Turnaround of Indian Railways

On 15th April 2006, a story in Washington times created a stir in Indian Politics. It carried a story about Indian Railways turnaround story. It stated that the then Union Railways Minister Mr. Lalu Prasad Yadav has created a turnaround of Railways from a loss making public serving entity to a profit generating enterprise. Though the former railways minister Mr. Nitish Kumar and others objected to it and found loopholes in the stated facts and figures. The questions arise here are: y y y y Whether it really was a turnaround? What factors leads to turnaround Good Luck, good management or both? What were the strategies and key processes leading to a turnaround? Is this turnaround sustainable in future?

Let us discuss each of these questions one by one:

Whether it really was a turnaround?

The determinants of a turnaround are Increase in revenue, Segmental earnings, Freight revenue increase and Passenger revenues increase. There was a significant increase in revenue for the year 2005-2006 from 2004-2005 i.e. Rs 5509 crores. The increased good earnings were obtained from good earnings from transport of commodities such as Coal, iron ore, stones, sugar, salt, cement, fertilizers, pig iron and raw materials. It accounted for 92% increase in the revenue. The increase in earnings from coal and other goods were due to the increased loadings and increase in freight rates. Extra income was also earned from initiatives such as busy season surcharge, busy route charges, priority assignments of rakes while transporting the goods. The improvement in rake availability was also seen during this period mainly due to better wagon turnaround time, use of covered wagon rakes which go empty. Many lucrative offers were provided to various classes of customers. Some of them were: Different size of rakes for different customers, loyalty discounts, high volume discounts, and discounts for providing traffic in empty directions, wagon investment schemes etc. In Passenger segment the freight was maintained at same level for sleeper class and reduced by 10% for AC II and 18% for AC III class. This was done in order to ccompete with low cost airlines. Superfast charges, cancellation charges, the facilities like booking a ticket from some station and boarding from some other were started. Tatkal Scheme for the customers who book tickets on last minute was introduced. Differential charges were applied on the basis of time of booking of tickets. Thus generation

of extra revenue was made possible. Emphasis was also laid on betterment of services provided to travellers. The growth in no of passengers in 2005 -06 was 7.5% from 2004-05. The increase in other earnings like Parcel services, catering and advertising also increased significantly. The efficiency of leasing concept in the parcel services was introduced. Open competitive bidding was introduced in catering contracts and thus efficiency was improved. Easier and innovative ideas of advertising were placed to increase the revenue from advertising. Thus the Indian Railways achieved a turnaround.

What factors leads to turnaround Good Luck, good management or both?

Both good management and good luck helped in the turnaround in about five years. The base for the turnaround was prepared by Mr Nitish Kumar, which Mr Lalu Yadav accepted in his budget speech. It goes to the credit of Mr Yadav that he continued with those policies and ensured proper implementation of those to produce results. This demonstrates the organisation moved away from lethargic functioning and politicisation of decision making and policies, to a more result oriented environment.

What were the strategies and key processes leading to a turnaround?

The key strategies and processes that were used in the turnaround management of Indian railways were like Retrenchment (cost cutting initiatives), Eliminating the business not generating value to the organization (leasing out of catering and parcel services), efficiency improvement (introduction of modern signal system, introduction of freight operating information system, computerisation of control office, introduction of coach operating information system etc), Downsizing (the total no of employees was brought down from 1.672 million in 1991 to 1.412 million in 2006), Outsourcing (other than catering and parcel services, advertising was also outsourced done through public private partnership), Product innovation (Introduction of double stack container trains between Pipapav port to Jaipur, thus increasing the overall capacity), Product differentiation (In order to compete in the passenger market segment, with other modes of transport viz., road, aviation, coastal shipping, the Indian Railways embarked on a program of improving passenger amenities)

Is this turnaround sustainable in future?

The increase in axle load may not be carried forward in the years to come as infrastructural issue may come up with Indian Railways. Serious rail fractures, increased instances of rail derailing, failure of various electric locos have come up after the increase in axle load was carried out. If mentioned technical factors remains with railway tracks then a substantial capital has to be invested in modernisation of tracks and addition in infrastructure, thus depleting the financial position of Indian railways. The commencement of Sixth pay commission is also an issue which will further deplete the financial position. Also the macroeconomic condition will also play an important role in the sustainability of the turnaround and the strategies implemented.