Monopoly of Indian Railways

Monopoly of Indian Railways : IIM Case StudyIn economics, a monopoly (from the Latin word monopolium – Greek language monos, one

+ polein, to sell) is defined as a persistent market situation where there is only one

provider of a product or service. Monopolies are characterized by a lack of economic

competition for the good or service that they provide and a lack of viable substitute

goods.

Monopoly should be distinguished from monopsony, in which there is only one buyer of

the product or service; it should also, strictly, be distinguished from the (similar)

phenomenon of a cartel. In a monopoly a single firm is the sole provider of a product or

service; in a cartel a centralized institution is set up to partially coordinate the actions of

several independent providers (which is a form of oligopoly).

Primary characteristics of a monopoly

Single Sellers

A pure monopoly is an industry in which a single firm is the sole producer of a good or the

sole provider of a service. This is usually caused by barriers to entry.

No Close Substitutes

The product or service is unique in ways which go beyond brand identity, and cannot be

easily replaced (a monopoly on water from a certain spring, sold under a certain brand

name, is not a true monopoly; neither is Coca-Cola, even though it is differentiated from

its competition in flavor).

Price Maker

In a pure monopoly a single firm controls the total supply of the whole industry and is

able to exert a significant degree of control over the price, by changing the quantity

supplied (an example of this would be the situation of Viagra before competing drugs

emerged). In subtotal monopolies (for example diamonds or petroleum at present) a

single organization controls enough of the supply that even if it limits the quantity, or

raises prices, the other suppliers will be unable to make up the difference and take

significant amounts of market share.

Blocked Entry

The reason a pure monopolist has no competitors is that certain barriers keep would-be

competitors from entering the market. Depending upon the form of the monopoly these

barriers can be economic, technological, legal (e.g. copyrights, patents), violent

(competing businesses are shut down by force), or of some other type of barrier that

completely prevents other firms from entering the market.

Price setting for unregulated monopolies

In economics a company is said to have monopoly power if it faces a downward sloping

demand curve (see supply and demand). This is in contrast to a price taker that faces a

horizontal demand curve. A price taker cannot choose the price that they sell at, since if

they set it above the equilibrium price, they will sell none, and if they set it below the

equilibrium price, they will have an infinite number of buyers (and be making less money

than they could if they sold at the equilibrium price). In contrast, a business with

monopoly power can choose the price they want to sell at. If they set it higher, they sell

less. If they set it lower, they sell more.

In most real markets with claims, falling demand associated with a price increase is due

partly to losing customers to other sellers and partly to customers who are no longer

willing or able to buy the product. In a pure monopoly market, only the latter effect is at

work, and so, particularly for inflexible commodities such as medical care, the drop in

units sold as prices rise may be much less dramatic than one might expect.

If a monopoly can only set one price it will set it where marginal cost (MC) equals

marginal revenue (MR) as seen on the diagram on the right. This can be seen on a big

supply and demand diagram for many criticism of monopoly. This will be at the quantity

Qm; and at the price Pm. This is above the competitive price of Pc and with a smaller

quantity than the competitive quantity of Qc. The offensive monopoly gains is the shaded

in area labeled profit (note that this diagram looks only at the case where there is no fixed

cost. If there were a fixed cost, the average cost curve should be used instead).

As long as the price elasticity of demand (in absolute value) for most customers is less

than one, it is very advantageous to increase the price: the seller gets more money for

less goods. With an increase of the price, the price elasticity tends to rise, and in the

optimum mentioned above it will be above one for most customers. A formula gives the

relation between price, marginal cost of production and demand elasticity which

maximizes a monopoly profit:  (known as Lerner index). The monopolist’s monopoly power

is given by the vertical distance between the point where the marginal cost curve (MC)

intersects with the marginal revenue curve (MR) and the demand curve. The longer the

vertical distance, (the more inelastic the demand curve) the bigger the monopoly power,

and thus larger profits.

The economy as a whole loses out when monopoly power is used in this way, since the

extra profit earned by the firm will be smaller than the loss in consumer surplus. This

difference is known as a deadweight loss.

Introduction to Indian Railways

Indian Railways (IR) is the state-owned railway company of India. Indian Railways had,

until very recently, a monopoly on the country’s rail transport. It is one of the largest and

busiest rail networks in the world, transporting just over six billion passengers and almost

750 million tonnes of freight annually. IR is the world’s largest commercial or utility

employer, with more than 1.6 million employees.

The railways traverse through the length and width of the country; the routes cover a

total length of 63,940 km (39,230 miles). As of 2005 IR owns a total of 216,717 wagons,

39,936 coaches and 7,339 locomotives and runs a total of 14,244 trains daily, including

about 8,002 passenger trains.

Railways were first introduced to India in 1853. By 1947, the year of India’s

independence, there were forty-two rail systems. In 1951 the systems were nationalised

as one unit, becoming one of the largest networks in the world. Indian Railways operates

both long distance and suburban rail systems.

Background

The development of IR had its roots in the 1800s, when India was a British colony. The

British East India Company and later, the British colonial governments were credited with

starting a railway system in India.

The British found it difficult to traverse great distances between different places in India.

They felt the need to connect those places with trains to speed up the journey as well as

to make it more comfortable than travel by road in the great heat. They also sought a

more efficient means to transfer raw materials like cotton and wheat from the hinterlands

of the country to the ports located in Bombay, Madras and Calcutta, from where they

would be transported to factories in England. Besides, the mid-1800s were a period of

mutiny and struggle for independence in India, with uprisings in several parts of the

country.

The British leaders wanted to be able to transfer soldiers quickly to places of unrest.

