Turnaround to Standstill of
Indian Railways
Uday Shankar Jha
The turnaround of Indian Railways (I R) turned to be short lived
affair. It is said that it started somewhere after 2005.But by the middle of
2010 the IR has to resort to blanket ban on any new activities as there was no
money in the coffer. All the payables were put on hold and there were
instructions that no new developmental activities would be started. By
September, 2011 the net balance of IR reached to as low as 75 lacs only. The
IR has to resort to bridge
loan of ` 2000 crores to disburse bonus of 2010-11 and other expenses. It
would be interesting to analyze how this transition has occurred. For this we
would evaluate the financial condition during the period of turnaround and then
we would see how it has transformed after a few years, what factors were
responsible for this and what corrective measures the IR should take to improve
its financials. To have an idea of financial performance of the IR total
revenue and expenditure would be analyzed and it would be seen whether there is
any excess or shortfall.
In 2009-10 the gross traffic receipt was `.
869,639.7 million, this has grown from `.798, 618.5 million in
2008-09 (see Table I). Between 2000-01 and 2009-10 the growth has been 16.59%.
The maximum growth was noticed in Freight traffic (16.78%), whereas in
passenger there was 13.71% growth. The parcel & OCH showed a growth of
21.39% in this ensuing period.
Table I
Revenue (` in Million)
|
Year
|
Passenger
|
Parcel &
other coaching
|
Freight
|
Misc.
|
Suspense (Bill Recoverable)
|
Gross Traffic
Receipts
|
|
1980-81
|
8,274.7
|
1,157.1
|
16,175.2
|
820.8
|
-187.6
|
26,240.2
|
|
1990-91
|
31,475.0
|
3,363.8
|
84,078.7
|
2,417.6
|
-370.2
|
120,964.9
|
|
2000-01
|
105,150.7
|
7,641.6
|
233,051.0
|
7.032.5
|
-4071.0
|
348,804.8
|
|
2008-09
|
219,313
|
19,717
|
534,334.2
|
25,007
|
+247.8
|
798,618.5
|
|
2009-10
|
234,882
|
22,351
|
585,016.8
|
28,797
|
-1406.8
|
869,639.7
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp23
The total expense in 2009-10 was `
829,153.5 million. In 2008-09 this was `
718,319 million. Thus there was surplus
cash of ` 7.5 million only in 2009-10 whereas this surplus was ` 44,567.8 million in 2008-09 which is ever best in recent time (see
Table II). There has been manifold increase in expense between 2001-02 and 2009-10.
With increasing inflation particularly in second half of first decade of 21st
century, up to double digit the expenses grow phenomenally. There has been
15.44% increase in expenses between 2000-01 and 2009-10 whereas in net revenue 46.40%
growth was there.
Table II
Net Revenue and Balance
(` in Million)
|
Year
|
Gross Traffic Receipts
|
Total Working
Expenses
|
Net misc. Receipts
|
Net Revenue
|
Dividend
|
Balance
|
|
1980-81
|
26240.2
|
25364.6
|
399.3
|
1274.9
|
3,253.6
|
-1,978.7
|
|
1990-91
|
120964.9
|
111538.6
|
1711.5
|
11137.8
|
9,381.1
|
+1,756.7
|
|
2000-01
|
348804.8
|
346,973.4
|
8580.9
|
10712.3
|
3,076.4
|
+7,635.9
|
|
2008-09
|
798618
|
718,393
|
11519
|
91744.5
|
47,177
|
+44,567.8
|
|
2009-10
|
869640
|
829,154
|
14955
|
55,440.9
|
55,433
|
+7.5
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp25
The paltry amount of cash surplus in 2009-10 indicates that the
financial condition of the IR is in critical stage as there is no money to
carryout different expansion processes including construction of new lines or
conversion of meter gauge (MG) to broad gauge (BG) or acquiring new assets like
wagons, coaches, locomotives etc. which are quite critical for capturing
additional goods or passenger traffic. Similarly due to lack of fund the IR is
not in a position to carry out even a small traffic facility work like
providing an additional loop or any passenger amenities item or any such work which
could have helped in capturing any new or additional goods or passenger
traffic. Thus the euphoria created over the ‘Turnaround of the IR’ turned to be
a short lived affair and indicate critical stage which can prove to be a big
question mark for the survival of the IR.
Table
III
Expenses
(`. in millions)
|
|
2006-07
|
2007-08
|
2008—09
|
2009-10
|
|
Genl. Superintendence
|
20,797.1
|
22,914.9
|
35,429.8
|
45,223.3
|
|
Repairs & Maintenance
|
120,778.4
|
129,820.6
|
183,059.8
|
228,094.8
|
|
Operating Expenses
|
203,510.1
|
220,006.2
|
278,505.7
|
319,754.5
|
|
Staff Welfare
|
17,253.1
|
19,496.9
|
27,587.6
|
36,414.0
|
|
Misc. Wkg. Exp.
|
12,236.7
|
17,535.2
|
22,737.5
|
29,394.1
|
|
Suspense
|
(-)250.1
|
(+)557.8
|
(-)3,827.4
|
(-)777.2
|
|
Total Ordy.Wkg.Exp
|
374,325.3
|
410,331.7
|
543,493.0
|
658,103.5
|
|
Contribution to Funds
|
116,140.0
|
134,290.0
|
174,900.0
|
171,050.0
|
|
Total Working Exp.
|
490,465.3
|
544,621.7
|
718,393.0
|
829,153.5
|
|
Other Misc. Exp.
|
12,861.8
|
4,803.8
|
6,452.3
|
7,698.5
|
|
Gross Wkg.Exp.
|
503,327.1
|
549,425.5
|
724,845.3
|
836,852.0
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp24
The genesis of the current critical stage can be traced back to the
implementation of sixth pay commission report. After the implementation of new
scale the expenditure of the IR has gone up to 61.79% on the staff cost (`512,368million) out of all expenses (829,154million) in 2009-10. The
rising trend started in 2008-09 when staff cost turned to be 55.67% (` 290,784 million) against total expenses of `718,393
million. Up to fifth pay commission wage bill use to be less as in 2000-01 it
was 34.98% (` 188,414 million) against total expenses of `346,673
million(see Table III).
