You are on page 1of 6

Indian Railways

Prior To Independence The first proposal for a rail system was initiated in 1832 in Madras, but due to financial constraint it never saw the daylight. The East India Company then decided to assist private entrepreneurs who wished to establish a railway system in India, even if it was not commercially feasible. In 1845, two companies the East Indian Railway Company operating from Calcutta and the Great Indian Peninsular Railway (GIPR) operating from Bombay were formed. The first train to be commissioned to service was on December 22, 1851 for hauling of construction material in Rourkee. But the first passenger train started operations on April 16, 1853 between Bori Bunder, Bombay and Thana covering a distance of 34 km. It marked the beginning of railways in India. The British government then inspired private entrepreneurs to set up rail link under a plan that would provide them with an assured return of 5% during the initial years of operation. But once the rail link was completed, the ownership would pass on to the government, though the concerned company could operate the rail link. In 1901 the British constituted the Railway Board. It worked under the department of Commerce and Industry. For the first time after the railway board was constituted the railway started making profit. By 1907 all the railway company was taken over by the Government. By 1920 the network of Indian railway had increased to 61,220 km. Realizing a need for a central management, the government took over the functioning of the railways and detached the finances of the railways from other governmental revenues. Between1920 to 1929 the railways witnessed enormous growth, but were severely crippled afterwards by the great depression and Second World War. By 1946 all rail links were taken over by the government. After Independence In the initial years after Independence, India faced a huge challenge in terms of rail network. It received a dilapidated rail network. Around 40 per cent of the rail link went to Pakistan, a large no of rail lines had to be rerouted through Indian territory. A majority of the rail line available today were laid by the British. Insufficient investment and inefficient management and maintenance have greatly restricted growth in route length. The former Indian princely states had a total of forty two separate railway systems, including thirty two lines amounting to 55,000 km. They were brought under the purview of the Indian Railways. In 1951 the government mooted the idea of forming zones and a total of six zones were initiated. As the Indian economy developed, railway production took place within the country. By 1985 steam locomotives were phased out. In 1987, computerisation of reservation was carried out starting with Bombay. Railways Post Reforms Post reforms in the 1990's the progress of the railways was not satisfactory. The Rakesh Mohan Committee report suggested that the railways needed a complete overhaul if any progress had to be made. Since it was not that easy from a political point of view, it was not given due importance by the inner circle in the railways. But with the appointment of Mr. Lalu Prasad in 2004 as railway minister, things changed dramatically. In the next five years the minister and his team worked out a strategy to bring about a complete turnaround in the working of the railway. The turnaround was possible due to

Higher freight volumes. Increased occupancy in passenger trains. Monitor costs and reduce tariffs.

The railways have managed to improve their market share and operating margins. The government has been credited with pursuing inclusive reforms, without comprising on the social obligation. The railways have been applauded for improved customer service and for reducing passenger fares. Some of the salient features of the reform are:

A well planned strategy to build around capacity generation through optimization of the existing Adopting a different approach to the social and commercial segment of the traffic. Increasing the passenger carrying capacity of important trains. Improved operational efficiency meant the

infrastructure and assets.

unit cost of operation reduced.

Dynamic and market driven tariff policy linked to seasonality and price elasticity of demand. The policy of overhaul increase in freight rates has been replaced by a system of differential tariff based Tremendous growth in traffic volumes, revenues and surpluses has proven the fact that the process of

on market conditions. globalization has brought positive results for everyone concerned. Growth In The Future

The railways have devised a planned strategy to remove bottlenecks and increase capacity to meet the

demand. The key areas of focus would be up gradation of infrastructure, modernization of wagons technology, advanced signaling and telecommunication, induction of high horse power locomotives, grade separation and usage of information technology to decrease transit times and reduce unit operational cost. The railways also propose to construct state of the art passenger and freight terminals bench.

Over the next 5 to 10 year the government plans to give utmost priority to low cost, rapid pay back and

high return investments with the view of speeding up works on doubling railway line, port connectivity, gauge conversion, signaling and telecom, renewal of assets and modernization of passenger terminals.