Railways seemed to be the ideal solution to all these problems.

Work began on the development of railway systems in India in the early 1850s. Initially,

trains were used to transport material between different places. The first commercial

passenger train in India ran between Bombay and Thane (places in western India) on

April 16, 1853.

The distance of 34 kilometers was covered in about 75 minutes. Indians were initially

apprehensive of accepting railways as a means of travel, but soon overcame that fear and

railways gained popularity. Soon, railway lines began to be laid in other parts of the

country, mostly by private British companies, and the major regions in India were

connected by rail. To promote the construction of railway lines in India, the British

Parliament introduced the guarantee system.

Under this system, any company that constructed railway lines in India was given a

guarantee of a five percent return per annum on the capital invested. The company also

had the right to pull out from the venture and receive compensation from the government

at any time if it was not satisfied with the returns. This helped accelerate the

development of railways in the country.

A number of railway companies were incorporated between 1855 and 1870. Most of them

operated at a regional level. By the beginning of the 1870s, the total track coverage in

India was 4000 miles. In addition to commercial objectives, railways also began to play a

social role in India. When there were famines in several parts of the country between

1870 and 1880, railways played a very important role in providing relief to the affected

areas.

By the end of 1880, the total track coverage increased to 9000 miles. In 1880, the

Darjeeling Steam Tramway started operating (the name was changed to Darjeeling

Himalayan Railway in 1881). This railway track was considered one of the greatest

engineering feats in the history of IR, crossing as it did, rough and dangerous mountain

terrain at a steep gradient.

In 1890, the British Government passed the Railways Act, to govern the construction and

operation of railways in India. By the beginning of the 20th century, there were nearly

25,000 miles of railway track in the country.

Railway zones

The Map of India above shows the different railway zones in India. The zones are

numbered in the map.  The red dots are the zonal headquarters. For administrative

purposes, Indian Railways is divided into sixteen zones.

Given below is the table showing these 16 zones.  Konkan Railway* (KR) is constituted

as a separately incorporated railway, with its headquarters at Belapur CBD (Navi

Mumbai). It comes under the control of the Railway Ministry and the Railway Board.

The Calcutta Metro is owned and operated by Indian Railways, but is not a part of any of

the zones. It is administratively considered to have the status of a zonal railway.

Sr. No. Name Abbr. HeadquartersDate Established

1. Northern Railway NR Delhi April 14, 1952

2.North Eastern Railway

NER Gorakhpur 1952

3.Northeast Frontier Railway

NFR Maligaon(Guwahati) 1958

4. Eastern Railway ER Kolkata April, 1952

5.South Eastern Railway

SER Kolkata 1955

6.South Central Railway

SCR SecunderabadOctober 2, 1966

7. Southern Railway SR Chennai April 14, 1951

8. Central Railway CR MumbaiNovember 5, 1951

9. Western Railway WR MumbaiNovember 5, 1951

10.South Western Railway

SWR Hubli April 1, 2003

11.North Western Railway

NWR Jaipur Oct 1, 2002

12. West Central Railway WCR Jabalpur April 1, 2003

13.North Central Railway

NCR Allahabad April 1, 2003

14.South East Central Railway

SECR Bilaspur, CG April 1, 2003

15. East Coast Railway ECoR Bhubaneswar April 1, 200316. East Central Railway ECR Hajipur Oct 1, 200217. Konkan Railway* KR Navi Mumbai Jan 26, 1998

Passenger services

Indian Railways operates 8,702 passenger trains and transports around five billion

annually across twenty-seven states and three union territories (Delhi, Pondicherry and Chandigarh).Sikkim is the only state not

connected.

The passenger division is the most preferred form of long distance transport in most of

the country. In South India and North-East India however, buses are the preferred

mode of transport for medium to long distance transport.

A standard passenger train consists of eighteen coaches, but some popular trains can

have up to 24 coaches. Coaches are designed to accommodate anywhere from 18 to 72

passengers, but may actually accommodate many more during the holiday seasons and on

busy routes. The coaches in use are vestibules, but some of these may be dummied on

some trains for operational reasons. Freight trains use a large variety of wagons.

Each coach has different accommodation class; the most popular being the sleeper class.

Up to nine of these type coaches are usually coupled. Air conditioned coaches are also

attached, and a standard train may have between three and five air-conditioned coaches.

Overcrowding is the most widely faced problem with Indian Railways. In the holiday

seasons or on long weekends, trains are usually packed more than their prescribed limit.

Ticket-less travel, which results in large losses for the IR, is also an additional problem

faced.

Production Services

The interior of an Express Train in India. Food is being served by an Indian Railways

employee.

The Indian Railways manufactures a lot of its rolling stock and heavy engineering

components. This is largely due to historical reasons. As with most developing economies,

the main reason is import substitution of expensive technology related products. This was

relevant when the general state of the national engineering industry was immature.

Production Units, the manufacturing plants of the Indian Railways, are managed directly

by the ministry. The General Managers of the PUs report to the Railway Board. The

Production Units are,

Diesel Locomotive Works, Varanasi

Responsible for manufacturing all the mainline diesel-electrics used for passenger and

freight traffic. The plant also produces diesel-electric shunters. Currently the factory is

also producing locomotives in collaboration with General Motors, USA.

Chittaranjan Locomotive Works, Chittaranjan

Chittaranjan manufactures Electric Locomotives. Traditionally, the locomotives made by

CLW use DC traction. In recent times, CLW has manufactures locomotives with AC-AC

transmission.