Table IV
Strength of Railway Employees
with the Cost
|
Year
|
No. of staff
(000)
|
Wage bill (`. in millions)
|
Average annual
Wage (`.Per employee
|
Traffic unit
per employee (000)
|
|
1980-81
|
1,572.2
|
13,167
|
8,435
|
244
|
|
1990-91
|
1,651.8
|
51,663
|
31,864
|
346
|
|
2000-01
|
1,545.3
|
188,414
|
121,281
|
535
|
|
2008-09
|
1,386.1
|
399,933
|
290,784
|
1,073
|
|
2009-10
|
1,361.5
|
512,368
|
378,781
|
1,183
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp22
If any organization is expanding such a high percentage on staff
cost, this indicates serious state of affair. There would be no money to expand
on other priority or important items like acquiring new assets, expansion,
R&D, etc. Staff cost in the IR is such an issue which can not be reduced
over night, particularly in a democratic setup of India where there is no
policy of ‘Hire & Fire’ and staffs cannot be redeployed in other sector
easily. Multi skill and multi tasking could have been one solution to resolve
this issue. However the IR is very low in this affair.
If the earning aspect of IR is analyzed it is observed that various
activities to increase earning has not been undertaken very systematically.
Optimum capacity utilization and additional capacity generation, where there is
acute capacity problem can be a key to this. Although, there is slow growth in
the earning of the IR as shown in Table I & II, it has not matched with the
growth of GDP. Globally it has been accepted that the need of transportation
increases 1.25percent of GDP. Hence the growth of IR should have been much
higher than the GDP of India. But, in reality the growth has been much slower,
In fact, for many year it has almost stagnated, creating a wider gap of demand
and supply of transportation capacity of the IR.
PASSENGER SERVICES
When we analyze the growth in originating passenger it is observed
that between 1980-81 and 2009-10 there has been
3.47% growth overall. In non-suburban the growth has been 3.76% whereas
in suburban this was 3.23%. On the other hand the growth between 2000-01 and
2009-10 has been 3.94% in suburban segment and 7.88% in long distance
passengers. Since the IR make more earning in non suburban traffic the thrust
should be to capture more of this traffic by better utilization of existing
coaching stock and introducing new stock particularly in those routes where there
is continuous long waiting list. Further, there is difference in the
requirements of suburban and long distance passengers (see Table V).
Table V
Passengers Originating
(Millions)
|
Year
|
Suburban
|
Non-Suburban
|
Total
|
|
1980-81
|
2,000
|
1,613
|
3,613
|
|
1990-91
|
2,259
|
1,599
|
3,858
|
|
2000-01
|
2,861
|
1,972
|
4,833
|
|
2008-09
|
3,802
|
3,118
|
6,920
|
|
2009-10
|
3,876
|
3,370
|
7,246
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp2
When we analyze the average distance traveled by per passenger we notice
that there has been consistent growth and increase. Between 1980-81 and 2009-10
the growth of average distance traveled by suburban passenger has been 2.24%
whereas in long distance passenger this has been 4.16%. It we compare average
distance traveled between 2000-01 and 2009-10 this has been 0.96% and 2.53%
respectively in suburban and long distance sectors. In non suburban segment the growth has been
much faster. This indicates that the IR needs to take more concrete action to
cater this segment. With increased inter-city movement and mobility people now
prefer to take longer distance journey. Accordingly the IR need to facilitate
more number of long distance trains and inter city trains to provide over night
services. In suburban traffic the average distance has increased from 20.5 in
1980-81 to 33.8km (see Table VI).
Table
VI
Average Distance Traveled –Per Passenger (Kms.)
|
Year
|
Suburban
|
Non-Suburban
|
Total
|
|
1980-81
|
20.5
|
103.9
|
57.7
|
|
1990-91
|
26.4
|
147.6
|
76.6
|
|
2000-01
|
31.1
|
186.7
|
94.6
|
|
2008-09
|
32.8
|
228.7
|
121.1
|
|
2009-10
|
33.8
|
229.2
|
124.7
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp2
FREIGHT SERVICES
Revenue-earning Goods Traffic is the main source of earning of the
IR. It is from the earning of this the passenger traffic is cross subsidized.
In 1980-81 originating tonnage was 195.9 million tonnes. There was consistent
improvement in this and it reached to 887.79 million tonnes in 2009-10. There
was growth of 12.18% in revenue earning traffic between 1980-81 and 2009-10. If
we analyze the growth in goods traffic between 2000-01 and 2009-10, the growth
is only 9.72%. However, this growth in traffic was not even similar to growth
in the GDP and not to think about 1.25 times growth of freight traffic. The gap
in this indicate slipping grip of the IR on the freight traffic of nation (see
table VII).
Table
VII
Originating Tonnage (Million tonnes)
|
Year
|
Revenue-earning
Traffic
|
Total
Traffic
|
|
1980-81
|
195.9
|
220.0
|
|
1990-91
|
318.4
|
341.4
|
|
2000-01
|
473.5
|
504.2
|
|
2008-09
|
833.39
|
836.6
|
|
2009-10
|
887.79
|
892.2
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp6
To have a proper understanding of revenue earning traffic it is
important to know which are main commodities being carried by the IR. These are bulk commodities like coal, ores
etc. For long period of time coal has been the most important item of loading.
