
7995 6396 20
3554 2616 -371
2811 2249 74
-1309
-488
6396 5117 3962 2683
Bombay 3391
Hyderabad 2838
Kolkatta
Total
1144
17009
10230
3459
8260
32077
8184
2545
6080
25032
50
0
30
5115
3459
5782
29941
4092
2545
4256
22953
1724
621
4638
12932
701
-293
3112
5944
Table 5.4 summarizes the demand for buses for the years 2006, 2011 and 2016. As per the information provided, the additional bus fleet needed in cities with population of one million and above varies between 53000 to 79000. Thus, if congestion needs to be handled, the urban fleet strength needs to be augmented immediately by about 35,000 to
40,000 buses, with an additional fleet of 3000 to 4000 buses every year till 2016. All urban areas have experienced huge increase in their geographical area. There is no systematic effort to plan routing and scheduling in a scientific way. Especially, metropolitan cities need to undertake this exercise to optimize the number of buses needed in these cities.

Table 5.4. Additional Fleet Required in Urban Areas of India
Year Existing Required Additions Required
Scenario1 Scenario2 Scenario1 Scenario2
2006 16158 55166 39920 39008 23762
2011 16158 68958 45908 52800 29750
2016 16158 79301 52794 63143 36636
5.2 Demands for Intra District and Rural Services
In any Road Transport undertaking, maximum number of buses operates as Intra District and Rural Services. For example in the case of Andhra Pradesh, APSRTC is roughly operating 50% of their total fleet (9000 buses out of 18,900) for this service. The profitability of the undertaking depends critically upon how well these buses are deployed and the operational efficiency of these services. These services mainly comprise of two components.
Providing accessibility to as many villages as possible with administrative and economic activity centers at district level.
Providing service within the district between and among the places of importance such as business locations, historical places, linking taluk head quarters and district head quarters and inter linking other major economic activity locations.
Thus, the demand for services is depends on:
Number of settlements in the state
Number of economic activity centers in the state
However, it is difficult to estimate the number of activity locations in the state as their number will be changing and grows with the development of the state. The proxy to this is the size of the rural population undertaking journeys in the state. The number of trips in a rural settlement will be much less compared to urban areas. Most of the people will be visiting nearby market centers and other places once or twice in a week. One bus on an

average will be able to cater to four rural settlements. The actual scheduling of a bus, passing through a number of settlements linking nearby market places is to be worked out by the depot. In addition, it is felt that six buses may be required per lakh of population to link various economic activity centers in a state.
These norms are applied to the state of Andhra Pradesh to validate the model. The number of villages district wise in the state of Andhra Pradesh is presented in Table 5.5.
The district wise population details of Andhra Pradesh are provided in Table 5.6.
Table 5.5 District wise villages in the state of Andhra Pradesh
District Total Villages Inhabited Villages Uninhabited Villages
Adilabad
Nizamabad
Karimnagar
1729
918
1092
1586
854
1047
143
64
45
Medak
Hyderabad
Rangareddi
1254
0
923
1225
0
860
29
0
63
Mahbubnagar
Nalgonda
Warangal
Khammam
Srikakulam
Vizianagaram
Visakhapatnam
1550
1148
1071
1229
1814
1524
3294
1477
1124
984
1101
1715
1455
3108
73
24
87
128
99
69
186
East Godavari
West Godavari
Krishna
Guntur
Prakasam
1379
883
986
717
1083
1323
845
948
694
992
56
38
38
23
91