The government has initiated private investments in major stations to create world class passenger There is an increase in demand for coaches. The government has proposed to meet the increase in

amenities and services. demand partly through increase in the capacity in the existing production units and partly by setting up a new manufacturing unit through a joint venture under Public Private Partnership (PPP).

The railways are also planning to build a super specialty hospital in Patna. If successful, the concept

would be extended to other parts of the country.

Indian Railway Turnaround under Mr. Lalu Prasad Yadav - A CounterView.


My Grand father used to tell me The nobler sort of man emphasizes the good qualities in others, and does not accentuate the bad. The inferior does meaning we need to consider the good qualities in others and leave the bad ones for themselves to handle. In India, when we think about people with bad qualities/values, what we see is all our politicians lined up. And among them, one stands up and tall. He is the one and only Lalu Prasad Yadav. Most of India perceives Lalu as a village bumpkin, an ILL-Literate politician, a person who has ruled and ruined Bihar and a corrupt individual involved in the Fodder scam and a politician facing a lot of corruption charges. However one of the most prestigious management institutes in India tried to take an unbiased stand and looked at the Great Turnaround of the Indian Railways, all they could see were the achievements of the current Railway Minister Mr. Lalu Prasad Yadav. I remembered my grand fathers words and said to my self that I need to learn from Mr. Lalu Prasad Yadav, his leadership qualities. But after a thorough research I was convinced that Lalu is what most of India perceives him as. Let me tell you what happened to the Indian Railways in the last 3-4 years. To put in short, the Government recognized the reason for change and drove the process of change in a spirited and passionate manner with conviction. So, the big question is how did a lethargic government suddenly woke up and turned the Indian Railways, which was declared to be heading towards bankruptcy as per the Expert Group on Indian Railways in 2001, into todays second largest profit making Public Sector Undertaking after ONGC. The Expert-Group report submitted in July 2001 stated: Today Indian Railway is on the verge of a financial crisis... To put it bluntly, the business as usual low growth will rapidly drive IR to fatal bankruptcy, and in sixteen years Government of India will be saddled with an additional financial liability of over Rs 61,000 crores On a pure operating level, IR is in a terminal debt trap.

The essence of the turnaround was in the fact that (i) Total revenues increased by a significant percentage in the last three years, and (ii) The net revenues continued a robust upward trend.

This 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 Indian Railway, having moved into his position on 23rd May, 2004. Railway officials later called this as the turnaround of Indian Railways. Initially, when I researched over the internet about the IR (Indian Railway) turnaround, I found a lot of leadership qualities of Mr. Lalu. But, as I mentioned earlier, as the research went on and on Mr, Lalu for me became same old Lalu of Bihar. This is how it goes from positive to negative One could always argue that this performance of the Indian Railways is a function of the general buoyancy in the Indian economy and also most of the reforms were initiated by the former Railway Minister Mr. Nitish Kumar. Let me take them one by one. Even if the economy is good, it needed leadership at all levels to bring Indian Railways to what it is today. I think the transformation of leadership across all levels was the key to the success of the Railways and this transformation should have started right at the top in the office of the Railway Minister Mr. Lalu Prasad Yadav. In Indian politics its a rarity that the successor carries forward the initiatives of the predecessor. But, Lalu Prasad Yadav carried on with the foundations laid by Nitish Kumar. Infact, in his first railway budget, Lalu Prasad Yadav implicitly accepts that the foundation for a turnaround has already been laid by Nitish Kumar. It goes to the credit of Mr. Yadav that he not only continued those policies (though initiated by a rival political party member) but importantly ensured that they produced results. This demonstrates that the organization moved away from past malaise of politicization of decision making processes and policies, to a more corporate minded commercial focus. Lalus leadership style was different. The way he executed the strategies was different. Initiatives that directly benefited the passenger segment have been a mainstay of most of the Railway ministers. Amongst the most significant were the passenger reservation system and Shatabdi class of trains initiated by Mr. Madhav Rao Scindia. But, Lalus style was different. Initiatives of market oriented tariffs; asset utilization and competition in container movement are attributable to Mr. Lalu Prasad. The operationalisation of the various strategies over the past two years depended significantly on the leadership style of Mr. Lalu Prasad. It was a common sense based approach, showing an astute understanding of the market reality, the asset base of the IR and the expertise and capability of the IRs management and systems. Consequently, he followed this up with the principles of leveraging the assets and empowerment and delegation. With whatever has been achieved in the turnaround, Mr Lalu Prasad has demonstrated that good economics is good politcs Mr. Lalu Prasad is a non-interfering, yet an aware Railway Minister, who sets the goals and expects results. was stated by most of the ex-Members and the current Members of the Board. This has given him a position of strength to build organizational alignment to see through fundamental initiatives. It appears that the current Members of the Board function as a cohesive entity, due to the force of expectation on legitimate initiatives. I personally do not agree with the above view point. I have reasons for that. I agree that the enterprise leadership is often ascribed to managerial leadership, but I also feel that a lot of environmental factors (I collectively call it Good Luck&rdquo contributed in a substantial way in the success of the Indian Railway.