During 2006-07 the quantity of coal was 313.33 million tonnes which reached to
396.15 million tonnes in 2009-10 registering the growth of 8.81 percent per
annum. During this period there was maximum growth in fertilizer (9.17percent)
and cement (9.13percent). Moderate growth was registered in mineral oils (7.56percent),
Iron & Steel (percent) and Limestone & Dolomite (9.17percent). Lowest
growth was registered in ores (3.01percent only) (see Table VIII).
Table
VIII
Commodity-wise Originating Tonnage (Millions)
|
Bulk
Commodities
|
2006-07
|
2007-08
|
2008-09
|
2009-10
|
|
Coal
|
313.33
|
336.83
|
369.63
|
396.15
|
|
Ores
|
121.74
|
136.69
|
130.58
|
132.74
|
|
Cement
|
73.13
|
78.99
|
86.24
|
93.15
|
|
Mineral
oils
|
31.69
|
35.88
|
38.08
|
38.88
|
|
Food
grains
|
41.84
|
38.23
|
35.51
|
38.69
|
|
Fertilizers
|
34.26
|
35.83
|
41.35
|
43.68
|
|
Iron
& Steel
|
27.04
|
25.79
|
28.58
|
31.85
|
|
Limestone
& Dolomite
|
12.70
|
14.14
|
13.34
|
14.77
|
|
Stones
other than marble
(incl.
gypsum)
|
13.22
|
10.67
|
6.88
|
11.44
|
|
Total
|
668.95
|
713.05
|
750.19
|
757.67
|
|
Commodities
other
than
above
|
58.80
|
80.84
|
83.20
|
130.12
|
|
Grant
Total
|
727.75
|
793.89
|
833.39
|
887.79
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp9
In contrast to originating tonnage, NTKM gives better perspective
for understanding the load being carried by IR as it is calculated by
multiplying tonnage and distance in Kms. If we take the example of increase in
transportation of coal being carried by IR in terms of tonnage between 2006-07
and 2009-10 the growth was 8.18% where as in terms of NTKM the growth
registered was 9.66% which shows higher importance of coal traffic as here not
only quantity is increasing but also the average distance increase is on positive
side. In terms of NTKM the maximum growth was registered in fertilizer segment
(14.51%) vis a viz tonnage (9.17%). In case of mineral oil although there is
increase in tonnage (7.56%) there is drastic reduction in NTKM (2.14%). This is
quite natural with the increasing influence of pipeline to major destinations.
Traditionally POL has been very lucrative traffic and its class was also fixed
on higher side as train was running empty in one direction. In changed
condition the Railways has to think ways and means of better utilization of
existing tank wagons and to try to capture additional new traffic in place of the loss of POL
traffic. In the ensuing period growth in limestone (15.12%) and cement (10.30%)
has been higher but its quantity is on lower side. On the other hand growth in iron
and steel (6.14%), and ores (4.57%) have been moderate and in stones (-3.03%) negative growth .i.e.
reduction has been seen with growing ban on transportation of raw minerals. It
is quite likely that there would be much lower ores available for
transportation by the IR (see table IX).
Table
IX
Commodity-wise NTKMs (Billions)
|
Bulk Commodities
|
2006-07
|
2007-08
|
2008-09
|
2009-10
|
|
Coal
|
191.5
|
208.5
|
230.1
|
247.0
|
|
Ores
|
47.4
|
54.1
|
50.8
|
53.9
|
|
Cement
|
41.1
|
43.2
|
46.5
|
53.8
|
|
Mineral
oils
|
23.4
|
23.4
|
24.0
|
24.9
|
|
Food
grains
|
47.9
|
46.9
|
45.6
|
50.3
|
|
Fertilizers
|
25.5
|
25.8
|
33.1
|
36.6
|
|
Iron
& Steel
|
26.6
|
25.1
|
26.9
|
31.5
|
|
Limestone
& Dolomite
|
6.7
|
9.3
|
8.5
|
9.9
|
|
Stones
other than marble
(incl.
gypsum)
|
6.6
|
3.2
|
2.1
|
6.0
|
|
Total
|
416.7
|
439.5
|
467.6
|
513.9
|
|
Commodities
other
than
above
|
64.3
|
81.9
|
83.8
|
86.8
|
|
Grant
Total
|
481.0
|
521.4
|
551.4
|
600.5
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp10
In any business activity
getting in flow of cash is ver important for the survival of the industry. In
such situation only earnings gives financial viability of any activity.
Analyzing earning being made out of these commodities, gives further insights. Coal
has been constantly been giving maximum earning. In 2009-10 this is 39% of total
earnings. The growth in earning between 2006-07 and 2009-10 in coal has been
13.7%. The maximum growth in earning was noticed in fertilizer (22.07%), ores
(15.74%) and cement (15.14%) in the ensuing period, whereas in limestone
(13.84%), Iron and steel (9.64%) and food grain (8.28%) has been moderate on
the other hand in stones (-16.57%) negative growth or
deterioration was seen (see table X).
