Turnaround of Indian Railways under Mr. Lalu
Indian railways (IR) is the world's largest employer, providing 1.6 million jobs, one of the largest and busiest rail networks in the world, carrying 18 million passengers daily. Yet it has, so far, stayed ahead of global recession. He has surprised many by emerging as one of the top performing ministers in Prime Minister Manmohan Singh’s cabinet. He is being credited for the impossible—the turnaround of the monolithic Indian railways.
When he took over as Railway Minister in 2004, the 156-year old Indian Railways was dismissed as a hopeless, loss-making organization, with too little revenue, too many problems and too many employees. IR was spending 91% of its income just on salaries and maintaining an aging organization. In 2001 the Rakesh Mohan Committee headed by former Reserve Bank of India deputy governor Rakesh Mohan, termed India Railways a "white elephant', with a debt of Rs 61,000 crore ($12.3 billion) and even predicted fatal bankruptcy by 2015.
Now many are surprised by the successive landmarks set by the Indian Railways. In last four years, I R has turned in a cumulative cash surplus before dividend of Rs 68,778 crore ($13.9 billion). Out of this Rs 15,898 crore has been paid as dividend, Rs 39,215 crore has been invested in rail infrastructure and Rs 13,665 crore has been added to fund balances to reach Rs 20,483 cr. One of Rakesh Mohan Committee members, IIM’s Professor G. Raghuram, now has all praises for Lalu. IIM Ahmadabad, recognized Lalu’s turnaround of Indian railways, and made it a case study for its students.
What did the minister do to turnaround Indian railways?
In a nutshell,
- Refused to hike fares. 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.
- Upgraded tickets if seats were going vacant in the upper class. So, waitlisted passengers could be allotted seats.
- Maintained passenger profile so that bogies could be taken off or added to trains according to seasonal demand.
Key strategies 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%.
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. Now under the ministry of Ms. Mamtha Banerjee the side birth has decreased from three births to two births, reasonable to conclude that the net operating surplus is likely to decline.
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