Some of the key strategies the Indian Railways adopted were Downsizing The number of employees, which peaked at 1.652 million in 1991, was brought down progressively to 1.472 million by 2003, and to 1.412 million by 2006. One of the elements of retrenchment strategy is to trim off excess staff. The approach that the IR adopted was not to fill in vacancies created due to retirement or other reasons. Outsourcing Besides the catering and parcel service activity, the IR also outsourced advertising activity. In the other business areas of parcel, catering and advertising, the strategy of outsourcing through public private partnership and wholesaling rather than retailing was adopted

Product Innovation The IR introduced double stack container trains on some diesel routes. These containers increased the carrying capacity of each train to 2,500 tonnes against 1,500 tonnes, and also reduced line capacity constraint by nearly half and led to saving of about seven percent on capital cost and 25 percent in operating expense Further, it introduced new design of wagons with higher pay load (carrying capacity) but lower tare weight (weight of the empty wagon) that improved safety features. The effect of these measures can be seen in higher freight revenue.

Rise in demand The rise in freight revenue - the main plank of the IR turnaround. IR raised the freight on iron ore by 17%. All the strategies were ascribed to the leadership qualities of Mr. Yadav. But I have a counter view on all these. Let me take them one-by-one and at the end add a couple more which I think were purely environmental (Good Luck) Downsizing Yes, there was a downsize in the number of employees in the IR. The approach that the IR adopted was not to fill in vacancies created due to retirement or other reasons. This approach commenced substantially during the term of Mr Nitish Kumar as the Railway Minister and has been continued by Mr Yadav but at a slower pace. You can get the evidence for this on the Internet. Outsourcing It is said that the retrenchment strategy for outsourcing helped the IR to contain costs which ultimately helped its turnaround. Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an organization's operations. Retrenchment is also a reduction of expenditures in order to become financially stable. Retrenchment is a pullback or a withdrawal from offering some current products or serving some markets. But, there is no evidence, however, to suggest that sub-strategies like sale of assets, withdrawing from markets where the firm is performing poorly, and reducing scale of operations were used by the IR under the overall retrenchment strategy. In summary, this strategy was used only in a limited form and was most effective during the period of Mr Nitish Kumar as IR minister. Product Innovation The IR introduced double stack container trains on some diesel routes. These containers increased the carrying capacity of each train to 2,500 tonnes against 1,500 tonnes, and also reduced line capacity constraint by nearly half and led to saving of about seven percent on capital cost and 25 percent in operating expense The increase in axle loading has created increased instances of stress on the rail track. Media reports state that The East Coast Railway reported a 42 per cent increase in rail fractures, increased instances of wheel slipping and stalling, increase in sick detachment (wagons needing repairs), and failure of important equipment in electric locos. The South Eastern Railway reported increased en route detachment due to wagon body bulging, stalling and wheel burns, and vulnerability of a large number of bridges. Southern Railway reported increase in spring failures and brake beam defects, and in overall sick marking. South Central Railway pointed out stalling of wagons carrying load above their capacity, and also increased rail and weld fractures. These were the very concerns experts had voiced when the railways decided to increase the axle load without any trials and without the requisite approval of the chief commissioner railway safety. Rise in demand The rise in freight revenue - the main plank of the IR turnaround was facilitated by the increased domestic demand for coal (for electricity generation), for cement (for construction) and pig iron (for steel plants) due to economic growth. There was also an increase in the iron ore for exports (mainly to the Chinese market). In 2006, China bought more than 74 million tonnes, accounting for about 84 percent of Indias total iron ore exports. The IR used the favorable international demand reflected in substantial increase in iron ore price by raising the freight on iron ore. Having discussed all these points, there is a serious concern about how the turnaround will be sustained. The technical factors like increase in stress on the rail track, increase in the axle loading, welding fracture etc would lead to serious damages in the future and IR might have to spend a lot in repair and upgradation of the rails. This will have adverse affect on the railway surplus in the years to come. The US sub-prime crisis will adversely impact US economic growth and hence on the demand for imports. This may reduce the growth of Indian exports both directly and Indirectly. In addition the Indian Rupees is tending to appreciate against the US dollar and this may also have similar impact on Indian exports. Further, the suspension of iron ore exports would lead to decline in railway revenue as it is one of the major. Though the impact of these factors is not quantifiable at this stage, nevertheless it is reasonable to conclude that the net operating surplus is likely to decline. Mr. Lalu Prasad Yadav is in the fag end of his current tenure. The current government may or may not be elected back to power again. Mr. Yadav may or may not be the railway minister again. Even if the UPA government comes back to power, he might choose a different port folio. It will be up to the next Railway minister to handle the situation of decline in the operating surplus. Now I understand why Mr. Lalu Prasad Yadav, chose the Railway ministry. He might have been advised by his political advisers that the Indian Railway was on the verge of a turn around. It was his mere luck that it all happened during his tenure. I see no reason why he was called in to throw a guest lecture at a prestigious management school in India. He might have thrown in some fodder instead