Table
X
Commodity-wise Revenue Earnings (Rs. in millions)
|
Bulk Commodities
|
2006-07
|
2007-08
|
2008-09
|
2009-10
|
|
Coal
|
158,866
|
175,672
|
196,676
|
224,181
|
|
Ores
|
56,687
|
71,900
|
90,215
|
83,453
|
|
Cement
|
36,491
|
39,004
|
44,293
|
53,063
|
|
Mineral
oils
|
28,605
|
29,364
|
30,512
|
31,890
|
|
Food
grains
|
30,715
|
32,127
|
31,917
|
38,340
|
|
Fertilizers
|
17,913
|
18,962
|
24,760
|
29,774
|
|
Iron
& Steel
|
26,007
|
26,274
|
28,515
|
33,530
|
|
Limestone
& Dolomite
|
7,211
|
9,094
|
8,657
|
10,204
|
|
Stones
other than marble
(incl.
gypsum)
|
5,907
|
3,732
|
2,746
|
2,971
|
|
Total
|
368,402
|
406,129
|
458,291
|
507,406
|
|
Commodities
other
than
above
|
42,330
|
58,126
|
59,202
|
61,709
|
|
Grant
Total
|
410,732
|
464,255
|
517,493
|
569,115
|
Source: Facts & Figure 2009-10 Indian Railways
Ministry of Railways Govt. of India
pp13
In transportation business the distance to be covered is an
important factor, more it, better it is. Hence it would be interesting to
understand what is average lead being carried by the IR. On the base year of
1981 when average lead of revenue-earning freight traffic was 753km the IR was
carrying slightly longer destination. This was subsequently reduced to 660km in
2001. However it started improving afterward. In 2008-09 it reached to662km and
676km in 2009-10. In percentage term from 100percent in 1980-81 it came down to
89.7percent. This is serious question related with the subsistence of IR as it
indicates reducing dependence of the nation in carrying long distance traffic
with the IR. This is quite natural in view of improving road condition and
construction of long distance highways (see table XI).
Table
XI
Average Lead (in Kms.)
|
Year
|
Average
lead of Revenue-earning freight traffic
|
Index(1980-81
= 100)
|
|
1980-81
|
753
|
100.0
|
|
1990-91
|
741
|
98.3
|
|
2000-01
|
660
|
87.5
|
|
2008-09
|
662
|
87.8
|
|
2009-10
|
676
|
89.7
|
Source: Facts & Figure
2009-10 Indian Railways Ministry of Railways Govt. of India pp11
Thus in the above analysis we have seen the trajectory of IR ahs
been a mixed bag of success and failure. Although there has been slow growth in
almost all areas, it has failed to capture the imagination of the nation and
has been gradually relegated from “Prime Mover of the Nation” to “Small Player
in Transportation”, which was on the way of easy replacement by many private
players in transport sector are required. With the growth of robust roadways
network and heavy axle load road vehicle the downward movement of growth has
becoming definite certainty. Coupled with this the increasing input cost and no
substantial increase in earnings is proving it to be an additional nail in the
coffin.
But it is not that IR has faced life surviving question for the
first time in its existence. The IR has reached several times in its life stage. One such crisis has been
discussed by Sudhir Kumar & Shagun Mehrotra (2009: pp138-160) who have
explained that during 1990s the IR’s expenses grew one percent faster than the
earning. This led it toward bankruptcy. This situation changed between 2001 and
2008 when the IR was able to invert this relationship as earning grew four
percent higher than expenses. Higher earning was achieved due to growth in
freight volume, selective fare hike in under priced freight segments and change
in product mix in favor of high value high margin segments. During this period
working expenses grew at lower rate primarily on account of low inflation and
the IR’s relatively inelastic cost structure with respect to volume transported
(see Table XII).
Table XII
Compounded Annual Growth
Rate (`. Crore)
|
|
1991
|
2001
|
2008
|
1991-2001 CAGR%
|
2001-08 CAGR%
|
|
Total working expenses
|
11,154
|
34,667
|
54,462
|
12.01
|
6.67
|
|
Gross traffic receipts
|
12,096
|
34,880
|
71,720
|
11.17
|
10.85
|
|
Passenger earnings
|
3,148
|
10,515
|
19,844
|
12.82
|
9.50
|
|
Goods earnings
|
8,408
|
23,305
|
47,434
|
10.73
|
10.69
|
|
Other coaching earnings
|
336
|
764
|
1800
|
8.56
|
13.02
|
|
Sundry earnings
|
242
|
703
|
2565
|
11.25
|
20.31
|
Source: Sudhir &
Shagun( 2009: pp 139)
However, Sudhir & Shagun miss to note the implication of sixth
pay commission pay revision as during that time its recommendations were not
accepted and its impact was not reflected in expense side during those periods.
To understand the present crisis it would be important to analyze
the major arguments of Sudhir & Shagun (2009: pp 8-29) who mention that a
management strategy of distinct approach and its swift accomplishment was
adopted to achieve a turnaround. The core supply side strategy were faster,
longer and heavier trains and demand side strategy included dynamic, differential and market driven motto.
For this several measures were initiated. Firstly the IR shifted its focus from
traffic regulation to reducing unit cost, improving yields, margin, market
share, productivity, product mix, and quality of service with a customer focus.
Secondly in the past profit had not been primary focus, instead operation and
technology based considerations dominated. Changing this profit was made motive
without affecting the interest of common public by spotting, seizing and
cashing in on business opportunity as seen in four hundred percent increase increase in iron ore tariff when international price
of iron ore zoomed. Between 2005 and 2008 this has brought an additional
revenue of `. 9000crore.
Thirdly, Sudhir & Shagun (2009: pp 18) argue further that during
this time assumptions regarding variability of cost was changed. Although the
IR’s Financial Code prescribes long term variable cost at 78.5percent, this was
proven during this time that this variable cost is substantially less in the
long term and is negligible in the short term due to economics of scale, slack
in the system, and improvement in operating strategy and technology. Due to
technological improvement the IR now carries almost double load with half
number of wagon and locomotives. Running longer and heavier trains reduces unit
cost as same crew, engine, track etc carry more load. Fourthly, the past policy
of across the board increase in prices to compensate for rising costs has been
replaced with a policy of selective price increases based on the competitive
strengths. Freight charges were increased where it has a competitive edge and
decreased where it was lacking. Differential and dynamic pricing policy was
introduced. Substantial discounts were offered during the lean season and
loading in empty returning trains, and surcharges were levied during the busy
season and on congested routes.
