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Table of Content

ACKNOWLEDGEMENT
BACKGROUND
INTRODUCTION
HISTORY
ANALYSIS OF THE CASE
PROBLEMS
SOLUTIONS
ANSWERS OF QUESTIONS
REFERENCE

ACKNOWLEDGEMENT
This is to acknowledge that i have made very sincere efforts to
complete this case study.i have tried my best and done all the
possible efforts to understand and make better this case study.
This assignment is the result of the group efforts. I have worked
very hard for this.
We are highly indebted to my esteemed learned teacher and
project guide Mr. Vishwas gupta ,Assit. Professor, lovely
professional university.
Last but not least we would like thanks to all my group
members and faculty members

PRICES OF BUS SERVICES IN DELHI

TRANSPORT CORPORATION (DTC)
BACKGROUND:
The transport sector plays a crucial role in the development
process of a country. It has a direct impact on living standards
both in terms of economic as well as social well-being. Demand
for transportation related services is generally a derived
demand for other economic and social activities such as
activities related to health, education, employment, etc.
Transport infrastructure needs are assessed based on the
demand scenario of such activities which form the potential
market for transport infrastructure and services. Accordingly,
characteristics of the mobility needs of the people form the
basis of the types of infrastructural needs and characteristics of
the required transportation services.

During recent times, mobility needs of the people, due to

increasing economic activities, have been insatiably increasing
across the globe in general and across the developing world in
particular. This phenomenon is ubiquitous in megacities in Asia.
Modern mechanization of transportation systems further fueled
this phenomenon and heavy motorization is evident in these
cities. Thus, motorized transport is fulfilling these insatiable
transport needs. In turn, transport systems have become
environmentally unsustainable and are now one of the major
contributors of greenhouse gas emissions worldwide. Thus, a
sustainable and equitable transport system is one that provides
mobility related facilities and services while minimizing
emissions both at local and global level and also serve as safe,
reliable and economical means of mobility for all the sections of
society including elderly, women and disabled persons.

INTRODUCTION:
With the dawn of modernization, privatization is increasingly
becoming an indispensable part of our society, but there are
certain sectors which have remain untouched by the effects of
it. Sectors of our economy like, transport, road and ports are
and will remain under the authority of the government and the
main reason is that these precincts are typically high
investment zones, having long gestation periods and uncertain
returns. Therefore willingly or unwillingly the government has to
control these sectors solely.

Being essential services, the demand of transport services is

almost always quite high, and this also poses a typical problem
too. Apart from the ever rising demands, other issues
associated with this sector, is sometimes high prices, and
inefficient and over-burdened supplies, reasons being, the
increased level of congestion due to the ever growing
population, and lack of sufficient funds to meet up the level of
demands both qualitatively and quantitatively. And because of
these perils the states remain at the center of criticism, most of
the times.

PRESENT SITUATION OF BUS TRANSPORT IN DELHI:

Delhi has an extensive road network, where roads make up for
20% of the land, the highest for any city in the world. Bus
transport is the lifeline of Delhiites as more than two thirds of
the population depend on it as a mode of transit.
In spite of poor quality services, more than two thirds of the city
population depends on public transport mainly buses as mode
of transit. Besides providing economies of scale, the highly

subsidized bus transit serves the interests of a major section of

the population across Delhi, and serves as an extremely critical
mode of transport for the working population among the lower
and lower middle class. Affordability is a major factor that
cannot be ignored, and public transport provides this feature
through universal provision of cheap bus transit services.
Urban transport is mainly the responsibility of state
government, the main agencies involved in managing the
transport sector are:
State transport authority-Registration of roads, Routing of
state transport services.
P.W.D/ M.C.D- Construction and maintenance of roads.
D.T.C- Operating bus transport services.
D.D.A- Construction of roads in newly planned areas.
N.H.A.I-Construction and maintenance of National
Highways.
D.M.R.C. is responsible for Metro Rail
Buses have an integral and pre-eminent position in Delhis
transportation system. According to the RITES Primary Survey
2007, 79% of the population uses bus as the means of
transport. The bus services in Delhi is a mixture of private
stage carriage buses, buses owned and run by Delhi Transport
Corporation and metro feeder buses provided by Delhi Metro
Rail Corporation. Let us have a look at the stakeholders with
regard to bus transport in Delhi:
State Transport Authority
Delhi Transport Corporation
Individual blue-line operators
Delhi Integrated Multi-modal Transit Limited (DIMTS)
Commuters
Traffic police
Mini-bus owners (RTV)