Diesel-Loco Modernisation Works, Patiala

Earlier called Diesel Component Works, DMW makes key sub-assemblies for Diesel

Locomotives. It also does heavy repair and overhaul of engines and locomotives.

Integral Coach Factory, Chennai

The first factory to make coaches for the Indian Railways. The coaches were monocoque

structures.

Rail Coach Factory, Kapurthala

The second coach factory is a more modern plant and has a much more flexible

automation.

Wheel & Axle Plant, Bangalore

Makes the cast wheels for wagons and other rolling stock. Axles are forged and machined

in the same plant. Most output is sent out as finished and pressed wheel & axle sets.

Rail Spring Karkhana, Gwalior

Performance

The performance of Production Units during 2004-05, was as under,

Chittaranjan Locomotive Works, Chittaranjan manufactured 90 BG electric locomotives

including 22 state-of-the-art 3-phase 6000 HP electric locos.

Diesel Locomotive Works, Varanasi produced 121 BG diesel locomotives including 15

indigenous high power 4000 HP GM locomotives. In addition, 4 diesel locomotives

were supplied to Non Railway Customers.

Integral Coach Factory, Chennai manufactured 1,119 coaches including 112 Electric

Multiple Units (EMUs).

Rail Coach Factory, Kapurthala manufactured 1,201 coaches including 77 light weight

LHB coaches with higher passenger comfort and amenities.

Rail Wheel Factory, Bangalore produced 32,732 wheel-sets. It also manufactured

95,125 wheels and 49,502 axles. It sold products to the tune of Rs.18.39 crore to NCRs

thus earning a profit of approx. Rs.173.69 lakh.

Diesel Loco Modernisation Workshop, Patiala successfully upgraded 74 nos. 2600 HP

WDM-2 diesel electric locomotives to 3100 HP thus increasing the hauling capacity to

the extent of 3 to 4 additional coaches. DMW exported spares worth Rs.130.27 lakh to

various countries.

Import content in the Railway Production Units expressed as percentage of total

production cost is roughly 2%. Import substitution is one of the main objectives of the

production units.

Suburban rail

The New Delhi Metro railway

Many cities have their own dedicated suburban networks to cater to commuters.

Currently, suburban networks operate

in Mumbai (Bombay), Chennai (Madras), Kolkata (Calcutta), Delhi,Lucknow, Hyderabad and Pune. Hyderabad, Mumbai and Pune do not have dedicated suburban

tracks but share the tracks with long distance trains. New Delhi, Chennai and Kolkata

have their own metro networks, namely the New Delhi Metro, the Chennai MRTS and the Kolkata metro, respectively.

Suburban trains that handle commuter traffic are mostly electric multiple units.

They usually have nine coaches or sometimes twelve to handle rush hour traffic. One unit

of an EMU train consists of one power car and two general coaches. Thus a nine coach

EMU is made up of three units having one power car at each end and one at the middle.

The rakes in Mumbai run on direct current, while those elsewhere use alternating current. A standard coach is designed to accommodate 96 sitting passengers, but the

actual number of passengers can easily double or triple with standees during rush hour.

The Kolkata metro has the administrative status of a zonal railway, though it does not

come under the seventeen railway zones.

The Suburban trains in Mumbai handle more rush then any other suburban network in

India. The network has three lines viz, western, central and harbor. It’s considered to be

the lifeline on Mumbai. On 11th July 2006 six bomb blasted in these trains targetted at

general public.

Freight

A single line rail bridge

IR carries a huge variety of goods ranging from mineral ores, agricultural produce,

petroleum, milk and vehicles. Ports and major urban areas have their own dedicated

freight lines and yards. Many important freight stops have dedicated platforms and

independent lines.

Indian Railways makes 70% of its revenues and most of its profits from the freight sector,

and uses these profits to cross-subsidise the loss-making passenger sector. However,

competition from trucks which offer cheaper rates has seen a decrease in freight traffic in

recent years. Since the 1990s, Indian Railways has switched from small consignments to

larger container movement which has helped speed up its operations. Most of its freight

earnings come from such rakes carrying bulk goods such as coal, cement, food grains and

iron ore.

Indian Railways also transports vehicles over long distances. Trucks that carry goods to a

particular location are hauled back by trains saving the trucking company on unnecessary

fuel expenses. Refrigerated vans are also available in many areas. The “Green Van” is a

special type used to transport fresh food and vegetables. Recently Indian Railways

introduced the special ‘Container Rajdhani’ or CONRAJ, for high priority freight. The

highest speed notched up for a freight train is 100 km/h (62 mph) for a 4,700 metric

tonne load.

Recent changes have sought to boost the earnings from freight. A privatization scheme

was introduced recently to improve the performance of freight trains. Companies are

being allowed to run their own container trains. The first length of an 11,000km freight

corridor linking India’s biggest cities has recently been approved. The railways has

increased load limits for the system’s 220,000 freight wagons by 11%, legalizing

something that was already happening. Due to increase in manufacturing transport in

India that was augmented by the increase in fuel cost, transportation by rail became

advantageous financially. New measures such as speeding up the turnaround times have

added some 24% to freight revenues.

Notable trains and achievements

The Darjeeling Himalayan Railway is a World Heritage Site, and one of the few

steam engines in operation in India.

The Darjeeling Himalayan Railway, a narrow

gauge train with a steam locomotive is classified as a World Heritage Site by UNESCO. The route starts at Siliguri in the plains in West Bengal and

traverses tea gardens en route toDarjeeling, a hill station at an elevation of

2,134 metres (7,000 ft). The highest station in this route is Ghum. TheNilgiri

Mountain Railway, in the Nilgiri Hills in southern India, is also classified as a World

Heritage Site by UNESCO. It is also the only rack railway in India. TheChatrapati Shivaji Terminus (formerly Victoria Terminus) railway station in Mumbai is another

World Heritage Site operated by Indian Railways.

