This paper analyzes the transport sector in Himachal Pradesh. The paper finds that transport management in the state is totally out of gear with high congestion at major tourist areas, lack of parking facilities, high rate of accidents and pollution due to vehicular movement. It is argued that most of the problems could be solved with the introduction of economic instruments like taxation on old polluting vehicles, incentives that discourage private ownership and use of vehicles, subsidizing use of public transport and integrating transport with urban planning.
In the transport economics literature transport demand, because it depends on industrial production and trade, is considered a derived demand (World Bank, 1996). Within the transport sector, road transport generally constitutes a substantial segment. New roads lower costs of goods and services, facilitate the development of new areas, create new job opportunities and allow the development of urban areas. In terms of macroeconomic contribution, value added by transport is estimated to account for 3-5% of GDR Public investment in transport accounts for between 2% and 2.5% of GDR The contribution of the sector to employment generation is also quite high. It commonly accounts for 5-8% of total paid employment. In terms of growth rates, demand for freight and passenger transport in most developing and transition countries is growing 1.5 to 2 times faster than GDP and the bulk of this increase is for road transport. Overall, macroeconomic cross-country evidence shows (World Bank, 1996) that investment in the transport sector promotes growth by increasing the returns to private investment.
While the benefits from transport are considerable, a series of related costs needs to be considered in assessing the relative advantages of transport policies. Such costs are usually external to those who make use of transport and are often unaccounted for. The main external costs of transport use are congestion, accidents and environmental costs. These costs include not only money, but also, for example, time losses, pollution and noise. The government can make use of several instruments to tackle these externalities. The job of transport policy is to assemble an effective combination of instruments. Such instruments can be classified into four broad categories: pricing, regulation, infrastructure policy and public participation. These instruments encompass a wide range of measures. For example, pricing includes economic instruments such as fuel taxes, taxes on vehicle ownership, insurance pricing and road pricing. Technology or emission standards, traffic rules or rationing of car use are examples of regulatory measures. Infrastructure policy refers not only to the expansion of the physical or virtual capacity of the infrastructure, but also to spatial planning. Public participation is through moral suasion, education and community involvement in decision making.
Transport has recently become an area of keen research interest to scholars and institutions, the world over. The World Bank through its several publications (World Bank, 1988, 1996 and 2002) has extensively studied the economic role of transport and the effects of externalities caused by transport operations. The World Bank (1996) gives an extensive review of the policy instruments used for correcting market and policy failures. Litman (2003) presents a relevant analysis on equity concerns in the sector and the measures usually taken to attend them. DFID (2003) presents exhaustive discussions on the stakeholders in transport. Mayeres (2003) gives a state-of-the-art analysis of the economic instruments used to handle transport problems. In the Indian context, Batta (2007), Pandey (2000), and Patankar (2000) present extensive surveys of literature and international experience in the area of transport externalities relevant for India. Singh (2004) reviews the laws relating to accident compensation and insurance. …