Fifthly, Sudhir & Shagun( 2009: pp 19-20) point out that focus
was shifted from pricing per passenger or per ton to maximizing profits through
yield and margin per train by analyzing price, occupancy rates, carrying
capacity load and length per train, axle load design of the wagons and coaches,
tare weights volumetric capacity and density of the commodity. Sixthly, emphasis on construction and
procurement of new assets has been changed to better asset maintenance
enhancing productivity and better utilization for operating faster, longer and
heavier trains. Turnaround time of rake was reduced from seven days to five
days which resulted in running on an average additional 230 trains each day
generating around Rs.10, 000 crores. Further, by increasing loadability by 6
tons per wagon, the IR transported 90 million tons of incremental load each year
or Rs.6000 crore incremental earning. Similarly, by attaching 3000 additional
coaches for clearing waiting list increment revenue of Rs.3000 crore was made.
Further attempts were made for value creation, customer satisfaction, and
tech-savvy approach. For goods traffic
e-payment, half train load, multiple location unloading and faster delivery of
cargo benefited the customers whereas e-ticketing, nation-wide train enquiry,
call centers, better cleanliness and better ambience of station and trains
attracted more passengers. All these led to higher profit.
Not only these, Sudhir & Shagun (2009: pp 23-25) demonstrate
that during this period, systematic approach was adopted to changing idea to
action. Several steps were taken to ensure this. First, thinking beyond
resource constraints required
leveraging resources such that aspirations exceeding resources endowment of IR.
For this innovation and assets optimization was given priority over assets
accumulation. This strategy was to fully utilize assets by running faster
longer and heavier trains. Second, was coordination and cooperation requiring
functional and spatial synergy as well as complementarities among various kinds
of policy interventions, such that the sum of parts was much greater than the
whole. This was achieved through establishing cross-functional task forces that
were assigned specific decision-making tasks to be delivered in a time-bound
manner. Third was to fill in the gaps with strategic investments adopting a
system-based to improve the utilization of existing assets—low hanging fruits.
Low cost, short gestation, high return, and rapid payback were the criteria for
these investments. Such investments included lengthening platforms to
accommodate longer trains and ameliorating network bottlenecks like small
segments of weak railway tracks in high-density networks. These interventions
were accorded top priority and authority was devolved to allow swift
implementation. Forth, strategic alliances were forged to meet soaring demand,
co-opt competition in areas where the Railways lacked competitiveness and forge
long-term alliances with existing customers so as to offer better service.
Fifth was a deliberative and calibrated approach where projects were first
piloted to learn, revise and scale up in a phased manner. A classic example of
this incremental approach was the gradual increase of axle load in small
increments of 2 tons on a select route and a few trains gradually spreading
across the high-density network.
Sustainability of
Turnaround
The timing of these changes was quite important to reap the benefit.
During first decade of this century Sudhir & Shagun (2009: pp 27-28) accept
that macroeconomic stability was characterized by low inflation and interest
rates. This was critical to reduce unit costs at current prices Over the 1990s,
a combination of low growth in the freight business segment, at an annualized
rate of 2 per cent, clubbed with high inflation, averaging 11 percent per
annum, resulted in costs increasing faster than revenues, leading to a
financial crisis. However, between 2005 and 2008, the combination of
macroeconomic stability characterized by annualized inflation rates of 5 per
cent, a booming economy, and upswing in commodity cycles provided a fantastic
opportunity for the Railways. The Railways seized this opportunity by
increasing freight volumes at 9 percent per annum for four consecutive years.
This was 4 per cent more than the average rate of inflation. Consequently, nominal
(current) costs declined by 2 per cent each year and the Railway’s freight unit
cost declined from 61 paise in 2001 to 54 paise in 2008, resulting in a
doubling of profit margins despite no across-the-board increase in fares.
Further, passenger losses reduced because while the cost remained
stable, the products mix was changed in favor of high-value high-margin
business segments. However, the duo author correctly anticipated that high
inflation and high interest rates may reverse this virtuous cycle of declining
unit cost, improving profit margins, and gaining market shares. As it has been
observed that by the end of first decade the benefit started gradually
dwindling. And now the IR has reached to another end of spectrum where there is
no money for future development.
With the changing upper end job market scenario Sudhir & Shagun(
2009: pp 28) anticipated that unlike in the past when Indian Railways was the
preferred employer for talented youth, including elite IIT and IIM graduates,
there is now a gradual disinterest in working with the Railways largely due to
the competition from private employers. At the lower level in group C and D
staffs also similar crises are being felt as many talented or skilled persons
are not joining the job. There is consistence drop in the workmanship at all
level.
Third, sustaining an internal drive to constantly innovate so as to
create value for the customers such that the Railways is the preferred mode of
transportation in various freight and travel business segments is a big
challenge. Although, there is enormous room to improve efficiency by optimizing
an underutilized system, fixing loopholes, and reducing revenue losses a
motivated leadership can play a critical role. To translate this insight into
action requires working across departmental silos, introducing a commercial
orientation to the organization, and breaking free of a monopoly mindset. This
requires a productive politico-bureaucracy interface such that the bureaucracy
respects the political mandate and in return the political leadership refrains
from interfering with the routine functioning of the bureaucracy.