The Rajdhani Express is a series of trains that

journey to and from the Capital New Delhi. Shown here are two Rajdhani Trains

approaching each other

The Palace on Wheels is a specially designed train, lugged by a steam engine, for

promoting tourism in Rajasthan. The Maharashtra government did try and introduce

the Deccan Odyssey along the Konkan route, but it did not enjoy the same success as

the Palace on Wheels. The Samjhauta Express was a train that ran between India and

Pakistan. However, hostilities between the two nations in 2001 saw the line being closed.

It was reopened when the hostilities subsided in 2004. Another train

connecting Khokhrapar (Pakistan) and Munabao (India) is the Thar Expressthat

restarted operations on February 18, 2006 since being closed down after the 1965 Indo-Pak war. The Kalka Shimla Railway till recently featured in the Guinness Book of World Records for offering the steepest rise in altitude in the space of 96 kilometers.

The Lifeline Express is a special train popularly known as the “Hospital-on-Wheels”

which provides healthcare to the rural areas. This train has a compartment that serves as

an operating room, a second one which serves as a storeroom and an additional two that

serve as a patient ward. The train travels around the country, staying at a location for

about two months before moving elsewhere.

Among the famous locomotives, the Fairy Queen is the oldest running locomotive in the

world today, though the distinction of the oldest surviving locomotive belongs to John Bull. Kharagpurrailway station also has the distinction of being the world’s longest

railway platform at 1072 m (3,517 ft). The Ghum station along the Toy Train route is the

second highest railway station in the world to be reached by a steam locomotive.[5] Indian

Railways operates 7,566 locomotives; 37,840 Coaching vehicles and 222,147 freight

wagons. There are a total of 6,853 stations; 300 yards; 2,300 goods-sheds; 700 repair

shops and a total workforce of 1.54 million.

The Deccan odyssey is a new line of tourist trains

that travel across the Indian State of MaharashtraThe shortest named station is Ib and the longest is Sri Venkatanarasimharajuvariapeta.

The Himsagar Express, between Kanyakumari and Jammu Tawi, has the longest

run in terms of distance and time on Indian Railways network. It covers 3,745 km

(2,327 miles) in about 74 hours and 55 minutes. The Trivandrum Rajdhani, between

Delhi’s Nizamuddin Station and Trivandrum, travels non-stop

between Vadodara and Kota, covering a distance of 528 km (328 miles) in about 6.5

hours, and has the longest continuous run on Indian Railways today. TheBhopal Shatabdi

Express is the fastest train in India today having a maximum speed of 140 km/h (87 mph)

on the Faridabad-Agra section. The fastest speed attained by any train is 184 km/h

(114 mph) in 2000 during test runs. This speed is much lower than fast trains in other

parts of the world. One reason attributed for this difference is that the tracks are not

suited for higher speeds.

Organisational structure

The headquarters of the Indian Railways in Delhi

Indian Railways is a publicly owned company controlled by the Government of India, via

the Ministry of Railways. The ministry is currently headed by Lalu Prasad Yadav, the

Union Minister for Railways and assisted by two junior Ministers of State for Railways, R.

Velu and Naranbhai J. Rathwa. Reporting to them is the Railway Board, which has six

members and a chairman.

Each of the sixteen zones is headed by a General Manager (GM) who reports directly to

the Railway Board. The zones are further divided into divisions under the control of

Divisional Railway Managers (DRM). The divisional officers of engineering, mechanical,

electrical, signal & telecommunication, accounts, personnel, operating, commercial and

safety branches report to the respective Divisional Manager and are in charge of

operation and maintenance of assets. Further down the hierarchy tree are the Station

Masters who control individual stations and the train movement through the track

territory under their stations’ administration. In addition to the zones, there are six

production units (PUs) each headed by a General Manager (GM), who also report directly

to the Railway Board.

These production units are:

1. Chittaranjan Locomotive Works: Chittaranjan

2. Diesel Locomotive Works: Varanasi

3. Integral Coach Factory: Perambur (Near Chennai)

4. Rail Coach Factory: Kapurthala

5. Rail Wheel Factory: Yelahanka (Near Bangalore)

6. Diesel Modernisation Works: Patiala

In addition to this the Central Organisation for Railway Electrification (CORE) is also

headed by a GM. This is located at Allahabad. This organisation undertakes

electrification projects of Indian Railway and monitors the progress of various

electrification projects all over the country.

Apart from these zones and production units, a number of Public Sector Undertakings

(PSU) are under the administrative control of the ministry of railways. These PSUs are:

1. Indian Railways Catering and Tourism Corporation

2. Konkan Railway Corporation

3. Indian Railway Finance Corporation

4. Mumbai Rail Vikas Corporation

5. Railtel Corporation of India – Telecommunication Networks

6. RITES Ltd. – Consulting Division of Indian Railways

7. IRCON International Ltd. – Construction Division

8. Rail Vikas Nigam Limited

Centre for Railway Information Systems is an autonomous society under Railway Board,

which is responsible for developing the major software required by Indian Railways for its

operations.

Rail budget and finances

The Railway Budget deals with the induction and improvement of existing trains and

routes, the modernisation and most importantly the tariff for freight and passenger travel.

