Indian Railways:
Trends, Issues,
Opportunities and Outlook
G Raghuram
Indian Institute of Management,
Ahmedabad
Trends
Operating Ratio
100
98.3
96.0 94.7
95
93.1 93.3 92.3
93.3 92.1
92.5 92.0
91.5 90.9 91.0 90.5
90 89.5
87.4
Percent
86.2
85
82.6 83.2
82.9 82.5
80
78.7
75 75.9
70
2009-10 (RE)
1888-89
1989-90
1992-93
1993-94
1996-97
1997-98
1998-99
2000-01
2001-02
2002-03
2004-05
2005-06
2006-07
2008-09
1987-88
1990-91
1991-92
1994-95
1995-96
1999-00
2003-04
2007-08
Source: IR Year Book, Various Years till 2008 – 09; Data Book, 2010-11
Trends
Total Earnings and Total Working Expenses
100,000
Total Earnings Total Working Expenses
90,000
80,000
70,000
Rs crore
60,000
50,000
40,000
30,000
20,000
10,000
2009-10 (RE)
1987-88
1994-95
2002-03
2003-04
2006-07
1888-89
1989-90
1990-91
1991-92
1992-93
1993-94
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2004-05
2005-06
2007-08
2008-09
Source: IR Year Book, Various Years till 2008 – 09; Data Book, 2010-11
Trends
Net Revenue Receipts
20,000
18,005
Deferred Dividend Current Dividend Excess/Shortfall
18,000
16,000 14,453
14,000
12,000
10,143
Rs crore
10,000 9,174
8,000
6,490
6,000 5,274
4,478
4,135 3,830
3,808 3,625
4,000 3,102 3,024 2,736
2,141 2,338
1,955
1,541
2,000 982 1,113 1,071
723 737
0
1987-88
1888-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2000-01
2009-10 (RE)
Source: IR Year Book, Various Years till 2008 – 09; Data Book, 2010-11
Effect of Change in Accounting Methods on
Surplus
Cash Surplus before Investible Surplus = 66,804
Dividend= 88,669
Principal component
of lease(8446) Operating Losses on
Strategic Lines(2165)
Interest on fund
balance(4138)
Less Interest on
Appropriation to Pension Fund(557)
SRSF(2246)
Operating Losses on
Strategic Lines(2165)
71,663 52,520
Source: Indian Railways White Paper 2009 and Author’s Analysis
Cash Surplus before
Investible Surplus = 52,520
Dividend = 71,663
Accrual based VI pay
commission(9300)
62,363 43,220
Appropriation to
DRF(22,952)
39,411 20,268
Source: Indian Railways White Paper 2009 and Author’s Analysis
Trends
GDP and Total Railway Earnings
18
16
14
Percentage Growth
12
10
2 Railways GDP
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Year
Source: IR Year Book, Various Years till 2008 - 09
Trends
Earnings
Rs crores
2009-10 2010-11 CAGR
Year 1999-00 2004-05 2005-06 2006-07 2007-08 2008-09
(RE) (Apr-Oct)* (%)
2004-05 2008-09
over over
1999-00 2004-05
Goods 22061 30778 36287 41717 47435 53433 58716 34629 6.89 14.78
Passenger 9581 14114 15126 17225 19844 21866 24057 14870 8.06 11.57
Other 1297 2478 3078 3790 4366 4537 5508 2562 13.52 16.32
Total 32939 47370 54491 62732 71645 79837 88281 52061 7.54 13.94
Source: IR Year Book, Various Years till 2008 – 09; Data Book, 2010-11
(*)Tentative Estimates: [Link], [Link]
Trends
Freight Traffic
Tons Growth NTKM Growth Earnings Growth
(m) (%) (m) (%) (Rs crore) (%)
2001-02 493 4.0 333,228 6.7 24,587 6.7
2002-03 519 5.3 353,194 6.0 26,231 6.7
2003-04 557 7.4 381,241 7.9 27,403 4.5
2004-05 602 8.0 407,398 6.9 30,489 11.3
2005-06 667 10.9 439,596 8.2 36,287 19.0
2006-07 728 9.1 480,993 9.4 41,717 15.0
2007-08 794 9.1 521,372 8.4 47,435 13.7
2008-09 834 7.1 551,488 5.8 51,749 9.1
2009-10 (RE) 890 6.7 581,125 5.4 58,715 13.5
Source: IR Year Book, Various Years till 2008 – 09; Data Book, 2010-11
Trends
Passenger Earnings Rs crores
Sub-urban Non Sub-urban Total
Growth Growth Growth
Rs crores Rs crores Rs crores
(%) (%) (%)
2001-02 1156 6.0 10006 6.5 11162 6.5
2002-03 1232 6.5 11309 13.0 12541 12.4
2003-04 1256 1.9 12004 6.2 13260 5.7
2004-05 1341 6.8 12731 6.1 14072 6.1
2005-06 13709
1417 5.7 7.7 15126 7.5
(Reserved) (6630) (48.4%)
2006-07 15789
1476 4.2 15.2 17225 13.9
(Reserved) (7993) (50.6%)
2007-08 18213
1570 6.4 15.4 19783 14.9
(Reserved) (9269*) (50.9%)
2008-09 20252
1615 2.8 11.2 21866 10.5
(Reserved) (10844) (53.5%)
2009-10 (RE) 22303
1754 8.6 10.1 24057 10.0
(Reserved) (11889) (53.3%)
Source: IR Year Book, Various Years till 2008 – 09 ; Data Book, 2010-11 *RE
Trends
• Freight revenues growing at 10-15% per annum.