of a lecture. May be that is the reason nothing about that so called lecture is published for the public. At this time I remember what my brother used to tell: Think not the Cost of living; think at whose cost you are living. Lalu and Indian Railways We have all heard about the transformation of the India Railways. Here is a brief account of what Lalu did to turn around the Indian Railways 1)He disallowed plastic cups used for serving tea at railway stations and announced that they will be replaced by kulhads(earthen cups). The idea here was that this would generate rural employment. It also would reduce garbage as the kulhads are bio- degradable. 2) He made personal inspections in the railways. It is believed that he once inspected the Patna railway station by night. He sent out a clear message to his staff that he meant business. He undertook a surprise check at Rail Bhavan in New Delhi. He deducted the salaries of about 500 latecomer employees and sent them back. 3)Lalu carried out a surprise check on a goods train coming from Mumbai at Danapur station. He found that weights of consignments were under-assessed, leading to loss of revenue for Railways. He claimed that railway officials, transporters and consignees were part of a racket. A few top BJP leaders, associated with a company called Samrudha Overseas Pvt Ltd, were allegedly involved in the racket. 4) He planned to introduce joint patrolling by the Railway Protection Force (RPF) and the Government Railway Police (GRP). 5) In his budget, Lalu didn't increase fares. He offered free second class travel for central governmental jobseeking travelers. He announced launch of 55 new trains. 6) He said that he would revoke the contract of A H Wheeler & Co, which runs newspaper stands on most Indian railway stations, because they were enjoying monopoly ever since English (British) left India and would invite open tender. 7) Lalu promised model railway stations, gauge conversion works and employment in Railways. Lalu's list of railway stations to be developed as "model stations" included 7 stations from Bihar and only 2 from the rest of India. 8) He plans for open ticketing and a new scheme on up gradation of lower class passengers to a higher class automatically. 9) Refused to hike fares. He shored up earnings by carrying more passengers and freight. Increased the load carried by a goods wagon from 81 tonnes to 90 tonnes. This gave an additional earning of Rs 7,200 crore. He upgraded tickets if seats were going vacant in the upper class. So, wait-listed passengers could be allotted seats. 10) He maintained passenger profile so that compartments could be taken off or added to trains according to seasonal demand. Lalu Prasad Yadav is now credited with engineering the financial turnaround of Indian Railways, which was on the verge of bankruptcy. Under him, the Railways booked an unprecedented surplus of 110 billion rupees (2.47 billion dollars).As part of his drive to modernize the railways Lalu Prasad Yadav has decided to send nearly 100 top officials abroad for training in latest techniques and sharpen their managerial skills in Management Schools of USA and France.