The Parliament discusses the policies and allocations proposed in the budget. The budget

needs to be passed by a simple majority in the Lok Sabha (India’s Lower House). The

comments of the Rajya Sabha (Upper House) are non binding. Indian Railways are subject

to the same audit control as other government revenue and expenditures. Based on the

anticipated traffic and the projected tariff, the level of resources required for railway’s

capital and revenue expenditure is worked out. While the revenue expenditure is met

entirely by railways itself, the shortfall in the capital (plan) expenditure is met partly from

borrowings (raised by Indian Railway Finance Corporation) and the rest from Budgetory

support from the Central Government. Indian Railways pays dividend to the Central

Government for the capital invested by the Central Government.

As per the Separation Convention, 1924, the Railway Budget is presented to the

Parliament by the Union Railway Minister, two days prior to the General Budget, usually

around 26 February. Though the Railway Budget is separately presented to the

Parliament, the figures relating to the receipt and expenditure of the Railways are also

shown in the General Budget, since they are a part and parcel of the total receipts and

expenditure of the Government of India. This document serves as a balance sheet of

operations of the Railways during the previous year and lists out plans for expansion for

the current year.

The formation of policy and overall control of the railways is vested in Railway Board

comprising the Chairman, Financial Commissioner and other functional Members for

Traffic, Engineering, Mechanical, Electrical and Staff matters. As per the 2006 budget,

Indian Railways earned Rs. 54,600 crores (Rs. 546,000 million or US$12,300 million).

Freight earnings increased by 10% from Rs. 30,450 cr (US$7,000 million) in the previous

year. Passenger earnings, other coaching earnings and sundry other earnings increased

by 7%, 19% and 56% respectively over previous year. Its year end fund balance is

expected to stand at Rs. 11,280 cr (US $2.54 billion).

Around 20% of the passenger revenue is earned from the upper class segments of the

passenger segment (the air-conditioned classes). The overall passenger traffic grew 7.5%

in the previous year. In the first two months of India’s fiscal year 2005-06 (April and May),

the Railways registered a 10% growth in passenger traffic, and a 12% in passenger

earnings.

A new concern faced by Indian Railways is competition from low cost airlines that has

recently made its début in India. In a cost cutting move, the Railways plans to minimise

unwanted cessations, and scrap unpopular routes.

Current problems

Level crossings like these usually see a high accident

rate

Indian railways suffers from deteriorating finances and lack the funds for future

investment. Last year, India spent $28 billion, or 3.6% of GDP, on infrastructure. The

main problem plaguing the Railways is the high accident rate which stands at about three

hundred a year. Although accidents such as derailment and collisions are less common

in recent times, many are run over by trains, especially in crowded areas. Indian Railways

have accepted the fact that given the size of operations, eliminating accidents is an

unrealistic goal, and at best they can only minimise the accident rate. Human error is the

primary cause (83%) blamed for mishaps. The Konkan Railway route suffers

from landslides in the monsoonseason, which has caused fatal accidents in the recent

past.

Contributing to the Railways’ problems are the antiquated communication, safety and

signalling equipment. One area of upgrading badly required is an automated signalling

system to prevent crashes. A number of train accidents happened due to a manual system

of signals between stations. However, the changeover to a new system would require a

substantial investment. It is felt that this would be required given the gradual increase in

train speeds and lengths, that would make accidents more dangerous. In the latest

instances of signalling control by means of interlinked stations (e.g., Chennai –

Washermanpet), failure-detection circuits are provided for each track circuit and signal

circuit with notification to the signal control centres in case of problems [12]. However,

this is available in a very small subset of the total Railways. Aging colonial-era bridges

and century-old tracks also require regular maintenance and upgrading.

In many places, pedestrians, vehicles or cyclists may cut across the tracks to save

time, causing a safety hazard to the railways. Most railway land in India is not fenced or

restricted in any way, allowing free trespass. In rural areas, cattle and other animals

may stray onto the tracks, posing a much more serious safety hazard to fast-moving

trains.

AN OVERVIEW OF MUMBAI RAILWAYS

Two zonal Railways, the Western Railway (WR) and the Central Railway (CR),

operate the Mumbai Suburban Railway system running in form of 9-car and 12-car rakes

of Electric Multiple unit (EMU) trains. Two corridors (one local and other through) on

Western Railway run northwards from Churchgate terminus parallel to the west coast up

to Virar (60 Kms). Two corridors (one local and other through) on Central Railway run

from Chhatrapati Shivaji Terminus (CST) to Kalyan (54 Kms), from where it bifurcates

into Kalyan-Kasara (67 Kms) in the north-east and Kalyan-Karjat-Khapoli (61 Kms) in

south-east. The 5th corridor on Central Railway runs as the Harbour line starting from

CST to Raoli Junction (11 Kms) from where the line splits. One line goes north-west to join

WR at Bandra and goes up to Andheri (11 Kms) and the other goes eastward to terminate

at Panvel (39 Kms) via New-Mumbai.

The pressure on the Mumbai Suburban Railway system has reached alarming

proportions. Overcrowding has grown to such an extent that 5,000 passengers are

travelling per 9-car train during peak hours, as against the rated carrying capacity of

1,710. Also, there is an acute problem of encroachment by slum dwellers on the property

of Indian Railways which has created the problem of safety of commuters. The rail

network is the principal mode of mass transport in Mumbai. To enable the Mumbai

Suburban Railway System to meet the demands of the ever-growing passenger traffic, the

Ministry of Railways and the State Government of Maharashtra joined hands to face the

challenge and formed MRVC. However, the organisation has not been able fulfil the aims

and objectives for which it was set up. The researcher shall try to find out whether

transfer of this organisation into private hands can improve its performance and can lead

to a better future for commuters’ travel in the city.

