CASE STUDY:-

“Turn Around of Indian Railways

2004-2006”

SUBMITTED TO: - Prof. Samik Shome

SUBMITTED BY: GROUP -4

Aditya Jain – 09PG303
Chawla Manisha – 09PG313
Karthik Vishwanath- 09PG323
Pooja Prasad- 09PG333
Sandeep Babaji- 09PG342
Swati Ray – 09PG352

SUBMITTED ON: - 9th NOVEMBER 2009

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CONTENTS:-

Sr No :- Topic Page no

1. Executive Summary 3

2. Issue statement 3

3. Introduction 4

4. Analysis of the case 7

4.1 SWOT Analysis

4.2 PESTLE Analysis

4.3 GRAPHICAL Analysis

5. Future Scenario of Indian Railway 13
Industry

A) Challenges

B) Prospects

C) Recommendations
6. Conclusion 14

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EXECUTIVE SUMMARY:-

The Indian Railways Once considered as non performing and non profit
Public Sector Undertaking, today is on edge of second largest profit making Public Sector
Undertaking. In the year 1990’s Indian Railways experienced huge financial crisis due to
IR (Indian Railways) losing traffic to the roads rapidly and freight services repeatedly
subsidized passenger services. But after 2001 there was a sudden boost in the Railway
Industry .The fund balance crossed Rs.12, 000 crores in 2005-06, which had reached a
low of just Rs.149 crores in 1990-2000. The total investment planning for the eight-year
time frame (2007-2015) is tentatively in the order of Rs.350, 000 crores. This confidence
is not only due to the rising trend of performance, but also due to the significant growth
in the past two years and continues to be part of an essential part of the growth engine of
the Indian economy. This made the Indian Railways with various determinants, different
strategies and operations to be successful and this is what the Case deals with called the
Turnaround of Indian railways.

ISSUE STATEMENT:-
The case basically deals with the comparison of present day growth of
Indian Railways with the difficulties and losses faced by it earlier. The main aim is to
understand the strategies implemented to bring this significant change and to face future
challenges.

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INTRODUCTION:-
Indian Railways is one of the largest and busiest rail networks in the world,
transporting over 15.68 million passengers and more than 1.83 million tones of freights
under single management. IR (Indian railways) operates long distance and suburban rail
systems on a multi gauge network of broad, meter and narrow gauges. It also owns
locomotive and coach production facilities. IR draws up its development plans with
framework of National Five Year Plans.
This golden period of growth and development has come after long period of
struggle and apprehensions faced earlier by IR .During 1990’s, the IR suffered losses due
to snatching over of freight carriage by roadways .There were also doubts about the
performance of IR in future. According to Expert Group, Internal reasons such as
government’s attitude, diversion of freight traffic to the roads in bulk and for longer
distance and price discrimination i.e. not providing lower class consumer any subsidy
resulted in the turmoil. The situation worsened and Expert group commented that IR will
not survive for long and by 2016 it will become bankrupt.
But after 2004-05 considerable growth has been witnessed in IR, this
increase in efficiency of IR has been termed as The Turn’ around in Indian Railways.

FACTS:-
1. In the first five year plan, from 1951-56, replacement of over aged assets was the
key area of concern for IR with the total fund of Rs. 267.07 crores. If we compare
this with the tenth five year plan, from 2002-07 with the total budget of Rs. 60600
crores, the key concern areas were technological up-gradation, improving assets
efficiency, increasing share of freight and passenger traffic etc.

2. The ninth five year plan from 1997-2002 reflects the turbulent time of Indian
railways. Implementation of fifth pay commission resulted in increase in the staff
costs, freight traffic reduced by 29%, the attitude of government towards IR as
public entity forced people to use road transportation.

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 3. The tenth five year plan laid the foundation of growth of IR with exceptional
performance in the year 2002-07.The growth in freight loading increased by 10%
while that of freight revenues increased by 17%. This was the turnaround point in
Indian Railways.