 Delhi Metro Rail Corporation

Staff on the buses (drivers, conductors)
The intra city buses owned and run by individual operators are
divided into stage carriage and contract carriage.
Stage carriage buses: stage carriage buses are the buses
which hold a permit to stop at the stages (bus stops) on the
routes they run on.
Contract carriage buses: contract carriage buses are the
fleet of buses which ply from point to point and are not allowed
to stop at stages. Owned and operated by private operators,
they ply their buses in contract with specific organizations.
They operate as chartered buses, school buses etc.
The number of vehicles on Delhis road has increased from
19.23lac in 1991 to over 64 lacs by 2016, an increase of 212%
in last 25 years. The no of private buses currently plying the
routes are 22003 and the number of DTC buses are 36584 of
which 2209 are standard CNG buses, 625 are low floor buses,
25 are A.C. low floor buses and 99 are diesel buses.
Delhi Transport Corporation (DTC) is one such state owned
enterprise that has been facing criticism since so long.

HISTORY:
Delhi Transport Corporation (DTC) is the main public
transport operator of Delhi
Delhi Transport Corporation is an agency of the transport
department of the Government of Delhi and is the main public
provider of bus service in the city. It was established on 2
November 1971 by the Government of India under section 3 of
the Road Transport Corporations Act, 1950, to provide an
efficient and economical public transport service in Delhi. The
control of the Corporation was transferred to the Government of
Delhi with effect from 5 August 1996 with a fleet strength of
2636 buses and 18,000 employees.
It operates buses on many bus routes, including the Ring Road
Service and the Outer Ring Road Service. It is one of the largest
CNG-powered bus service operators in the world. Delhi
Transport Corporation services in Delhi has vastly distributed
network of bus services.
DTC has been incurring losses since its inception. The
cumulative losses increased from Rs. 1,082.14 crore in 2001-02
to 3,506 crore in last fiscal.

THE CASE:
The Delhi government over the years have tried to improvise
the services of DTC by introducing new buses and various
routes, but the demands always outweighed the supplies, as a
result the Delhities are dissatisfied.
For ensuring efficient and satisfactory public transport,
maintenance of adequate fleet of buses for operation of
scheduled routes is necessary. Acquisition of new buses is
necessary for augmenting the existing fleet as well as replacing
the old and un-serviceable buses. Association of the Road
Transport Undertakings (ASTRU) had recommended (1971) that
the normal life of a bus should be eight years or five lac km of
operation and that a minimum of 60 per cent of fleet strength
should consist of buses with less than four years of operation.
For this DTC, as a final attempt, also allowed private bus
operators to ply their buses on the kilometer scheme but, the
recent SUPREME COURT judgment prohibited all non CNG
(Compressed Natural Gas) buses from plying on Delhi roads,
and as a result the transport system faced a lot of problems.

In order to renew the license of these private route operators,

they were asked to use conversion kits, in order to check their
performance in terms of commuters safety, conduct with the
authorities, etc. But these profit maximizing private sectors, are
more inclined towards making maximum number of trips, much
more than the permissible count. This coupled with negative
externalities like rise in accidents and increasing level of
pollution caused by such transport systems negatively affecting
both users and non-users of the existing transport system.
As a result, Delhis Transport minister had recently called an
urgent meeting of the DTC chairman, some senior officials of
DTC, officials from the center of Science and Environment(CSE)
and people from senior secretariat in order to solve the issue of
Delhis transport.
Considering the Supreme court order, the ever growing
population of Delhi and geographical expansion of the metro
city, the major problems were recognized to be the weekly
demand of buses.
When this demand including both state owned and privately
run buses was calculated in terms of algebraic equation, it
turned out to be:

Q=8-0.4P
Where,
P= Average price charged in the bus or average bus fare
Q=Trips in millions
We can see there is an INDIRECT RELATION between the Trips
and the Price, which means higher is the price, lesser will be
the trips.
But inspite of the negative relation, being an essential service,
hike in bus fare will not much affect the demand.

The earlier average bus fare was Rs.6, but now keeping in mind
the huge losses which DTC had incurred over the period of
years, along with the cost of maintenance of the buses and
buying the environment friendly CNG kits, the minister
reckoned that the average bus fares should be hiked upto Rs.8
So, by substituting this price in the above equation of demand,
P=8

Q=8-0.4(8)

Q=?

Q=8-3.2=> 4.8 Million trips.

The demand turned out to be 4.8 million trips.