The Corporation is not only executing the projects identified so far, but also involved in

the further planning and development of Mumbai Suburban Rail system for improved rail

services in close coordination with Indian Railways and Government of Maharashtra. The

geographical jurisdiction of MRVC is from Churchgate to Dahanu Road on Western

Railway and from CSTM to Kasara, Karjat/ Khopoli and Panvel on Central Railway.

Apart from execution of Railway projects in Mumbai, the main functions of MRVC are:

Develop coordinated plans and implement the rail infrastructure projects.

Integrate urban development plan for Mumbai with rail capacity and propose

investments.

Undertake commercial development of Railway land and air space in Mumbai area.

Coordinate and facilitate improvements of track drainage and removal of

encroachments and trespassers.

Coordinate with organizations operating the train services and responsible for

protection of Railway’s right of way and urban development for purposeful resolution

of allied issues and problems.

Mumbai city’s public transport comprises of Buses operated by Brihanmumbai Electric

Supply and Transport (BEST) and trains operated Central Railway and Western Railway,

the two zonal railways of Indian Railways. However, railway transport is the quickest and

cheapest mode of transport among the two.

The map of Mumbai Suburban Railway

RECENT PLANS

Indian Railways plans 3 trillion rupees ($65.8 billion) of investment by 2012 to develop

private container trains, freight corridors and upgrade stations.

More private companies will be allowed to run freight trains and they will also be allowed

to improve facilities at railway stations, J.P. Batra, chairman of the Indian Railway Board,

said at an infrastructure conference in New Delhi today.

India wants to get rid of infrastructure bottlenecks so that the pace of economic growth

can be accelerated to as much as 10 percent in the next decade from an average 6

percent since 1980. Construction of dedicated freight corridors will allow companies such

as refiner Indian Oil Corp. to move gasoline and diesel faster to consumers across the

world’s seventh-biggest landmass.

Indian Railways last month began constructing 220 billion rupees of freight-only lines

aimed at improving infrastructure in the world’s second-fastest growing major economy.

Prime Minister Manmohan Singh opened the construction work in northern India’s

Punjab state, according to an e-mailed statement from his office. The project, the

railways’ biggest since India’s independence in 1947, will lay almost 10,000 kilometers

(6,215 miles) of tracks connecting the financial hub of Mumbai on the west coast and

Kolkata in the east to the capital New Delhi.

The freight corridor will eventually be 11,500 kilometers, Batra said.

The government in February said it granted licenses to 14 companies to run private

trains, ending the monopoly of the government in the business.

Indian Railways expects to carry 750 million tons of freight this year, more than the 726

million tons that had been targeted, Batra said.

The utility expects to carry 6.5 billion people in the year ending March 31, 2007,

compared with 6 billion people in the previous year, the official said.

Indian Railways may have a surplus of 200 billion rupees ($4.4 billion) this year, from a

surplus of 136 billion rupees last year, he said.

Financial Results

The financial performance of the Indian Railways for the period from 1998-99 to 2002-03

is shown below:

(Rupees in crore)

1998-99 1999-00 2000-01 2001-02 2002-031.

Total Receipts29975.76

33579.66

35738.57

38630.74

41855.98

2.

Total Expenditure27834.60

30843.99

34667.34

36293.21

38025.75

3.

Net Revenue (1 – 2) 2141.16 2735.67 1071.23 2337.53 3830.23

4.

(a) Dividend payable to General Revenues for current year

1742.08 1889.78 2130.94 2337.18 2664.83

(b) Provision for payment of deferred dividend

- - - - 50.00

(c) Less Dividend deferred - - 1823.30 1000.00 -5.

Net Dividend paid 1742.08 1889.78 307.64 1337.18 2714.83

6.

Net Surplus available for appropriation (3 – 5)

399.08 845.89 763.59 1000.35 1115.40

The trend of growth in receipts and expenditure on Indian Railways is depicted in the

following chart:

The net revenue, which was Rs.2141.16 crore in 1998-99 and Rs.2735.67 crore in 1999-

2000, declined sharply to Rs.1071.23 crore in 2000-01. Due to shortfall in net revenue,

the Railways had to defer payment of dividend of Rs.1823.30 crore in 2000-01. Net

revenue registered a growth in 2001-02, but was not adequate to meet the requirements

of other funds and the dividend liability for the year. Railways, therefore, decided to defer

dividend of Rs.1000 crore in 2001-02. Though the financial results of 2002-03, showed a

marked improvement over previous years, the net revenue was not sufficient to entirely

set off the deferred dividend of the previous years.

Gross Traffic Receipts

The detailed break-up of the traffic receipts of Railways for the years 2002-03 along with

the details of BE, RE and actuals of previous year’s receipts is shown below:

(Rupees in crore)

Traffic EarningsActuals2001-02

Budget Estimates2002-03

RevisedEstimates 2002-03

Actuals2002-03

(1) (2) (3) (4) (5)Passenger 11196.45 13450.00 12730.00 12575.44Goods 24845.40 26118.00 26658.00 26504.82Other Coaching 872.24 920.00 950.00 987.95Sundries including Suspense 923.50 1050.00 529.00 1000.01Total 37837.59 41538.00 40867.00 41068.22

Passenger Earnings

The passenger earnings target was fixed at Rs.13450 crore in the BE. The target was,

however, scaled down by Rs.720 crore in the RE to Rs.12730 crore. The actual passenger

earnings were Rs.12575.44 crore. Passenger earnings, thus fell short of both the BE and

RE projections. The earnings, however, registered a growth of about 12.32 per cent as

compared to 2001-02.