Sudhir & Shagun( 2009: pp 29) suggested that in a fast changing
external environment it was critical for public utilities to question past
assumptions about the nature of the business, its cost structures, and pricing
and to respond appropriately. For instance, the widespread obsession with
construction, procurement and expenditure needs to give way to effective and
efficient utilization of existing assets for enhancing productivity. Thus,
during this period big five approaches to implementation were 1) setting
stretched goal, 2) cross-functional and spatial coordination, 3)strategic
investments, 4)fostering alliances, 5) deploying a deliberative and calibrated
approach, and aggressively chasing for results. During this period as an affect
the IR was able to its financial condition substantially.
Previous Experiences
Sudhir & Shagun (2009: pp 36-40) have noted that similar kind of
crisis and its over coming has also been repeated earlier. During 1980s the IR
was in similar critical condition. At that time, as a Chairman of Railway Board
Shri M. S. Gujral took several bold steps. He had twofold strategies. To
increase the output first, he segregated the old and new types of
wagons-specifically, four wheelers from eight wheelers, screw coupling from
centre buffer coupling, and roller bearing from plain bearing. Secondly the
steam engines were utilized on short routes, like operating trains between
yards and shunting. And for the long haul higher horsepower engines were
deployed. As a corollary to the separation of stock, Gujral improved
maintenance practices at the start of a train so as to abolish the practice of
en route examination of trains called ‘safe to run’ at every 400 km (and
‘intensive’ at every 800 km for
intensive routes). This was replaced by
end-to-end examination. Second, to further improve operational efficiency, he
terminated the practice of accepting less than train load freight and
introduced the concept of ‘block and point-to-point trains’ , thus eliminating
the need for trains to halt en route. As
long term measures, Gujral introduced improved brake, bearing and coupler technology
in all wagons as standard practice. Second, production of higher-capacity and better designed air brake BOXN and BCN
wagons was initiated, high-power diesel locomotive production was ramped up,
and high capacity diesel powered breakdown cranes were acquired. Third, he
prioritized the electrification of railway routes, improved utilization of
diesel and electric locomotives, and ordered the complete phasing out of steam
engines. In sum, the Gujral reforms
resulted in a quantum jump in the Railway’s operational performance. Not only
did trains roll faster but they also increased the amount of freight
transported. There was a fourfold increase in the incremental freight carried
in the decade following the reforms compared to the preceding decade.
The second crisis came in 2001, when the Indian Railways faced a
severe financial crisis, it defaulted on dividend payments to the Government of
India, its cash balance shrank to a paltry Rs.359 crore, and the Railways did
not earn enough to be able to replace aging assets resulting in large
replacement arrears. The profitable freight business was recording a poor
growth rate of 3 per cent and its expenses grew faster than revenues. The Railway’s financial condition was
unsustainable and it was on the verge of bankruptcy. In the pre-reform era, under the freight
equalization scheme, the cost of transportation of crucial bulk commodities
like steel and fertilizers was neutral to the lead of transportation as the
difference was paid by the public exchequer through a subsidy. The freight
equalization policy for steel was the reason that steel made in Jamshedpur cost about the same in Ranchi
as in Gujarat in those days. Further, oil pool
account for petroleum products and the retention pricing scheme for fertilizers
played a similar role. In essence, the producers of these commodities were not
concerned about the coasts associated with transportation because they could
pass on these coasts to the state. Liberalization began dismantling this
arrangement. Hence, firms became cost conscious and began seeking cheaper
transport services. Since transportation of bulk commodities lay at the heart
of the Railway’s post-Gujral phase, liberalization was calling in to question
this freight business model as customers migrated to alternate modes. A fiercely competitive private road
transportation sector was increasingly acquiring railway’s market share. There
were other competitors on the horizon as well: international logistics firms,
shipping industry, and oil pipelines. Further, the Railways experienced another
external shock from the reformed macroeconomic environment. There was a sharp
decline in the ability and willingness of the central government to provide
budget support through fiscal transfers for capital investment needs or
recurring expenses like the increase in wages due to the fifth pay commission.
The former enhanced competition from the extremely demand-responsive private
road transport market and the latter eroded hopes of bailouts through fiscal
transfers.
It is clear from the above analysis that the IR has frequently
followed the pattern of cycle of ups
and downs. There has been pattern of
emergence of some kind of solution whenever the IR attains a stage of
crisis. During last thirty years the IR
has been able to come out successfully at least three times when it reached to
a stage of major crisis. Each time some
important steps were initiated to resolve the issue and those measures have
helped in providing solution which resulted in upswing in the performance. The
critical question at this stage would be what steps the IR should initiate at
this time to come out of the crisis. It
is stated that some of the solution suggested below could be adopted to
streamline the working in such a manner that each issue is addressed in a
continuous manner.
Future Options
Separation of Passenger
and Goods Traffic:
For IR the goods traffic is the bread and butter as it provides
major earning. On the other hand the
passenger traffic is a major liability where cross subsidization from the goods
traffic help to survive. The IR should
now attempt to identify three different sectors and adopt sector specific measures. These sectors could be:-
(1) Goods Intensive Sector.
(2) Passenger Intensive Sector
(3) Mix sector
All the above three sector needs separate set of measures to improve
productivity return. In Goods Intensive Sector, IR needs to take several steps so
that the heavy hauled trains could be run, more trains in the section can be run; more number of wagons can be supplied for loading, or more number
of locomotives particularly diesel locomotives can be provided. Locomotive in IR is facing special problem
that it has lesser number of diesel locomotives and IR can provide high power
Diesel Locomotives. Similarly, IR has to
improve the turn around of wagons/rakes so that more rakes are available for
loading in shorter duration. Improving
condition of Good shed is another major challenge where the IR needs to improve
substantially. In Passenger Intensive Sector, the strategies are oriented
towards the movement of more number of passengers in shorter duration. The passenger fare is considered to be a
politically sensitive issue and is not revised for almost a decade. However, with increasing inflation up to
double digit, IR cannot afford not to revise the passenger fare to make a
system robust. The IR need to develop a
mechanism to link hike in passenger fare with price index. For some initial years some kind of balance
is required to synchronize it with the price index. Secondly, shortage of
passenger coaches is another major issue the IR need to develop a special
strategy to meet the long outstanding demand of shortage of coaches in all the
popular trains. A clear cut policy has
to be developed so that no popular train is run with less than 24 coaches to
haul such train. The IR needs more
locomotives both electrical & diesel locomotives to run more number of
passenger trains. In the Mix sector a mix strategy for above two sectors is
required to be developed.