On the other hand the senior members of the ministry along

with DTC officials calculated the cost of running and
maintaining the buses as:

C=480+3Q
The cost was calculated on the basis of wages and salaries paid
to the drivers and conductors, depreciation costs and a normal
rate of returns on the investment in privately operated buses.
CSE informed the minister that Delhi had merely 11,000 buses
with CNG kits. In order to run the buses in good conditions and
abide by the supreme court guidelines, each bus should make
only 80 trips per week.
While, DTC officials argued that if they will agree to this, the
city would face severe shortage of buses and the commuters
will face a lot of problem. Senior ministry officials also agreed
with DTC, and quoted that, in the given cost scenario, which
had gone up considerably due to strict rules imposed by the
court, to make sure that only CNG is to be used as fuel in
buses, has been a loss making and uneconomical venture.
Senior officials of Delhi deemed that in order to run the entire
operation economically, the average price should be increased

by 25%. And this point was agreed upon by CSE members too,
as increased price will reduce the peoples dependency over
State buses and encourage people to look for other
alternatives.

ANALYSIS OF CASE
Increase in population.
Increase in demand for the public transport.
SUPREME COURT judgment prohibited all non CNG
(Compressed Natural Gas) buses from plying on the Delhi
roads.
For maximization of profits private operators has to
increase the no. of trips, which increasing accidents and
air pollution.
Increase in maintenance and operating of buses and
converting non- CNG to CNG buses.

 Increase in the basis wages of the drivers and salaries

paid to the employees.
Decision to increase the price of the tickets.

PROBLEM IN THE CASE:

1. Rising Population
2. Ever growing demands for public transportation services
3. Environmental issues of increasing pollution.
4. Supreme Courts Guidelines for using only CNG fuel.
5. Cost and affordability.

SOLUTIONS/ CONCEPT ANALYSIS

In the case three aspects were taken into consideration that are
meeting the demand of the people, environment safety, and
minimizing the losses.
1. For Environment safety, only the CNG equipped buses were
allowed to ply over the roads of Delhi.
2. To minimize the losses the proposal for elevating the rates or
bus fare was made.
3. As the bus fares will increase as per the demand function
equation, it was assumed that the demand will fall for the state
run buses, hence reducing the pressure over the government.

But, if one aspect is considered, it violates the other, suppose if

the bus fares are increased to Rs.10 from Rs.6, firstly, it will not
affect much on the demand as buses are one of the most
common means of transportation in Delhi and being an
essential service, the law of demand will not apply on it,
which says price is inversely proportional to demand.
Moreover, if we look into the environmental safety aspect,
increased fares of public buses will force people to adopt their
private vehicles, which will in turn increase the pollution levels
as well as contribute towards elevating traffic too. So its of no
benefit, because its irrational to think of convincing the masses
to opt for vehicles running on CNG.
Turning towards affordability, as quoted earlier, Delhi stills
remains to be a low income city, so majority of people are
devoid of sufficient resources, hence they depend upon public
modes of transportation for commuting. A hike in prices will
affect that section of society adversely.

Delhis demand of buses severely outnumber the supplies. The

Supreme Court in 1998 had estimated that Delhi needs a fleet
of at least 11000 buses on the roads. Yet the fleet of DTC and
cluster buses in all is barely half this number today. DTC
Workers Unity Centre estimated that today Delhi needs 25,000
buses on the roads to meet the demand.
Delhi needs a much larger fleet of affordable DTC buses in
order to breathe. DTC buses are the real lungs of Delhi, as well
as Delhis wheels Delhis buses are also the key to womens
safe access to public space. To ensure better public transport
DTC has to be strengthened and this cannot happen without
resolving long pending demands of the workers of DTC like long

overdue pension payments. In addition, Delhi roads also need

to be made much friendlier to walkers and cyclists. To ensure
that public transport remains affordable to all sections of
society it is important that the demands of the students like
student bus pass should be valid in AC buses be resolved.
In the first phase Government of National Capital Territory of
Delhi has identified 657 routes, out of which 311 routes are
such routes where no private stage carriage buses are
operating. As on date, 3900 private stage carriage buses are
operating on 346 routes. There are 195 bus routes where 10 or
less than 10 buses are operating and induction of more buses
on these routes will also be considered. At least 25 buses on
the vacant routes and more buses on the aforesaid partially
vacant routes are required to be inducted to maintain desirable
frequency. To achieve the aforesaid objective, State Transport
Authority, Govt. of NCT of Delhi has decided to grant stage
carriage permits on the aforesaid vacant routes and partially
vacant routes through corporate houses, big fleet operators
and co-operative societies and/or company (ie,s) formed by the
existing / prospective individual operators duly registered, and
having capacity of operating at least 100 buses. The routes and
via can be glanced through home page of Transport
Department website http:/www.transport.delhigovt.nic.in. A
complete or bunch of routes shall be allotted to single entity in
such a way to avoid parallel operation between two operators
to the extent possible.
At the pre-budget consultation with Union Finance Minister Arun
Jaitley, Sisodia had demanded a package of Rs 4,000 crore
from the central government to purchase 5,000 additional
buses, seeking to encourage citizens to patronise public
transport.
The AAP government, as part of its odd-even scheme has been
encouraging people to take up public transport, which it wishes
to augment by putting in more buses on the streets.