Goods Earnings

Earnings from goods traffic were estimated to yield Rs.26118 crore in the BE and

Rs.26658 crore in the RE. The actual earnings of Rs.26504.82 crore were more than

BE by Rs.386.82 crore but fell short of the RE by Rs.153.18 crore.

The originating revenue earning goods traffic was projected at 510 million tonnes for

2002-03. This was increased to 515 million tonnes in RE. Railways actually lifted

518.74 million tonnes of revenue earning goods thereby exceeding the targets.

The target for volume of revenue earning goods traffic was projected at 334213 million

net tonne kilometres (NTKMs) which was increased to 357163 million NTKMs in RE.

The actuals during 2002-03 was 353194 million NTKMs, which was more than BE by

18981 million NTKMs but less than the RE by 3969 million NTKMs.

The increase / decrease in originating tonnage of various commodities in 2002-03 over

2001-02 is shown in the following chart:

The offering of ‘POL’ and ‘Fertilizer’ declined by 1.57 million tonnes and 0.74 million

tonnes respectively, as compared to the actuals of 2001-02.

The average lead for coal traffic, which was 614 kms in 2001-02, had decreased to 601

kms in 2002-03. Thus, while the Railways have been able to bring in additional coal

traffic, they have actually suffered loss of long lead traffic at the cost of short lead

traffic.

There was a shortfall in goods earnings from ‘Other Goods’ (Rs.409.63 crore), ‘Iron

Ore for Export’ (Rs.155.07 crore), ‘POL’ (Rs.148.81 crore), ‘Cement’ (Rs.147.77 crore),

‘Fertilizers’ (Rs.59.91 crore), ‘Miscellaneous Goods’ (Rs.26.63 crore) and ‘Raw

Material for Steel Plants’ (Rs.3.63 crore).

There was a shortfall in originating tonnage in respect of ‘Other Goods’, ‘POL’,

‘Fertilizers’, ‘Iron Ore for Export’ and ‘Cement’ by 4.75 million tonnes, 2.55 million

tonnes, 2.04 million tonnes, 1.84 million tonnes and 0.25 million tonnes, respectively.

Unrealised Earnings

The total amount outstanding against the State Electricity Boards/ Power Houses which

stood at Rs.1616.45 crore at the end of 2001-02, increased by Rs.137.42 crore (8.5 per

cent) bringing the balance to Rs.1753.87 crore at the end of 2002-03.

The outstanding dues against the main defaulting Power Houses/ State Electricity Boards

was as under:

(Rupees in crore)

Sr. No.

Name of State ElectricityBoard/ Power House

Outstanding dues ason 31March 2002

Outstanding duesas on 31March 2003

Increase indues duringthe year

1. Badarpur Thermal Power Station 957.61 966.63 9.022. Punjab State Electricity Board 325.31 424.05 98.743. Delhi Vidyut Board 160.86 179.88 19.024. Rajasthan State Electricity Board 105.75 109.92 4.175. Uttar Pradesh State Electricity Board 8.27 27.36 19.096. Damodar Valley Corporation 4.75 7.94 3.197. West Bengal State Electricity Board 4.21 8.11 3.90

8.Madhya Pradesh State Electricity Board

2.99 6.29 3.30

Operating Ratio

The Operating Ratio represents the percentage of working expenses (including the

expenses not yet paid) to traffic earnings (including the earnings not yet realised). The

operating ratio, which was 96.02 per cent in 2001-02, improved to 92.34 per cent (by 3.68

per cent) in 2002-03 for the Railways as a whole.

The operating ratio of Indian Railways during the last five years is shown in the following

chart:

Plan Expenditure

Details of the plan expenditure met from Central Government support and internal

resources during 2002-03 were as follows:

(Rupees in crore)

Sr.No

Sources of FinanceActual Expenditure2001-02

BudgetEstimate2002-03

RevisedEstimate 2002-03

Actual Expenditure2002-03

1.Central Government Support(i)  Budgetary Support(a) Borrowed Capital from General Revenues

4376.89 4040.00 4390.00 4263.74

(b) Transfer to Special Railway Safety Fund

1000.00 1350.00 1350.00 1350.00

(ii) Contribution from Central Road Fund to Railway Safety Fund

140.28 450.00 264.00 164.08

Total Central Government Support

5517.17 5840.00 6004.00 5777.82

2. Internal Resourcesi) Depreciation Reserve Fund

1569.61 2045.00 1886.00 1464.75

ii) Development Fund

449.47 550.00 550.00 483.86

iii) Capital Fund - - - -iv) Special Railway Safety Fund #

434.28 860.00 960.00 1136.31

v) Open Line Works -Revenue

31.53 35.00 35.00 28.32

Total Internal Resources 2484.89 3490.00 3431.00 3113.24Grand Total of Plan Funds (1+2)

8002.06 9330.00 9435.00 8891.06

#    Expenditure borne out of the SRSF financed by levy of safety surcharge and from

Railways allocation to the fund from its own resources.

Undischarged liabilities

The Railways are required to pay dividend at a fixed rate on the Capital advanced by the

Government of India. The Railway Convention Committee (RCC) of Parliament determines

the rate of dividend payable by the Railways to the General Revenues periodically. In

accordance with the recommendation of the RCC:

A moratorium is given on the payment of interest (dividend) on investments made on

new lines out of borrowed capital during the period of construction and for five years

after a line is opened to traffic. The cumulative liability on this account is payable when

the line shows surplus after meeting the current dividend. The liability is written off, if

not paid within 20 years of opening of a line, to traffic.