Capacity Creation
Additional Coaches and
Wagon
One of the important factors in Supply Chain Management or
Infrastructural Activities is “Capacity Creation”. When the Indian Economy is growing at a rapid speed touching
almost double digit and when the population is also increasing, it is obvious
that IR need additional capacity to cater the increasing demand in Freight and
Passenger Sector. During 1st decade of 21st
Century the serious attempt was made to increase or maximize the capacity
utilization by increasing the loading limit up to CC+6+2 tons per wagon or
increasing time schedule for various maintenance activities. In Passenger Sector, many trains were
converted into 24 coach trains and the periodicity of requirement of mechanical
maintenance was increased substantially.
However, those measures can be expanded only up to a limit. Beyond that the IR need to have additional
capacity creation. On this front the IR
need the substantial improvement. In Passenger Coach Segment there were 33258
Coaches in 2000-01 which increased to 43556 in 2009-10. This means in one decade 10,000 Coaches were
added. As far as Carrying Capacity in
these Coaches are concerned these increased from 23.7 lakhs to 32.1 lakhs. For suburban traffic the IR had 4.5 thousand
Coaches in 2000-01 and it increased to 6.8 thousand in 2009-10. Looking to the rapid urbanization of India,
additions of 2.2 through EMU Coaches are quite insufficient. Looking to the growing population and growing
passenger traffic demand, these additions of coaches are quite insufficient (See
Table XIII).
Table
XIII
Passenger Coaches
|
|
EMU coaches
|
Conventional Coaches
|
Other Coaching vehicles
|
||
|
Year
|
No.
|
Capacity
|
No.
|
Capacity
|
|
|
1980-81
|
2,625
|
500,607
|
27,478
|
1,695,127
|
8,230
|
|
1990-91
|
3,142
|
609,042
|
28,701
|
1,864,136
|
6,668
|
|
2000-01
|
4,526
|
859,701
|
33,258
|
2,372,729
|
4,731
|
|
2008-09
|
6,228
|
1,195,197
|
42,117
|
3,114,691
|
5,985
|
|
2009-10
|
6,765
|
1,194,388
|
43,556
|
3,208,404
|
6,505
|
Similarly the IR has to increase its number of wagon substantially
to meet overflowing demand at various good sheds. During 2000-01 number of BG Wagon in IR was
2.06 lakh which was reached to 2.15 lakhs in 2009-10. Thus, in one decade only approximately 9000
wagons were added. On the other hand the
number of wagons has reduced in MG from 15.20 to 7.4 thousand. This is quite natural as the area and
jurisdiction of MG is decreasing gradually (See Table XIV).
Table
XIV
No. of Freight Cars / Wagons
|
Year
|
Broad
Gauge
|
Metre
Gauge
|
Total(incl
NG)
|
|
1980-81
|
309,194
|
86,839
|
400,946
|
|
1990-91
|
284,362
|
58,576
|
346,102
|
|
2000-01
|
205,959
|
15,294
|
222,193
|
|
2008-09
|
207,701
|
4,929
|
212,835
|
|
2009-10
|
214,946
|
4,790
|
219,931
|
Need of Additional
Locomotives
As far as Locomotive is concerned in 2000-01 there were 2791
Electrical Locomotives and 3008 Diesel Locomotives. This has increased to 3825 & 4542
respectively. Thus, 1034 and 1534 number
of Electrical and Diesel Locomotives were added during this period (See Table
XV). Looking to this increasing traffic demand, this is not sufficient. During critical time the shortage of diesel
locomotive is more severely felt.
Table
XV
Number of Locomotives
|
|
Broad
Gauge
|
Meter
Gauge
|
Total
|
||||||
|
Year
|
Steam
|
Diesel
|
Elect
|
Steam
|
Diesel
|
Elect
|
Steam
|
Diesel
|
Elect
|
|
1980-81
|
4,361
|
1,866
|
1,016
|
2,763
|
470
|
20
|
7,469
|
2,403
|
1,036
|
|
1990-91
|
1,295
|
2,893
|
1,723
|
1,482
|
731
|
20
|
2,915
|
3,759
|
1,743
|
|
2000-01
|
-
|
3,881
|
2,791
|
33
|
657
|
19
|
54
|
4,702
|
2,810
|
|
2008-09
|
-
|
4,430
|
3,586
|
29
|
395
|
-
|
43
|
4,964
|
3,586
|
|
2009-10
|
-
|
4,542
|
3,825
|
29
|
340
|
-
|
42
|
5,022
|
3,825
|
It may be noted that the IR
has in house facility to produce passenger coaches and locomotives. However
these capacities are very limited and the production capacity cannot be
increased suddenly. Thus, it could be said that the IR needs to search ways and
means to increase the number of coaches, wagon and locomotive to meet the
increasing demand. it may be further noted that, although there is severe
shortage of these, no decision has been taken to procure these from
international market. There is primarily shortage of fund to procure these. Secondly,
procuring such items has related risk of charges of corruption or manipulation
leading to hot debate. Further, in view of very strong presence of trade
unions, such decision becomes more difficult as, this means the lack of
opportunity for internal/ in-house staffs.
