12-04-2014, 02:23 PM
‘Turnaround’ of Indian Railways: A Critical Appraisal of Strategies and Processes
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Abstract
Indian Railways (IR), which was declared to be heading towards bankruptcy as per the
Expert Group on Indian Railways in 2001, is today the second largest profit making
Public Sector Undertaking after ONGC. The fund balance crossed Rs.12,000 crores in
2005-06, which had reached a low of just Rs.149 crores in 1990-2000. The total
investment being planning for the eight-year time frame (2007-2015) is tentatively in the
order of Rs.350,000 crores. This confidence is not only due to the rising trend of
performance, but also due to the significant growth in the past two years. These two
years coincided with Mr. Lalu Prasad being at the helm of affairs of the IR, having moved
into his position on 23rd May, 2004. Railway officials called this as the ‘turnaround’ of
IR.
This paper attempts a diagnosis of the ‘turnaround,’ beginning with the question as to
whether it really was a ‘turnaround’. This paper then carried out an analysis of the
various determinants of the ‘turnaround’ related to goods, passenger and other
operations. This is followed by a critical assessment of the strategies and key processes
being the ‘turnaround’. Finally the sustainability of the ‘turnaround’ is explored.
Introduction
The Minister for Railways (MR), Mr Lalu Prasad, the Chairman and Members of the
Railway Board (RB) were reviewing investments for the XI Five Year Plan in mid July
2006. The focus areas that had been put forth in the XI Plan Approach Paper were
[Planning Commission, 2006]:
1. Capacity augmentation, especially Delhi-Mumbai and Delhi-Howrah dedicated
freight corridors
2. Establishment of logistic parks and terminals
3. Rationalization of freight structures
4. Increased use of IT enabled services
5. World class quality passenger amenities
6. Public-private partnerships for building and operation of rail infrastructure
7. Design of high capacity wagons
8. Restructuring of IR to focus on core activities
9. Establishing a Rail Tariff Regulatory Authority
Goods Earnings
The increase in goods earnings for 2005-06 over 2004-05 was Rs 5509 crores,
including miscellaneous earnings due to wharfage and demurrrage. Excluding the
miscellaneous, the increase was Rs 5482 crores. Exhibit 5 provides an analysis of the
commodities through which the increased goods earnings were obtained.
Coal (Rs 1365 crores), other goods including raw material (iron ore, limestone and
dolomite) for other than major steel plants, and other stones, sugar, salt, non bulk goods
and containers (Rs 1121 crores), iron ore for exports (Rs 733 crores), cement (Rs 550
crores), raw material for steel plants (Rs 475 crores), fertilizers (Rs. 449 crores) and pig
iron and finished steel (Rs 373 crores) accounted for 92% of the increase in earnings, in
that order.
Passenger Earnings
The passenger earnings in 2005-06 had gone up by Rs 1013 crores (7.2%) over 2004-
05. Disaggregate data is not yet available to analyse the elements of this increase.
The possible reasons for the earnings in 2005-06 being higher were due to initiatives in
running 24 coach trains, deploying additional coaches in well patronised trains and
even running of additional trains. These initiatives were made possible by ensuring
analysis of demand based on the passenger reservation system data and requiring the
field level officers to respond to it by additional supply where possible.
Overall Strategy
The country’s economy was growing faster than before, moving from the 4% to 6%
GDP growth rates (from 1996-97 until 2002-03) to the 8.5%, 7.5% and 8.4% achieved
in 2003-04, 2004-05 and 2005-06 respectively. This growth environment offered an
opportunity for IR and had a significant impact on the turnaround.
In the freight business, there was focus on higher volumes, on the premise that marginal
revenues were significantly higher than marginal costs (Exhibit 8). This was done with
the objective of lowering the unit costs, resulting in the record surplus.
The strategy for freight rates made a clean departure from the past (the nineties, when
rates were increased and high value finished goods suffered a greater increase in rates
than low value raw materials) by (i) freezing freight rate increases and (ii) rationalising
the commodity classification to benefit the high value goods and charge more from the
low rated commodities (Exhibit 6).