Tracking the Indian Railways' turnaround saga


It's a turnaround story that has not only amazed management experts but also caught the attention of premier global business schools like Harvard and Wharton - the dramatic return to profitability for the 154-year-old Indian Railways, among the world's largest railroad networks. In February, when Railway Minister Lalu Prasad presented India's railway budget for the 2007-08 fiscal, its most striking aspect was the Rs.215 billion ($4.5 billion) surplus he announced for the organisation that employs 1.5 million people and boasts a 63,332-kilometer network that ferries 14 million passengers daily in 9,000 trains (4,000 more for cargo) from 6,947 stations. "The railways are poised to create history," exulted Lalu Prasad, one of India's most colourful politicians, during his 116-minute speech, referring to the highest-ever surplus - akin to profits for companies - which the Indian Railways was projected to post for the fiscal year ended March 31. "This is the same railway that defaulted on the payment of dividend and whose fund balances had dipped to Rs.3.59 billion ($80 million) in 2001," said the minister to the amazement of industry honchos and experts who were listening attentively to the speech. In fact, he not only said that the surplus would increase next fiscal but also belied speculation over freight and upper class fare hikes that had once been a regular feature for the railways to bridge deficits. In fact, he even

announced an across-the-board cut in tariffs and rolled out plans for 40 new trains, extended the run of 23 and increased the frequencies of 14 others. All this only left experts gasping. They wondered what had caused such a sharp turnaround in the organisation from being the backbone of the Indian economy to being termed a "white elephant" headed towards bankruptcy by a government-appointed expert group. "Today Indian Railways is on the verge of a financial crisis. To put it bluntly, the 'business as usual, low growth' will rapidly drive it to fatal bankruptcy, and in 16 years, the Government of India will be saddled with additional financial liability," said the report presented in July 2001. This was, indeed, alarming for the Indian Railways, which since the commencement of its first journey on April 16, 1853, has come to reflect the pluralistic character of the country with many unique features such as having the world's largest as well as the smallest stations, the oldest running locomotive and a separate budget since 1924. But from 2005, the signs of change were visible and became well entrenched by 2007. "The railways' renaissance has been engineered by simple entrepreneurial practices, which have evoked the admiration of internationally renowned institutions and companies alike," said a report by KPMG, which also conducted an international conference on railways in New Delhi last month. "The railways are now working like a private sector corporation. This is great news for India. We wish other public services, especially in the social sector, like education and health would follow suit," Habil Khorakiwala, president of an apex industry group, the Federation of Indian Chambers of Commerce and Industry (Ficci), said. "The turnaround is not hype because the net revenues have increased sharply," said Prof. G. Raghuram, who has thoroughly examined the performance of the Indian Railways as a case study for the premier Indian Institute of Management at Ahmedabad, one of India's best-known business schools. "By increasing the axle-loading of wagons (which increases freight traffic) and, combining it with a marketoriented approach, Lalu Prasad has contributed to the success of Indian Railways," Raghuram added. Lalu Prasad attributed the transformation almost entirely to improved efficiency that was even able to withstand increased competition from budget carriers that were offering to fly passengers for the cost of a second-class airconditioned fare of the railways. "Over the past 30 months, freight volumes have grown by 10 percent. Similarly, growth in passenger volumes has been doubled," he explained to a group of 130 students from Harvard and Wharton a few months ago, while delivering a lecture on the transformation of Indian Railways. "On the supply side, increase in load coupled with reduction in turnaround time of wagons from seven to five days has contributed to an incremental loading capacity," the minister said in the rather simplistic explanation. With financial parameters back on track, the Indian Railways now has set itself ambitious targets in areas such as refurbishment of stations, passenger amenities, better coaches and new freight corridors as it approaches the 11th Five Year Plan that begins April 1. And says KPMG: "Indian Railways is in a dynamic phase of growth with new initiatives planned to capitalise on the existing gains and moving steadier and closer to the larger objective of offering world-class services in both freight and passenger transportation."