The pricing problem of public transport in Kerala

The mainstay of the public transport system in Kerala is the private stage carriages (PSC), the economics of operation of which is the subject of this paper. The long run sustainability of the sector depends on the full recovery of costs. In the presence of fixed costs, there are various approaches to the full recovery of costs and Kerala has taken the approach of regular fare revision ostensibly to cover costs based on committee recommendations. Since 1999, fares are being revised on the basis of the National Transportation Planning and Research Centre's price index for stage carriage operations (PISCO) applicable in Kerala, which, it is argued here, is one of the causes of the poor sustainability of the industry. PISCO uses average kilometers run and average concessional load factor in the computation of fares, which leads to a situation of those running above average kilometers, and carrying below average concessional load factor making above average profits and others not covering their costs. The use of weighted load factor raises general fares with the travelling public, and not the society at large, subsidizing the concessional passengers. One of the solutions to this problem lies, firstly in moving over to two - part tariff and secondly to tax financing of student subsidy. Key words: public transport, cost recovery, two-part tariff, tax financing, student subsidy JEL Classification: L92, R 48