| |
| |
| |
| |
| |
| Sudhir Kumar, IAS, Officer on Special Duty to the Minister for Railways, who is credited to have turned around a goliath from a debt-ridden enterprise to a dynamic profit-making unit, explains the synergy between social obligations and commercial objectives of the world’s largest utility employer – the Indian Railways. |
| |
|
|
From Red to Black
The story of Indian Railways is one where social obligations of a public utility have been integrated into the commercial objectives of a business organisation. We have formulated an equation, which is populist and at the same time prudent, pragmatic, viable, and profitable. Our solution is a win for Railways, double win for customers, and a triple win for the economy.
In 2001, it was said that the Railways would declare a bankruptcy of $15 billion (Rs.61,000 crores) and that we were in a “terminal debt trap.” But, last year we made a cash profit of $5 billion, and a net profit of $4 billion. The operating ratio was recorded as 78 percent – the best operating ratio anywhere in the world, surpassing the operating ratio of the exclusive railroads of the USA.
Faster, Heavier, Longer Trains
If I have to summarise this turnaround in three words, it is: faster, heavier and longer trains. Each of these words is worth $2 billion so far, and it can be more in years to come. We have a total holding of 4,000 freight trains. If we turn them around every seven days, we can load 550 trains per day. If it is turned around every five days – with the same stock – we can load 800 trains per day. To say that the additional 250 trains is worth $2 billion is a gross understatement. Each train is worth Rs.600 million. It means a topline growth of Rs.150 billion. One can then imagine the bottom
|
|
line growth. In an organisation where the marginal cost is substantially lower than the average cost, the incremental cost of the incremental train is next to nothing. This is the meaning of ‘faster.’
Now, what is ‘heavier?’ If we load one additional ton in every wagon, it means an incremental earning of Rs. 6 billion (Rs. 600 crores). We decided to load every wagon with an additional 10 tons, which is Rs. 60 billion (Rs.6000 crores).
Now let me explain ‘longer.’ There is a perception that the Railways is bleeding because of low passenger fares, huge manpower base, and the interference of politicians. Keeping all factors constant – including low passenger fares – we decided to manipulate the length of the train. We increased the average length of passenger trains from 14 coaches to 16 coaches. We discovered that we achieve break-even only with a 20-coach train, and earn profits when the length increases to 24 coaches. By increasing the length of the train from 14 to 24 coaches, we transformed a loss-making passenger business into a profit-spinning business.
We then concentrated on the layout of the coach. While we operate on a broad gauge in India, the rest of the world operates on standard gauge, which is 20 percent less than ours. Yet, our seating and berth capacity are 40 percent lower than the trains in Germany. This is because we |