REASONS FOR TURNAROUND:-

The Rail budget proposed Strategic plans which were able to attract funds
from the government .The implementation of these plans led to maximum utilization of
resources and hence resulted in growth in IR.

THE FOLLOWING STEPS WERE TAKEN FOR THE TURNAROUND OF IR :

 Number of Diesel and Electric engine on broad gauge tracks were increased, this
resulted in passenger traffic and hence revenues.
 Reduction in fare to make the travel cost more effective
 IR also introduced 178 new trains and extended 105 existing trains. It also
increased the frequency of 28 trains. During the same year i.e. in 2005-06, 119
lakhs cases of ticket less travelled were checked and amount of Rs.233.11crores
were collected.
 Railway coaches were redesigned using imported technology from Germany.
 Existing stations were upgraded and new stations were built to meet passenger
services.
 Up gradation was introduced to optimize accommodation in trains.
 Passenger Reservation System (PRS) were increased to 1315 locations
 Catering services were improved by adopting the concept of food plazas.
 Wagon loading capacity was increased and wagon turnaround time was reduced.
 IR also set up a PPP (Public Private Partnership) cell to develop railway
infrastructure.

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 Garib Rath trains for poor people were introduced with 50% concession in train
fares and also introduced Palace on Wheels which attracted tourists and also
promoted Indian culture.
 Zonal railways were advertised to promote railway. IR earnings from
advertisements increased from Rs 50.2 crores in 2004-05 to Rs 78.1crore in 2005-
06. Also allowing advertisements of different companies like Kurkure, Reliance,
and Airtel etc on railway platforms led to increase in revenues. They also
generated revenues from internet café and internet facilities inside the trains like
Rajdhani and Shatabdi on some routes and also on platforms.

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ANALYSIS OF THE CASE:
SWOT Analysis:
Strengths

 Financial back up from government

 Biggest company in the world in terms of Employee Strength
 Large Infrastructure
 Large Network across the country
 Luxurious and also affordable to common man

Weakness
 Assets are not properly utilized
 Government protocols, lot of negligence.
 Lack of safety measures in all trains.
 Delay in train timings.

Opportunities
 Use of Latest Technology.
 Better customer service.
 Metro trains in cosmopolitans cities.

Threats
 Heavy vehicles with two trailers may replace freights carriage
 Low cost airlines
 Development of roadways

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PESTLE Analysis:

Political:
The Indian Railways is owned and run by the government of India. As a result
there was lot of policy changes which resulted in increase in efficiency of the railways
during the period 2004-05.

Economic:
IR is a Public Sector Undertaking so fund flows were taken care of by the
government and Revenue generated helped in economic prosperity of the country.

Social:
As there was no further hike in the travel fare, so travel was made affordable
for common man at the same time the additional services were also provided. This led to
considerable increase in revenues and tourism.

Technological:
Introduction of Diesel engines, Electric super fast trains, redesigning of
coaches and improved safety measures were undertaken which earned more revenues to
the railways.

Legal:
The contracts undertaken by the railways for freight carriages and insurance are
major of Legal aspects

Environmental:
Introduction of electric engine helped in decreasing the pollution. Also
introduction of Kulhars (cups made of mud) and ban on use of plastic cups in train also
led to decrease in pollution and gave financial help to potters.

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Graphical Analysis:
A)

X axis: Growth Rate in % , Y axis: Year wise

Source:- http://www.iimahd.ernet.in/publications/data/2007-02-03graghuram.pdf

The Figure above shows, the Ups and Downs in the earnings and expenses of
Indian railways, over a period of time. During 2005-06, the total earnings reached Rs.
54,404 crores, the total working expenses were Rs. 45,573 crores. There was a 16 %
increase in the total earnings as compared to previous year and 7 % in total working
expenses in the same year as compared to previous year. The increase in net revenue is
significantly due to freight rolling stock and reduced operating costs with no idle time,
which made it profitable.