• Tons growing at below 10%
• NTKM growing at below tons
• Implication: freight rates are going up and lead are
marginally dropping
• Market share going up – cement, steel
• Passenger business not a “drag”
• Share of non-suburban is significant and increasing, and
within that reserved is increasing
• Opportunities in “other” businesses
Trends
Asset Utilization (BG) 2008-09
• Wagon turnaround time (days): 5.2
• Ntkms per 8-wheelers wagon per day: 8762
• Coach kms per coach day: 524
• Trains per route km per day: 46.6
• Trains per running track km per day: 38.3
Source: IR, Year Book 2008-09
Trends
Wagon Turnaround (BG) (1950-51 to 2008-09)
16
15.2
14 13.3 13.5
11.8 12.0
12 11.0 11.2 11.5
10.5
10 9.1
Days
8 7.5
6.1
6 5.2
4 5.5 5.2
0
1950-51
1955-56
1960-61
1965-66
1970-71
1975-76
1980-81
1985-86
1990-91
1995-96
2000-01
2005-06
2006-07
2007-08
2008-09
Source: IR Year Book, Various Years till 2008 - 09
Issues
How? Overall Strategy
Higher volumes
Increasing asset utilisation and
lowering unit costs
Revenue management
Market oriented tariffs
PPPs and Outsourcing
Issues
Goods
Increased axle loading
Reduced wagon turnaround
Market oriented tariffs and schemes
Passenger
More trains and more coaches per train
Tatkal and other charges
Other
Traditional sources: parcel, advertisement
and catering
Issues
• Perceived Unfulfilled Customer Expectations
• New Competitive Pressures
• Some Lack of Clarity Regarding Objectives
• Financial Problems?
• Quality and Cost of Railway Investment
• Outdated Business Structure
– Functioning as a government department
– High degree of vertical integration
• World Trends: Need for Restructuring
In this context, what is the role of corporate governance?
Issues
• Safety
• Security
• Environmental Concerns
• Unilateral Pronouncements (significant for freight)
• Inconsistencies
– Punctuality statistics and timetabling
– Numbering of trains
– Train charts on the train on one side only
– Train destination boards give a complex rake link rather than just
origin and immediate destination
How do we get out of the supply side thinking syndrome?
Opportunities
Asset Utilization (BG)
• Wagon turnaround time (days): 4
•(1.0 + 0.5 + 0.5 + 1.0 + 1.0)
• Ntkms per 8-wheeler wagon per day: 12000
• Coach kms per coach day: 1000
• Trains per running track km per day: 72
Opportunities
• Revenue: Rs 100,000 cr in 2011-12,
Rs 270,000 cr in 2019-20
– Freight: 1000 mt in 2011-12, 2200 mt in 2019-20
– Passenger: 8 b in 2011-12, 15 b in 2019-20
– Net revenue: Rs 30,000 cr? (after pension and
depreciation)
• Increase average speed of trains
– Mail/Express trains from 55 to 90 KMPH
– Goods train from 24 to 60 KMPH
• Deliver world class services and amenities
Source: Indian Railways Vision 2020 and Author’s Analysis
Opportunities
• Market segmentation and customer orientation
• Leveraging PPPs and competition
• Focusing on safety and environment
• Appropriate asset upgradation and investment
• Superior R&D, including for international
markets
• Better use of IT
• Corporate governance
Market Segmentation
Total Traffic: 793.9 mt (2007-08)
mt
D
Industry (444.0) Ports (88.0) Distribution Centres (261.9)
O
Containers (20.0) Cement (79.0)
POL (6.5) Foodgrains (37.6)
Fertilisers (26.8)
Industry/ Total (26.5) Iron and steel (24.3)
Collection Other commodities (23.5)
Centres POL (19.6)
(247.8) Sugar (6.0)
Salt (4.6)
Total (221.3)
Coal (280.9) Iron ore/other ores (46.2)
Iron ore/other ores (89.9) Coal (15.4)
Limestone/dolomite (14.1)
Mines Stones, excl marble (7.4) Total
(457.1) Gypsum (3.3)
Total (395.6) (61.5)
Coal (40.6) Containers (19.5)
Other commodities (7.2) POL (9.8)
Iron ore/other ores (0.7) Fertilisers (9.1)
Ports
Iron and steel (1.5)
(89.0)
Total Foodgrains (0.7)
(48.5)
Total (40.6)
[Source: Raghuram and Gangwar, 2009]
Freight Rates
PPP Infrastructure Investments: Major Sectors
X Plan XI Plan XI Plan
Sector
(Actual) (Original Projections) (Revised Projections)
Rs cr % Rs cr % Rs cr %
Electricity (incl NCE) 340,237 666,525 658,630