Nellore
Cuuddapah
Kurnool
Anantapur
Chittoor
1192
954
913
952
1518
Andhra Pradesh 28123
1110
876
884
925
1480
26613
82
78
29
27
38
1510
Table 5.6 Rural Population of Andhra Pradesh (2001 census)
Name Total Population Rural Percentage
AP Total 76210007 55401067 72.70
Average Growth Rate of Rural Population = 1.0167
Rural Population of AP in different years
2001 2006 2011 2016
55401067 60184166 65380218 71024876
Thus, the demand for services as per the model suggested above works out to about
10,250 buses, given the number of settlements at 26613 and estimated rural population of
601 lakhs as of 2006 . However, APSRTC is currently running about 9,000 buses to cater to this segment. It may be noted that there are many villages with not much population around 4,000, which are not connected by regular bus service by APSRTC. Thus the demand and supply more or less matches in the state of Andhra Pradesh. The recent survey conducted by IIM Bangalore in 9 districts of A.P. clearly brought out that the services are adequate in the sample districts. In addition, a small number of private operators are also providing service in this segment. It may be presumed that where STU is the main operator, 90% of the requirement is to be met by STU.
At the National level the requirement to cater to this intra district and rural segment will be around 198000 during 2006 as per the model applied above. It is felt that about 50% of this total demand is to be met by STU since many small private operators will be

operating on some profitable routes. Table 5.7 presents the details of bus fleet required at all India level at three different time periods viz. 2006,2011 and 2016.
Table 5.7 Bus fleet for Intra and Rural Operations in India
Item 2006 2011 2016
Number of Settlements
Buses@ 1 for 4 settlements
600000 600000 600000
150000 150000 150000
Rural Population(Lakhs)
Buses @ 6 per lakh
8055 8747 9500
48327 52484 56998
Total Bus Fleet Needed 198327 202484 206998
Share of SRTU @ 50% level 99168 101242 103499
Thus by 2016 the total fleet needed to cater to this segment alone will be around 103500.
A major survey need to be undertaken by ASRTU to validate this methodology at least in some selected states. It is advisable to include in the sample 3 different scenarios i.e., fully nationalized states, partially nationalized and fully privatized states along with commuter satisfaction levels. The results of the survey will provide appropriate inputs in identifying the demand as well as the type of operator.
5.3 Inter District Services
The demand for Inter District Services depends upon major economic and administrative places of importance in a state, the intensity of economic activity and linkages provided by railways. The total population of a state also contributes the demand for services. The demand for this category of services comprises of:
1.Number of economic activity centers in a state
In the absence of detailed information about economic activity centers and their growth over a period of time, the number of towns in a state could be used as a proxy.
2.The total population of a state

At macro level, the number of buses required per town will be about 5. The number of buses required per lakh of total population will be about 8. Applying this model to the state of Andhra Pradesh, the number of buses required is presented in Table 5.8
Table 5.8 Buses needed at different time periods in Andhra Pradesh
Item 2001 2006 2011 2016
Number of census Towns 93 93 93 93
Buses @ 5 per town 465 465 465 465
Total Population (Lakhs)
Buses @ 8 per lakh
Total Fleet Required
762 839 925 1019
6097 6716 7398 8149
6562 7181 7863 8614
Bus fleet run by APSRTC 5500
Percentage run by APSRTC 76
The number of buses required as per this model for the state of Andhra Pradesh has been worked out to be about 7180. The actual number of buses deployed by APSRTC is around 5500.
A number of private operators will be operating in this segment as operation of the sector is always profitable. It may be presumed that STUs may cater to 75% of the demand on this sector and private operators the remaining 25%. It is in the interest of STU, they need to cater to as much percentage as possible, to offset the losses in rural operation. The requirement of buses in this segment will also depend upon the penetration of Railways and number of passenger trains linking different activity centers in the state.
The requirement of buses at all India level to cater to this demand at different time periods are presented in Table 5.9

