COMMERCIALIZATION OF INDIAN RAILWAY

Prepared by :Mukesh Kumar Md. Danish Akhtar Rahul Patel Udita Agrawal

OUTLINE
History of Indian Railway Historic Tournaround Existing Private Railways Commercialization Refrences

HISTORY

A plan for a rail system in India was first put forward in 1832 In 1844, the Governor-General of India Lord Hardinge allowed private entrepreneurs to set up a rail system in India. The first train in India became operational on 1851-12-22, and was used for the hauling of construction material in Roorkee. On 1853-04-16, the first passenger train between BoriBunder and Thana covering a distance of 34 km was inaugurated, formally heralding the birth of railways in India.
Source:- IR History: Early Days". Indian Railways Fan Club. Retrieved 25-10-2010

Source:- http://www.hampi.in/images/Indian-Railway-network.jpg Retrieved 28-10-2010

TODAY'S INDIAN RAILWAYS

The Railways have been described as the lifeline of the nation Operating approximately 12,000 trains a day (of which 11,000 are passenger trains). Carries about 17.7 million passengers and 1.49 million tones of freight every day. In terms of contribution to the gross national product the railways account for 1 % of Indias GNP. Largest employer in the world Supports a work force of over 1.6 million constituting 6% of the 27 million people employed in the organized sector.

Source:- http://www.irfca.org/faq/ Retrieved:- 25-10-2010

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 cores On a pure operating level, IR is in a terminal debt trap.

Source:- Rakesh Mohan Committee report 2001

A HISTORIC TURNAROUND

The fund balances have grown to over Rs 12,000 crore in 2005-06 and by the end of this financial year it is estimated at Rs.16,170 crore. This is the same Indian Railways whose fund balances had reduced to just Rs.149 crore (in 1990-2000) and which had been written off as a bankrupt department. Indian Railways is today the second largest profit making Public Sector Undertaking after ONGC. It achieved an operating ratio of 75.9% in 2009-10 which is comparable to that achieved by the North American Class I railroads. The total planned investment for the eight-year time frame (20072015) is tentatively in the order of Rs.3,50,000 crore.

Source:- "General Information". Central Organisation for Railway Electrification. Ministry of

Railways, Government of India. Retrieved 20-10-2010

STRATEGIES THE INDIAN ADOPTED:

RAILWAYS

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. 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.

Source:- "Strategy of Indian Railways During the Eleventh Five Year Plan". Government of India. 2007-2008. Retrieved 29-10-2010

CONT.
Product Innovation

CONT

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 tones against 1,500 tones. It led to saving of about 7% on capital cost and 25 % 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.

Source:- "Strategy of Indian Railways During the Eleventh Five Year Plan". Government of India. 2007-2008. Retrieved 29-10-2010

SOME EXISTING PRIVATE RAILWAYS

Though the Indian Railways enjoys a near monopoly in India, few private railways do exist, left over from the days of the Raj, usually small sections on private estates, etc. There are also some railway lines owned and operated by companies for their own purposes, by plantations, sugar mills, collieries, mines, dams, harbors and ports, etc. The Bombay Port Trust ran BG railway of its own, as does the Madras Port Trust. The Calcutta Port Commission Railway is a BG railway. The Vishakhapatnam Port Trust has BG and NG (2'6") railways. The Bhilai Steel Plant has a BG railway network.

PRIVATIZATION /COMMERCIALIZATION
How about privatizing the whole Indian Railways now? The largest government undertaking, the Indian Railways, should be privatized and if yes, then based on what model?

MODEL NO. 1

Indian Railways is the biggest railway network in the world that is being managed by the state. One option is complete privatization of IR i.e. sell IR to a company like Tatas or Ambanis. But that would not be a good idea either broadly because of the following reasons.

Source :- Indian Railways Growth, Sustenance and the Leap Forward A Case Study,IITD

REASONS

Railways were built in India for national integration, economic development and exploitation of resources, and above all for military purposes. Railways have continued to be a highly visible national symbol, and the role played by them in times of crises like the Gujarat quake, Orissa cyclone and military operations like Kargil is something that cannot be replicated by any corporation. Defense services have built up alternative arrangements in all fields including postal service and communications network, but are completely dependent on Railways for transport. All the strategic rail lines are owned and operated by the Railways. There is no comparison between other infrastructure facilities and railway facilities as far as transport by rail is concerned. Railway operations require constant co-ordination with state governments and other wings of the Centre. If only for these reasons, it is necessary that the government exercises direct control over their operations, which is possible only when they are run as a departmental undertaking.

The role of the railways is too critical for the Indian economy. Also, due to the national importance it will be never be actually be possible to pass on IR to complete private hands as government intervention will be required for most of the decisions.