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B) OPERATING RATIO:-

X axis: Operating Ratio in % , Y axis: Year wise

Source:- http://www.iimahd.ernet.in/publications/data/2007-02-03graghuram.pdf

ANALYSIS OF THE CASE:-

As shown in above figure, Operating Ratio is ratio of total working expenses to

total earnings; This is an indicator of the efficiency of IR. The Operating ratio was 98% in
2000-01 and expenditure was almost equivalent. This was due to non proper utilization of
funds which relatively shows poor performance. But in 2005-06 it declined to 84%
showing efficient performance of IR, which was due to introduction of high efficient
trains and better utilization of rolling stock.

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 C) Net Revenue:

X axis: Net Revenue , Y axis: Year wise

Source:- http://www.iimahd.ernet.in/publications/data/2007-02-03graghuram.pdf

ANALYSIS OF THE GRAPH:-

From the graph it can be analyzed that the net revenue which was 1071 crores in
2000-2001 reached to 8005 crores in 2005-2006 and dividend which was approximately
Rs.250 crores in 2000-01 reached to Rs.3750 crores in 2005.The deferred dividend
liability from 1978-79 onwards aggregated to Rs 428.43 crore by end of March, 1990. The
amount was cleared by 1992-93. The dividend payable in 2000-01 and 2001-02 worked
out to be Rs 2,131 crore and 2,337 crore respectively, out of which Rs 1823 crore and Rs
1000 crore respectively have been transferred to a deferred dividend liability account.

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D) Commodity wise Freight Earning

X axis: Commodity wise Freight Earnings, Y axis: Year wise

Source:- http://www.iimahd.ernet.in/publications/data/2007-02-03graghuram.pdf

From the above graph it can be analyzed that coal loading increased by nearly
8%, iron and iron ore by 7%, cement by nearly 2%, food grains supply reduced by 2%
from 1988 to 2005.Main revenue to IR comes from freight transport of which coal and
iron ores take the major share. Therefore freight loading capacity was increased by
increasing the Wagon loading capacity and the freight charges were reduced. So IR was
able to generate more revenues.

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FUTURE SCENERIO OF INDIAN RAILWAY INDUSTRY
A) Challenges:-
1. Increasing number of trains requires sufficient number of tracks and setting up of
tracks requires huge amount of time and expenditure.
2. Over use of old tracks can lead to accidents.

B) Prospects:-
1. High way Golden Quadrilateral Plan should be complemented.
2. Implementation of freight and high speed corridors in southern region should be
done, so as to balance Northern Rail freight corridors railway.
3. Private sector investments should be allowed so that financial and operational
burden is met.
4. Increase in financial and commercial investment to attract FDI.
5. PPT frame work should be developed for the manufacture of state-of-art rolling
stock, locomotives, track equipment and signaling infrastructure coupled with
technology transfer arrangements.
6. Development of infrastructure for Inter Modal connectivity.
7. Rationalization of freight tariffs to simplify freight tariff slabs.
8. Railways should resort to progressive suppression of railway
infrastructure and operation and maintenance.
9. Independent and transparent rail tariff authority should be created.

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C) Recommendations:
1. Special teams should be appointed to check ticket less traveling.
2. Censor monitoring system should be implemented to check extra luggage
carriage.
3. Customer services should be taken care of by improvement of resting rooms on
stations.
4. Third track should be made for better freight transport.
5. Safety measures of the railway should be checked at regular intervals and should
be updated with the latest technology.

CONCLUSION:
Indian railways should aim at performance enhancement keeping in mind
performance maintenance. Increasing customer expectations and rapid technological
advances with considering customer focus should be the main motto of the Indian
Railways, thus adding support to the economic development of the country.

Courtesy :
http://www.iimahd.ernet.in/publications/data/2007-02-03graghuram.pdf

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