Shortage of Fund
One of the major issues involved in increasing these numbers could
be shortage of fund to place the demand to different production unit. As far as financial issues are conferred the
IR has to search ways and means. As far as capacity issue is concerned, the
potentiality of different private players can be mobilized to produce the
maximum number of wagon. In Passenger
Coach Sector, the help of private sector in setting Passenger Coach Production
unit could be explored both on turn key basis and PPP Model.
Issue of Line Capacity
We have earlier seen that Golden ‘quadrilateral and diagonals’ is
highly congested sector. Although “Dedicated
Freight Corridor” has been planned between Delhi & Mumbai and Amritsar& Calcutta
it would take quite long period to get these tracks actually working. At the present speed of working the project
is likely to be completed by 2020, whereas, the IR needs immediate measures to
improve its capacity in this sector. The
IR could have added at least one extra line if not quadrupling. IR could have started the work of tripling of
track along with the existing network. It is better late than never and IR has
to initiate these measures sooner or later.
The IR has been able to add only 900 kms in total route kms between
2000-2001 and 2009-10. (see Table XVI). As far as the measures of
electrification are concerned only 4000 kms were added during this period.
Table XVI
Total Route Kms &
Electrification
|
Year
|
Total Route Kms
|
Route Kms Electrified
|
%of Electrification
|
|
1980-81
|
61,240
|
5,345
|
8.73
|
|
1990-91
|
62,376
|
9,968
|
15.98
|
|
2000-01
|
63,028
|
14,856
|
23.57
|
|
2008-09
|
64,015
|
18,559
|
28.99
|
|
2009-10
|
63,974
|
18,927
|
29.59
|
Need of Visionary
Leadership
At this juncture, Indian Railways is at a critical stage and it
would be very difficult to solve the prevailing problem or to take the IR out
of major crisis by normal day to day activity or normal managerial vision. IR is in need of bold leadership which can
display out of box thinking and is able to convince both Parliament and common
public that until and unless a major reform package is introduced, IR would not
be able to survive in the crisis. The Planning commission has to be taken in to
confidence to get higher budgetary support to carry out necessary expansion in
terms of increasing the track capacity of golden quadrilateral and diagonal and
increasing the number of rolling stock which include locomotives, wagons and
coaches. Since the infrastructural activity in the railway has a high junk cost
with very low rate of return after long gestation period, it would not be
possible for the IR to be self-dependent or self-financing those projects.
Hence, the leadership has to infuse both the reforms involving these additions.
Number of staff
Presently, IR is employing approximately 13.7 lacs staff (See Annexure
II). Number of staff has reduced
slightly over the years. However, this is not commensurate with the
introduction of modern technology. It has been observed at the field level that
expectation of lower and medium level management is to retain the same number
of staff for manual work despite automation in different maintenance
activities. For instance, in Civil
Engineering department track maintenance has been mechanized in many
sections. However, the number of
requirement of gangmen has not been reduced accordingly or in Signaling
department, latest technology like Token-less Block System, Route Relay
Interlocking (RRI), and Solid State Interlocking (SSI) has been introduced in
many sections, but instead of reducing number of staff who are maintaining the
mechanical signal, there has been demand for increasing more signaling staff at
all stations. IR cannot afford to have more number of staff, particularly after
the introduction of Sixth Pay Commission. For this even age-old manuals and codes
are required to be changed. New maintenance practices need to be adopted at the
highest Railway Board level so that these are implemented at Zonal and
Divisional level. This kind of changes is required to be carried out in all
departments including Personnel, Stores, and Finance etc.
Changing Finance Pattern
Thorough reforms in finance practices of IR are required to be done.
Present financing system does not indicate loss or profit made at the lowest
working unit level; say divisional or zonal level, in clear terms. Nor it is
dividing different activities like freight activity, passenger activity, parcel
activity etc. into different segments for the purpose of cost benefit
analysis. In the public domain, detail
profit or loss being made by different transport activities is not available.
For instance, if a common citizen wants to know how much profit or loss the IR
makes by running one additional passenger train, it would be very difficult to
know and whole plethora of data has to be analyzed even to get some rudimentary
idea about this. The IR does not have a system of identifying profit centers
and loss centers. In absence of availability
of this kind of information, the different levels of management are unaware of
the priorities to make system more transparent and sustainability-oriented.
Accounting / Finance data in the above pattern should be available at the
divisional level so that thrust of the management is towards making a
sustainable activity.
Financing Developmental
Projects
IR needs a major input into rolling stock and line capacity
activities. One of the major challenges for this has been how to finance these
projects. Indian Railway Finance Corporation (IRFC) was created for this
purpose. The sole objective of IRFC is to raise money from the market to part
finance the plan outlay of IR. The money has been mainly used for acquisition
of rolling stock, i.e. locomotives, coaches and wagons. Up to March, 2010 `.60,163 crores have been used for this purpose. However, the rate of
borrowing, although reducing, has been on higher side, i.e. 14.97 % per annum
in 1996-97 to 18.21 % in the year 2009-10. Thus, its reach has been very
limited, as it has been able to finance only limited number of wagons and locomotives.
The need of the hour is that IRFC comes to the higher expectation and be in
mood to supply high amount for meeting above tasks. IRFC needs to garner more money either from
the government treasury or through public debt finances, maybe in name of
infrastructure bonds at a lower rate of interest so that IR is able to procure
higher number of this rolling stock. Some of the critical factors affecting
line capacity sections also need to be improved out of this funding so that IR
is in a position to run more number of trains.
Bibliography :
- Sudhir Kumar & Shagun Mehrotra (2009).
- Facts & Figure 2009-10 Indian Railways Ministry of Railways Govt. of India
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