MODEL NO. 2

The other model of privatization is to break down the whole organization into various chunks where each chunk represents a very specific task. Also, for each task have multiple competing companies and all these companies coordinate with each other for the smooth functioning of Railways. This model was followed in case of British Railways

Source :- Indian Railways Growth, Sustenance and the Leap Forward A Case Study,IITD

BRITISH RAILWAYS PRIVATIZED IN 1990S

Shortcomings Atomization of BR Maintenance of a network of more than 100 companies Increase in government expenditure two Billion Pounds annually Role of government still required Employee dissatisfaction

BY ANALYSIS OF BOTH MODEL

The two major reasons for the failure were (1) BR was too big to be broken down into very small parts (2) Privatization procedure was not well managed and maybe was a bit too quick and drastic. Thus the above two models of privatization are not feasible for the Indian Railways.

WHAT CAN BE DONE.

Partial privatization
Non core activities outsourced

BUILD OPERATE LEASE TRANSFER / BUILD OPERATE TRANSFER

The original scheme was launched in 1994. Of the 14 tenders called, 12 were cancelled for high lease demand and the other two failed at various stages. The scheme was reviewed, So far only one project, gauge conversion of Viramgam- Mehsana, has been completed at cost Rs. 80 cores. The maintenance of the line is with railways and the contractor is being paid fixed annuity for the construction.

Source :-Eleventh five year plan

OWN YOUR WAGON / WAGON INVESTMENT SCHEME

Own Your Wagon Scheme has been in existence for many years. An amount of around Rs. 516 crores were mobilized from railway customers during the IX Five year Plan. Further, during the first four years of the Tenth Plan no private investment has come under this scheme. The scheme has been revamped and renamed as Wagon Investment Scheme (WIS) with the provisions for freight rebate and supply of guaranteed number of rakes over a period ranging from 7-15 years for various categories of wagons. The new scheme has been well received.

JOINT VENTURES / SPECIAL PURPOSE VEHICLES

Gauge conversion of Surendranagar - Rajula city and its extension to the Pipavav port was executed under a joint venture arrangement .The SPV Joint Venture named Pipavav Rail Corporation Limited (PRCL) was established in 2001 with Rs 200 crores equity and Rs 173 crores debt. The equity was shared equally between both the partners. The project was successfully completed and commissioned during the Tenth plan. The SPV also achieved remarkable results in establishing efficient benchmarks in operation and maintenance.
Source :-Eleventh five year plan

HOSPITALITY SECTOR

There are several activities, which are either loss making or underutilize the railways existing assets. Among these are catering, budget hotels, advertising, running rooms and on board train services. These activities require managerial approaches that can respond fast and efficiently to changing market demand and passenger expectations. The prerequisite to success of such private partnerships are, meticulous attention to definition and specification of service standards, and competitive bidding. Corporations like IRCTC can carry out such bidding.

PARCEL SERVICES

Leasing of parcel vans in some important mail express trains has already been tried on Indian Railways. The underlying principle is that private sector is good at aggregating piecemeal bookings and arranging first mile and last mile services. Railways could then concentrate on carrying the parcels, which pose no problem as these are to be carried by Mail/express trains, exactly as at present. A logical extension of the policy would be to lease full parcel services between a pair of cities that might run periodically at a frequency determined by market demand.

COMMERCIAL DEVELOPMENT OF LAND AND AIR SPACE

Indian Railways has approximately 43,000 hectares of vacant land. Rail Land Development Authority (RLDA) has been set up by an amendment to the Railway Act 1989 in the year 2005 with main objectives of generating revenue, upgrading railway assets, providing world class state of the art passenger facilities and services at stations. Implementation would be mainly through public private partnerships. RLDA would mainly put railway assets as equity whereas private partner could put cash as equity forming the project SPV.

TELECOM NETWORK

Partnerships in sharing of infrastructural assets like towers, OFC network, to provide better services for the customers are also envisaged. Value added services emerging from providing Internet connectivity on trains would be the focus of such partnerships

VISION 2025

Aims at setting the roadmap for coming 17 years customer centric and market responsive strategic initiatives. Information Technology Vision 2012 aims at radical changes in IT applications ,improvement in operational efficiency, transparency in working ad better services to the customers. Multi-Departmental Innovation Promotion Group

VISION 2025

Public-Private Partnership schemes to be launched for attracting an investment of Rs.1,00,000 cr over the next five years for development.

Commercial use of Railway land by Rail Land Development Authority to give a boost to Railway Revenues.

REFERENCES
IR History: Early Days". Indian Railways Fan Club. Retrieved 25-10-2010 "Strategy of Indian Railways During the Eleventh Five Year Plan". Government of India. 2007-2008. Retrieved 29-10-2010 "General Information". Central Organisation for Railway Electrification. Ministry of Railways, Government of India. Retrieved 20-10-2010 Indian Railways Growth, Sustenance and the Leap Forward A Case Study,IITD Eleventh five year plan

THANK YOU !!