Table 5.9 Buses needed at different time periods in India
Item
Population in lakh
Buses @ 8 Per Lakh
2,001 2,006 2,011 2,016
10270 11313 12462 13727
82161 90505 99695 109819
Number of Census Towns 400 420 440 475
Buses @ 5 Per census town 2000 2100 2200 2375
Total Fleet needed 84161 92605 101895 112194
Share of SRTUs at @50% 42080 46302 50948 56097
Since this segment is profitable it is possible that private operators could run 50 percent of buses provided there are no restrictions.
5.4 Inter State Services
Inter State Services will be mostly buses plying to the neighboring state and places of business centers, places of historical importance such as Religious importance and
Tourist attractive locations. These services are always profitable and private operators mostly concentrate on this segment. The demand for bus services depends upon how
STU/private operators provide comfortable and convenient to travel for long distances.
After the introduction of Volvo services, it is observed that the demand is increasing.
However, the intensity of railways operations will influence the demand for buses.
At macro level, the demand for the number of buses will be about 3 buses per lakh of population. Applying this, the number of buses required in the state of Andhra Pradesh is around 2500. Most of the private operators will be operating in this segment; STU may cater to approximately about 40% to 50% in any state. APSRTC is able to deploy about
1100 buses. There is a necessity that STU should operate as many buses as possible in this sector as it could help cross subsidize the other non-profitable segments. The demand for inter-state services in India for different time periods is tabulated in Table 5.10.
However, this demand may vary with the services offered by Railways. In poorly connected states, the demand can go up by about 10 to 20%.

Table 5.10 Buses Required in India at different time periods
Item 2,001 2,006 2,011 2,016
Total Population in lakhs 10270 11762 13471 15428
Bus fleet @ 3 per lakh 30810 35287 40413 46284
Share of SRTUs at 50% 15405 17643 20206 23142
Total Demand for Bus fleet in India
The previous sections provided bus fleet requirements for different sectors for different time periods. This information is consolidated to understand the total bus fleet augmentation in Table 5.11. The participation of private operators varies in each segment depending upon the profitability and governmental policies regarding freedom in selection of routes. On the basis of discussions with a number of private and other experts in this area a tentative maximum and minimum share feasible by private operators in each segment is presented is presented in Table 5.12. Accordingly, Table 5.13 presents the opportunities for private operators and fleet they could operate over the years. It may be noticed from Table 5.11 that by the year 2006 STUs should manage to augment its fleet by 130,000 buses. This number is likely to increase to about 150,000 by 2016.
Table 5.11 Bus Fleet Requirements in India
Scenario 1 Scenario 2
2011 2016 2006 2011 2016
68958 79301 39920 45908 52794
Type of service
Urban Operations
2006
55166
Intra District and Rural
Services 198327
Inter District Services
Inter State Operations
Total Requirements
92605
35287
381385
Private Operators Share 138006
Requirements by SRTUs 243379
202484
101895
40413
413750
149732
264018
206998
112194
46284
444777
161827
282950
198327
92605
35287
366139
98343
267796
202484 206998
101895 112194
40413 46284
390700 418270
106052 114699
284648 303571

Existing Fleet of SRTUs 113000
Additional Bus Fleet Needed by SRTUs 130,379
Table 5.12 Probable Share of Private Operators by segment
Type of service
Urban Operations
Minimum Maximum
10 20
Intra District and Rural
Services 20
Inter District Services 40
30
50
Inter State Operations
Table 5.13 Contribution by Private Operators
Type of service
50
Scenario 1(Maximum)
60
Scenario 2(Minimum)
2006 2011 2016 2006 2011 2016
Urban Operations 11033 13792 15860 3992 4591 5279
Intra District and Rural
Services 59498 60745 62099 39665 40497 41400
Inter District Services 46303 50948 56097 37042 40758 44878
Inter State Operations 21172 24248 27770 17644 20207 23142
Total Bus fleet by Private
Operators 138006 149732 161827 98343 106052 114699
The minimum additions as per the calculations work out to about 98000 by 2006. If the private operators are unable to raise the resources for maximum contribution the SRTUs need to muster resources to add fleet strength by 160,000 by 2016. It is difficult for
SRTUs with their current state of finances to plan for these additions. The central government and state Governments should provide finances to plan these additions. The augmentation looks quite high compared to the present as there has been years of neglect.
In the plan budget presented in the earlier chapter we have provided for Rs.10,000 crores

for the present plan period. This may have to be hiked if this gap has to be cleared. The augmentation for the next 10 years is comparatively low at 40,000 buses. This of course does not include replacement of buses. The investment requirement will be huge if we consider replacement also. However, we expect this to be met out of depreciation fund provided by all corporations. .