Tracking the Indian Railways' turnaround saga

It's a turnaround story that has not only amazed management experts but also caught the attention of premier global business schools like Harvard and Wharton - the dramatic return to profitability for the 154-year-old Indian Railways, among the world's largest railroad networks.

In February, when Railway Minister Lalu Prasad presented India's railway budget for the 2007-08 fiscal, its most striking aspect was the Rs.215 billion ($4.5 billion) surplus he announced for the organisation that employs 1.5 million people and boasts a 63,332-kilometer network that ferries 14 million passengers daily in 9,000 trains (4,000 more for cargo) from 6,947 stations.

"The railways are poised to create history," exulted Lalu Prasad, one of India's most colourful politicians, during his 116-minute speech, referring to the highest-ever surplus - akin to profits for companies - which the Indian Railways was projected to post for the fiscal year ended March 31.

"This is the same railway that defaulted on the payment of dividend and whose fund balances had dipped to Rs.3.59 billion ($80 million) in 2001," said the minister to the amazement of industry honchos and experts who were listening attentively to the speech.

In fact, he not only said that the surplus would increase next fiscal but also belied speculation over freight and upper class fare hikes that had once been a regular feature for the railways to bridge deficits. In fact, he even announced an across-the-board cut in tariffs and rolled out plans for 40 new trains, extended the run of 23 and increased the frequencies of 14 others.

All this only left experts gasping. They wondered what had caused such a sharp turnaround in the organisation from being the backbone of the Indian economy to being termed a "white elephant" headed towards bankruptcy by a government-appointed expert group.

"Today Indian Railways is on the verge of a financial crisis. To put it bluntly, the 'business as usual, low growth' will rapidly drive it to fatal bankruptcy, and in 16 years, the Government of India will be saddled with additional financial liability," said the report presented in July 2001.

This was, indeed, alarming for the Indian Railways, which since the commencement of its first journey on April 16, 1853, has come to reflect the pluralistic character of the country with many unique features such as having the world's largest as well as the smallest stations, the oldest running locomotive and a separate budget since 1924.

But from 2005, the signs of change were visible and became well entrenched by 2007. "The railways' renaissance has been engineered by simple entrepreneurial practices, which have evoked the admiration of internationally renowned institutions and companies alike," said a report by KPMG, which also conducted an international conference on railways in New Delhi last month.

"The railways are now working like a private sector corporation. This is great news for India. We wish other public services, especially in the social sector, like education and health would follow suit," Habil Khorakiwala, president of an apex industry group, the Federation of Indian Chambers of Commerce and Industry (Ficci), said.

"The turnaround is not hype because the net revenues have increased sharply," said Prof. G. Raghuram, who has thoroughly examined the performance of the Indian Railways as a case study for the premier Indian Institute of Management at Ahmedabad, one of India's best-known business schools.

"By increasing the axle-loading of wagons (which increases freight traffic) and, combining it with a market-oriented approach, Lalu Prasad has contributed to the success of Indian Railways," Raghuram added.

Lalu Prasad attributed the transformation almost entirely to improved efficiency that was even able to withstand increased competition from budget carriers that were offering to fly passengers for the cost of a second-class air-conditioned fare of the railways.

"Over the past 30 months, freight volumes have grown by 10 percent. Similarly, growth in passenger volumes has been doubled," he explained to a group of 130 students from Harvard and Wharton a few months ago, while delivering a lecture on the transformation of Indian Railways.

"On the supply side, increase in load coupled with reduction in turnaround time of wagons from seven to five days has contributed to an incremental loading capacity," the minister said in the rather simplistic explanation.

With financial parameters back on track, the Indian Railways now has set itself ambitious targets in areas such as refurbishment of stations, passenger amenities, better coaches and new freight corridors as it approaches the 11th Five Year Plan that begins April 1.

And says KPMG: "Indian Railways is in a dynamic phase of growth with new initiatives planned to capitalise on the existing gains and moving steadier and closer to the larger objective of offering world-class services in both freight and passenger transportation."

Indo-Asian News Service