25-08-2017, 09:32 PM
Indian Railways Growth, Sustenance and the Leap Forward A Case Study
Indian_Railways_report.pdf (Size: 324.41 KB / Downloads: 62)
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 pro¯t making Public Sector Undertaking after
ONGC. A case study on IR could focus on multiple facets - Detailed analysis of the turnaround, Critical
Appraisal of these strategies, Sustenance of this growth, Role of organizational structure of IR etc. In
this case study we look at only certain aspects of IR due to the constraints such as limited time. We ¯rst
do a brief diagnosis of the strategies that were behind the turnaround of Indian Railways. This is a very
well studies and documented area so we move on further to probe two particular questions pertaining
to IR. First, we study the marketing strategy of the Indian railways among the masses so as to counter
threats like Low Cost Airlines. Secondly, we focus on the major question of Privatization of IR which
has been lingering around for quite a while now. We do a comparative case study with the privatization
of British railways and then justify the model of privatization that is slowly being adopted now for IR.
Introduction
Indian Railways (IR) has been the prime mover of the nation and has the distinction of being the largest
railway system in Asia and the second largest railway system in the World under single management. IR
operates more than 11,000 trains per day of which 7000 are passenger trains. The railways have played
a critical role in catalysing the pace of economic development and continue to be an integral part of the
growth engine of the country.
IR had its share of ¯nancial di±culties in the 1990s, which hampered its growth and there were concerns
on its ability to provide competitive transport services in the future. This was in large part due to the
tradition of seeing railways as an essential public service, the usage of which can not be denied even to those
unable to pay. Under a tari® regime, where freight services continually subsidized passenger services and
with IR losing tra±c to the roads steadily, a ¯nancial crisis always seemed imminent within the Railways.
However, after being written o® as a ¯nancially unviable concern by industry watchers and nonchalant
soothsayers, Indian Railways has staged a dramatic turnaround in recent years. The Railway's renaissance
has been engineered by simple entrepreneurial practices, which have evoked the admiration of interna-
tionally renowned institutions and companies alike. In a marked departure from its legacy, the focus on
capacity utilization, reduction in unit costs, and improvement quality of service has yielded remarkable
results. The Railways now looks all set to achieve the declared target of INR 20,000 Crores surplus revenue
in the current ¯nancial year (2006-2007).
Capacity Utilization
² Dynamic Pricing Policy
Till recently, IR had a ¯xed price policy, irrespective of demand scenario and competition. In order
to be able to e®ectively face the challenges posed by sti® competition, a Dynamic Pricing Policy
was introduced for freight as well as passenger, for peak and non-peak seasons, premium and non-
premium services, and for busy and non-busy routes. As per this policy the rates for non-peak season,
non-premium service and empty °ow directions would be less than the general rates and the rates
for peak season and premium services could be higher than normal.
Revenue Enhancement
The incentives to ramp up volume were complemented by a two-pronged revenue enhancement strategy,
which capitalized on opportunities and reduced losses by exiting non-core operations.
The strategy in freight operations was to recognize low-cost high-volume operations where the Railways
enjoyed signi¯cant comparative advantage vis-a-vis road and air transport and achieve higher realizations
on these operations. For example, the tari® on ore has been increased by 70% (virtually no competition)
at a time when rate on iron and steel has been reduced 30%. The strategy to focus on capacity utilization
resulted in high volumes and compensated for the discounts and the lowered tari®s.
Some of the innovative measures adopted in the passenger segment included increasing the number of
coaches in popular trains and encouraging occupancy in the pro¯table upper classes. The passenger tari®
was rationalized such that the fares of AC First and AC Second Class were 11.5 times and 6.5 times the
Second Class fare respectively. This, coupled with the innovative automatic upgradation scheme, enabled
higher occupancy in the pro¯table upper classes.
The Railways also exited from the loss-making parcel and catering services and o®ered it to private play-
ers on a bidding basis. There was also a signi¯cant thrust on non-fare income streams such as advertising
and allied services including land-use rights at railway stations.
Brand Image of Indian Railways, 2007
Every enterprise needs a brand ambassador to market itself. In Laloo Prasad Yadav, the present Indian
railway minister, IR has a brand in place. The personality, aura and mode of speech of Mr Yadav gets
him attention in whatever he does. Thus anything new step which he takes for Railways is highlighted so
well by the media. In recent times, when students from Harvard Business School came to visit India to
understand the turnaround of the railways, the event got so much hype [9] just because Mr. Yadav himself
was escorting the students. Thus, as of now, to complement the great turnaround, the IR has also got an
excellent brand ambassador for itself.
Privatization of Indian Railways
Over the years political interference and bureaucratic failure, leading to ine±ciency and ine®ectiveness of
public sector activities began to be highlighted. The fourth quarter of the 20th century became \the age
of privatization" , swearing by the securing of private sector participation in the form of disinvestment and
denationalization. In this new age of disinvestment, the big question now is that if the largest government
undertaking, the Indian Railways, be privatised and if yes, then based on what model.
Indian Railways is the biggest railway network in the world that is being managed by the state. One
option is complete privatization of IR i.e. sell o® IR to a company like Tatas or Ambanis. But that would
not be a good idea either broadly because of the following reasons.