The Union Cabinet on Wednesday approved the setting up of a Rail Development Authority to determine tariffs.
The Rail Development Authority(RDA) will be an independent regulatory body that will act within the parameters of Railway Act, 1989.
It will not only determine tariffs but also ensure fair play and level playing field for all stakeholder investments in the railway sector.
"Cabinet approves setting up of Rail Development Authority (RDA) - Regulatory Mechanism," Frank Noronha, Principal Spokesperson of the government said in a tweet.
The RDA, which will have four members including the Chairman, has also been mandated to set up efficiency and peformance standards, and can engage experts from relevant areas.
The Chairman and the members will have a term of five years. The New Delhi-based independent regulator will be set up with an initial corpus of Rs 50 crore.
Officials said that the decision was a "major policy reform" in the railway sector as the ministry till now worked as a service provider and also determined tariffs.
Railways Minister Suresh Prabhu in his 2015-16 rail budget had pitched for setting up of RDA for orderly development of infrastructure services, enabling competition and protection of customer interest.
Besides, the National Transport Development Policy Committee (NTDPC) Report of 2014 had recommended that a Rail Tariff Authority should be set up which should become the overall regulator.
Later the Bibek Debroy Committee had also recommended setting up a regulator with overarching functions.
Many countries including Britain, Russia, US, Australia, Germany have rail regulatory structure in some form or the other.
The Railway Ministry had earlier prepared a concept paper on Rail Development authority and sought public comments.
(With IANS inputs)