A top Railway Ministry official said the final decisions on setting fares will be made by the Railway Ministry.

The Union government on Wednesday approved setting up Rail Development Authority (RDA), an independent regulator to recommend passenger and freight fares and set service level benchmarks.

“Union Cabinet has approved a major policy reform in Railway sector. The RDA will be set up as an independent regulatory body in New Delhi,” an official statement said here on Wednesday.

The Authority, with an initial corpus of Rs. 50 crore, will have a Chairman along with three members with a fixed term of five years and it can engage experts from relevant areas. The Chairman of the Authority can be from the private sector and will be selected by a committee chaired by the Cabinet Secretary, a Railway Ministry official said. The Authority will soon be set up through an executive order, the official added.

“It will act within parameters of Railway Act, 1989 and undertake the following broad functions: tariff determination, ensuring fair play and level playing field for stakeholder investment in Railways, setting efficiency and performance standards, dissemination of information,” the official statement added.

A top Railway Ministry official said the RDA will only be a recommendatory body and the final decisions on setting fares will be made by the Railway Ministry.

The authority will set tariff based on cost recovery principle and “what the traffic can bear.” All the direct and indirect costs such as pension liabilities, debt servicing, replacements and renewals along with productivity parameters, market driven demand and supply forces and future investments will be considered by the regulator before setting tariffs.