Public 203,403 59.78 481,013 72.17 371,085 56.34
Private 136,834 40.22 185,512 27.83 287,546 43.66
Telecom 101,889 258,439 345,134
Public 48,213 47.32 80,753 31.25 61,503 17.82
Private 53,676 52.68 177,686 68.75 283,631 82.18
Roads and Bridges 127,107 314,152 278,658
Public 117,884 92.74 207,360 66.01 232,771 83.53
Private 9,223 7.26 106,792 33.99 45,887 16.47
Railways (incl MRTS) 102,091 261,808 200,802
Public 101,422 99.34 211,454 80.77 192,486 95.86
Private 669 0.66 50,354 19.23 8,316 4.14
Other
Public
Private
Total Infrastructure 906,074 2,056,150 2,054,205
Public 680,854 75.14 1,436,559 69.87 1,311,293 63.83
Private 225,220 24.86 619,591 30.13 742,912 36.17
PC (2010). “Investment in Infrastructure During the Eleventh Five Year Plan,”
PPPs
• Why haven’t PPPs taken off in IR?
– Expected investment in this decade: Rs
14,00,000 cr
• Are we snuffing out PPPs even before
they have a chance to succeed?
Safety and Environment
• How do we achieve zero accidents
and zero failures?
• How do we manage waste and
pollute minimally?
CARBON EMISSION BY SECTOR
Globally, road transport is responsible for about 16% of CO2 emissions. It is a
common misconception that global warming is mainly caused by cars and trucks. It
is important to understand that there are other, larger contributors and all sources of
CO2 emission must be addressed if the problem is to be solved.
Source : [Link]
RAILWAYS:
REDUCING CO2 EMISSIONS IN TRANSPORT
The most environmentally-friendly mode of land transport in terms
of energy efficiency. It has least carbon footprint among all modes.
For eg : Railroad accounts for only 3% of European CO2 emissions.
A successful modal shift has taken place between Paris and
Brussels with the introduction of the Thalys high speed train,
replacing flights. This saves 6,700 tonnes of CO2 emissions per
year.
Rail has 11.5% of the UK surface freight market and produces 70%
less CO2 emissions than the equivalent road journey. It removes
around 6.7 m lorry journeys per year equating to 1.4 billion lorry
kilometres in 2007/08 and saving around 2.3 million tonnes of CO2.
Carrying 100 tons of average goods from Lyon to Paris by rail would
emit 0.1 tons of CO2 while the same being carried by trucks would
emit 3.2 tons of CO2.]
Source : [Link]
[Link]
[Link]
[[Link]
Appropriate Asset Upgradation and
Investment
• Low cost, short gestation and high return projects
• Route based throughput enhancement works,
including bypasses, flyovers, etc, with relaxed
resource availability
• Gauge conversions
• Modernizing terminals: freight and passenger
• Dedicated high capacity freight corridor
• Warehouses and towards third party logistics
• PPP potential
New Technology and R&D
• We must envision that we will be
technology providers rather than
continuing to import technology, in spite
of a vibrant rail transport system
• Tremendous scope to use IT
Corporate Governance
• Are our managerial strategies and processes
sustainable?
• The need is for continuing initiatives in the context of
a fast growing economy.
• Can be sustained
• If political leadership is well intentioned and has
consistency of direction
• Top management needs to be commercially
oriented with a corporate culture, moving away
from the functional structure
Corporate Governance
• The recent past and environmental sustainability
has demonstrated that railways is indeed a
sunrise sector.
• Should IR be the primary stakeholder in
developing rail based transport? Urban passenger
transport has already moved out of IR.
• An unbundling of the Ministry (for vision, policy
and licensing), regulator, and operator is a critical
starting point.
Sessions
1. Indian Railways’ Perspective
2. Private Sector Participation Plans
3. Financing and Investment Challenge
4. Passenger Services Update
5. Update on DFC
6. Suburban Rail Services
7. Rail Infrastructure Projects
8. Focus on Rolling Stock
9. Development of Container Infrastructure
10. Focus on Safety
Thank you
