Indian Railways - 2010

Micro Economics Presentation

Atul Shivnani | Kunal Kaul | Preethi Srikanth | Shyam Sundar V | Siddhesh DhuriGaurav Varma | Manikandan P | Ramandeep | Smruthi Rajagopalan | Umang A

Indian Railways

Introduction

Indian Railways has one of the largest and busiest rail networks in the world, transporting 20 million passengers and more than 2 million tonnes of freight daily.

Railways were first introduced to India in 1853. In 1951 the systems were nationalised as one unit, becoming one of the largest

networks in the world. It is one of the world's largest commercial or utility employers, with more than

1.6 million employees.

Introduction – Contd.

The railways traverse the length and breadth of the country, covering 6,909 stations over a total route length of more than 63,327 kilometres.

IR operates both long distance and suburban rail systems on a multi-gauge network of broad, metre and narrow gauges. It also owns locomotive and coach production facilities.

According to 2007-2008 figures, the contribution of service sector in the Indian GDP is 54 % and Transport sector’s contribution to India’s GDP is approximately 7%.

Indian Railways has divided itself into 16 different zones for operation across the country.

Indian Railways per se is considered to be a monopolistic market since it doesn’t face any direct competition though other modes of transport such as Airways compete indirectly.

Growth Traffic

2004 2005 2006 2007 2008 2009 2010 2011 2012Freight In Millions Tonnes 602.12 666.51 727.75 793.89 833.31 902.4747 977.3801 1058.503 1146.358Passengers in 10 million 547.55 583.239 633.373 664.5 704.691 748.8047 795.6798 845.4894 898.417

Growth Traffic – Projection

Monopolyprice

Preg

Pcom

QuantityQMAX0

Costs andRevenue

Demand

Average total cost

Marginal revenue

Marginalcost

A

1. The intersection of the marginal-revenue curve and the marginal-cost curve determines the profit-maximizing quantity...

B

2. ...and then the demand curve shows the price consistent with this quantity.

Demand Curve

Firm Elasticity and Cross Elasticity of Demand

• Elasticity of market demand – Single Player – Monopoly• Number of firm in the market – Natural Monopoly – Govt.

Regulated• Interaction among firms – Not applicable

• Impact on passenger and freight volume with Low cost carriers and road and waterways

Growth in Infrastructure

Growth in Rolling Stock

Growth in Parcel Business

Snippet of Budget 2010-11 Revenue from non-core business of Railways to go up from Rs 150 crore to Rs 1,000

crore. Indian Railways has set a target to transport 944 million tons of goods in the year beginning April 1.

Railways expects to increase earnings from non core activities. The government aims to increase non core earnings to Rs10 billion rupees from Rs1.5 billion.

Railways expects to increase earnings from non core activities. The government aims to increase non core earnings to Rs10 billion rupees from Rs1.5 billion.

Despite slowdown, Railways to exceed freight loading target by eight million tonnes during 2009-10. Freight loading target for 2010-11 fixed at 944 million tonnes, 54 million tonnes more than the current year's revised target. Gross traffic receipt for 2010-11 pegged at Rs94,765 crore.

Budget – Contd.

Indian Railways plans to keep rail freight rates unchanged

Railways to set up mobile e-ticketing centres at hospitals, universities, courts, IITs, IIMs, district headquarters and village panchayats. All 13,000 unmanned level crossings to be manned in the next five years.

Railways to enhance contribution to central staff benefit fund. Centre for Railway Research to be set up at IIT-Kharagpur. Chittaranjan Locomotive Works capacity to be augmented from 200 to 275 engines a year.

0.2 billion ($1.97 billion) from the market in 2010-11.

Revenue

69

27

4

Revenue

Frieght

Passenger

Others

Pmax

shortage

Loss to producersDeadweight Loss

Pricing

The government regulation do not allow the Pm and Pc to be high

: Social cost of monopoly power

Pricing ( Contd. )

Second Degree Price Discrimination: Block Pricing• Prices for single ticket• Prices for monthly pass• Prices for quarterly pass• Bulk Booking discount for seasonal trains

Third-Degree price discriminationConsumers groups

• First class, second class, third class, sleeper, AC• Prices are charged accordingly.

Intertemporal Pricing• Tatkal reservation

No two part tariff or peak load pricing strategies are implemented

The Concentration Ratio is the percentage of market share held by the largest firms (m) in an industry.

CRm= Σni=I xiTherefore it can be expressed as:CRm = s1 + s2 + .... + sm where si is the market share and m defines the ith firm

As the Indian Railways has a monopoly on the rail transport, the concentration ratio is given by,

The Four Firm Concentration ratio is 100%Herfindahl -Hirschman index is 10,000

Concentration Ratio

Vision 2020 Current Contribution to GDP is 1.2 %. Vision to take it to 3 %Potential Growth of Rs.270000 crore . Current lines - 64,099 kms. Planned increase of lines by 25000

kms .More than 30,000 kms would be double/multiple linesMaximum speed of train to be raised from 110-130 to 160-200

kmph33000 kms to be electrified Increase in Production Passenger coaches from 2500 per annum

to 5000 per annum by next 3 years.High Speed rail projects to provide bullet services at 250-350 kms Increasing freight share to 50 % from 35 % Collaboration with premier institutes to achieve technological

excellenceProjected Growth in Passenger Traffic is 8200 million by 2011-12.

Vision - Statistics

References

http://www.indianrail.gov.inhttp://www.Managementfunda.com http://www.researchandmarket.com

THANK YOU