ANSWERS OF QUESTIONS
Question #1: Under which market condition does Delhi
Transportation Corporation operates?
Answer:

I.

Although DTC operates under a favorable and supportive

market condition; because of high demand and no other
strong competitor in ground, but still they are into losses.

II.

Looking from this perspective, case shows that Delhi

Transportation Corporation operates under monopoly
market condition in CNG-powered bus segment in Delhi.

III.

Inspite of the huge competition from auto Rickshaws, taxi

operators and metro; but in bus transportation, it is the
only major player who operates from last 6 decades in
industry

Question #2: Do you agree with the argument of DTC officials

that there is a severe shortage of buses in Delhi?
Answer:
I.

YES!

One of the latest study commissioned by the urban

development ministry, has found that availability of public
transport buses in Delhi per 1000 people is a shocking 0.5;
worse than that the average waiting time for DTC bus routes is
70 minutes. This shows a huge shortfall

Question #3: Do you agree with the argument that in given

situation, DTC is earning losses? What is the total value of
losses?
Answer:

YES! Because the revenue that they generate is far less than
the cost that they incur.
OR
Because they are not able meet the breakeven point.
In breakeven point, Total Revenue is equal to Total Cost.
TR=TC, and as per the case, P*Q=480+3Q
In Rs. 6, we have the demand of 5.6 million.
Q=8-0.4P
Q=8-0.4*6=5.6 million
Putting these values in formula:
TR= 6*5600000= Rs. 33600000
And Total cost:
TC= 48000000 + 3*5600000 = Rs. 64800000
Total value of Losses = TC TR = 31200000

Question #4: If the DTC decides to increase the average bus

fare to Rs. 10, what will the percentage fall in excess demand
be? Will there still be excess demand for buses?
Answer:
As per the calculations, if the price is Rs. 6, demand will be:

Q=8-0.4P
Q=8-0.4*6= 5.6 million
And now, if prices increase to Rs. 10; then:
Q=8-0.4P
Q=8-0.4*10= 4 million
Decrease in demand = 5600000-4000000=16000000
Percentage decrease = 1600000/5600000*100=28.57%
And yes, there will be still excess demand of buses, since even
with the Rs. 10, the demand functions is neither hugely
affected, nor changed to negative.

Question #5: If the bus fare increase to Rs. 10, will the DTC
stop earning losses, if not, what will percentage fall in losses
be?
Answer: No!
Losses will be reduced but breakeven point cant be reached, so
losses will still be there.
With Rs. 6, the total revenue(TR=P*Q) is 6*5600000=
33600000
With Rs. 10, it is: TR= 10*4000000= 40000000
thus,losses reduced by Rs. 6400000.

Percentage fall in loss:

Breakeven point = Rs. 64800000
Revenue at Rs. 6 = 33600000

Revnue at Rs. 10 = 40000000

Losses = Breakeven Point Revenue
Losses for Rs. 6 = 64800000 33600000 = 31200000
=>31200000/64800000*100 = 48.14 %
Losses for Rs. 10 = 64800000 40000000 = 24800000
=>24800000/64800000*100 = 38.27 %
So there will be 9.87% (48.14 %-38.27 %) fall in losses.

Question #6: Given the above situation, what is the optimal

price at which DTC will break even?
Answer:
As per the situation in case, where the demand is shown as 4.8
million, they have to charge Rs. 13.
TR=TC
P*Q=480+3Q
P*4800000 = 48000000 + 3* 4800000
P*4800000 = 62400000
P= 62400000/4800000 = Rs. 13

Question #7: With a hike in the bus fare, if there is actually a

substantial fall in the demand for buses, how will it affect the
market condition under which the DTC operates?
Answer:

 It shows higher elasticity of demand, and in this condition,

DTC doesnt have any option to play with prices.
The only option they have is to work on reducing the cost
of operations, rather than increasing the price.

REFERENCES:
1. Article on SUSTAINABLE AND EQUITABLE TRANSPORT SYSTEM
IN DELHI: ISSUES AND POLICY DIRECTION by M. Absar Alam

2. http://dtc.nic.in
3. http://transport.delhigovt.nic.in
4. http://cpiml.org/liberation/february-2016/public-transport-indelhi
5. http://ccs.in/internship_papers/2009/bus-transport-in-delhi210.pdf
6. http://delhi.gov.in/wps/wcm/connect/DoIT_Transport/transport
7. http://timesofindia.indiatimes.com/city/delhi/For-1000people-just-half-a-bus-in-Delhi/articleshow/15154517.cms