The Indian Railways--and yes they did it!!

                                               THE RUPEE TRAIN

      Source: ZERO; Destination: BILLIONS

     The question arises why management students should read an article about Indian Railways. What’s so good in reading about it and most important, reading about a man who has ruled and ruined Bihar, a  individual involved in the Fodder scam and a politician facing a lot of corruption charges. This article comprises of that particular answer as what were the reasons that his tenure as Indian Railway Minister made people to rethink about him from a Village Bumpkin, an ILL-Literate Politician to one of the best Railway Minister India will ever have. Yes I am talking about none other than Mr. Lalu Prasad Yadav and his iconic turnaround of Indian Railways from bankruptcy to profit making billion dollar industry.

     How did the man who bankrupted Bihar turn around railway finances to deliver a cash surplus of Rs 25,000 crores in 2008 from bankruptcy under Mamata Bannerjee in 2001? 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.” 

So how can a man change the finances and deliver a cash surplus. As a management student I dig up deep in order to know what iconic reforms Mr. Lalu made to achieve this feat. Lalu had to take a strong makeover decision for the IR. It was a people’s wagon and he had to make sure whatever the decisions are it should not create ripples in people’s mind or feelings which is, “no hike in passenger fares, no retrenchment or privatization.” The reformers realized that every decision had to meet the market and societal value tests. Cost-cutting was no option. Jack Welsh’s philosophy – fix, sell or close down – might work in GE but not in a politically-sensitive department employing 1.4 million people. Most items of cost whether salaries or the price of diesel were beyond the control of the Railways.

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 IR’s management and systems.

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.

·         Rise in demand: The rise in freight revenue - the main plank of the IR turnaround. IR raised the freight on iron ore by 17%.

·         Operational Cost: Part of this success is operational. The 78.7% operating ratio (the ratio of expenses over revenues) is the lowest that the Railways has ever seen. According to Lalu, it was also among the worlds lowest.

 Apart from that there were many other factors like increased bogies in popular routes thus increasing passengers, weight capacity of individual bogies were increased so that it can carry more passengers.

So when Mr. Lalu announced in Parliament in his budget that "We have made a record profit of Rs 20,000 crore," although this feat didn’t silence an Opposition that had decided to let the Bofors gun drown his Budget. This figure was absolutely stupendous creating ripples of shock not only in his own Ministry but also among the other private companies in other sectors.

A surplus before dividends of Rs 20,000 crore made Indian Railways the country's biggest profit-making entity. To put it in perspective, the Railways' profits were 25% more than the Rs 16,000 crore, the trailing 12-month profits of ONGC and almost double of Reliance Industries' Rs 10,557 crore.

The Indian Railways, the organization in question, has managed to prove its detractors wrong. Indian Railways outdid every entity in the country at that time. This turnaround from bankruptcy to a billion dollar entity has turned economists go gaga and has now become a case study at the prestigious Indian Institute of Management (IIM), Ahmedabad. Since then, Mr. Lalu Prasad Yadav has been addressing students of Universities like Wharton and Harvard Business School in the US, telling them how he scripted the success story of the country's loss-making Railways.

ROHIT RAINA