Any shortfall in the payment of current dividend, when the net revenue is not adequate

to meet current dividend, is treated as deferred dividend liability.Railway Funds

Pension Fund: Railway-wise analysis of the Pension Fund balances on 31 March 2003

has revealed that the following Railways had adverse (debit) balances in the fund:(Rupees in crore)

Sr. No. Name of Railway Amount1. Eastern 2933.782. Southern 1375.123. Central 839.554. North Eastern 737.915. South Central 709.766. Northern 81.79

It implies that these Railways have not appropriated to the fund, the amount needed to

meet their pensionary charges. These Railways have, thus, been able to depict a better/

improved operating ratio over the years.

On the other hand, Northeast Frontier, South Eastern, Western Railways, Metro Railway

Kolkata and all the Railway Production Units have appropriated more to the fund than the

amount required for meeting the pensionary charges of 2002-03.

Depreciation Reserve Fund: For replacement and renewal of assets, the Railways

maintain Depreciation Reserve Fund (DRF) financed by transfers from Revenue.

The balances in DRF for the last five years is shown in the following table:

(Rupees in crore)

Year Opening BalanceAccretion duringthe year

Withdrawals duringthe year

Closing Balance

1998-99 1434.27 1276.39 2033.94 676.721999-2000 676.72 1795.23 2421.14 50.812000-01 50.81 2429.25 2402.02 78.042001-02 78.10 2124.49 1569.61 632.982002-03 632.90 2585.30 1464.75 1753.45

Notes:

1. Difference between closing balance of 2000-01 & 2001-02 and opening balance of

2001-02 & 2002-03 amounting to Rs.0.06 crore and Rs.0.02 crore respectively is due to

transfers made between DRF and Capital Fund.

2. Accretion includes interest on the balance in the fund.

Development Fund: This fund is financed by appropriation from surplus and/ or loans

from General Revenues to the extent required to meet expenditure on works relating to

amenities for users of Railway transport, labour welfare works, safety works and

unremunerative operating improvement works.

Appropriation from surplus to Development Fund (DF) was projected at Rs.550 crore in

the BE and RE. Ministry actually appropriated Rs.550 crore as planned to this fund.

The balances in DF for the last five years is shown in the following table:

(Rupees in crore)

YearOpeningBalance

Accretionduring the year

Withdrawalsduring the year

ClosingBalance

1998-99 0.39 395.89 395.87 0.411999-2000 0.42 497.02 496.99 0.452000-01 0.45 744.98 518.11 227.322001-02 0.52 449.51 449.47 0.562002-03 0.62 553.85 483.86 70.61

Note:

Difference between closing balance of 1998-99 and opening balance of 1999-2000 is due

to rounding off while difference between closing balance of 2000-01 and opening balance

of 2001-02 is due to transfer of Rs.226.84 crore to Railway Safety Fund and transfer of

Rs.0.04 crore from Capital to DF. Difference between closing balance of 2001-02 and

opening balance of 2002-03 is due to transfer of Rs.0.06 crore from Capital and DRF.

Capital Fund: This fund was created with effect from 1 April 1993 to finance the Capital

works of the Railways. The balance amount of surplus left after appropriation to

Development Fund is credited to this fund. Since the Railways have not been able to

generate adequate surplus for appropriation to Capital Fund, the operation of Capital

Fund has ceased for the time being.

Appropriation from surplus to Capital Fund (CF) was projected at Rs.17.43 crore at the

BE stage. In the RE there was no proposal to appropriate any surplus into the fund. An

amount of Rs.0.94 crore was credited to the fund as interest at 7 per cent per annum on

the fund balance during the year 2002-03.

The balances in CF for the last five years is shown in the following table:

(Rupees in crore)

YearOpeningBalance

Accretionduring the year

Withdrawalsduring the year

ClosingBalance

1998-99 1200.63 52.71 990.46 262.881999-2000 262.88 358.50 600.25 21.132000-01 21.55 282.23 282.38 21.402001-02 21.56 249.62 257.71 13.472002-03 13.47 0.94 0 14.41

Note:

Difference between closing balance of 1999-2000 & 2000-01 and opening balance of

2000-01 & 2001-02 amounting to Rs.0.42 crore and Rs.0.16 crore respectively is due to

transfer between Capital and Capital Fund.

Railway Safety Fund: This fund was created with effect from 1 April 2001 to finance

works relating to Road Safety works viz. (i) manning of un-manned level crossings and (ii)

conversion of level crossings into road over/ under bridges. The fund is to be funded from

three sources viz. (i) contribution from Central Road Fund, (ii) Railway surplus left after

payment of dividend and (iii) contribution which is made by the Ministry of Railways to

the Railway Safety Works Fund (maintained by the Ministry of Finance) out of the

Dividend payable to General Revenues. During the year 2002-03, the Ministry received an

amount of Rs.264 crore from the Central Road Fund and Rs.2.74 crore being contribution

payable to Railway Safety Works Fund. The BE provided Rs.452.73 crore to be

appropriated from the surplus during 2002-03. However no amounts were appropriated

from the surplus to the fund.

The balance in Railway Safety Fund (RSF) is shown in the following table:

(Rupees in crore)

YearOpening Balance

Accretion during the year

Withdrawals during the year

Closing Balance

2001-02

226.84 305.47 140.28 392.03

2002- 392.03 266.74 164.08 494.69

03

Note:

The opening balance of Rs.226.84 crore represents the transfer from DF on 1April 2001.

Special Railway Safety Fund: A new fund, namely Special Railway Safety Fund (SRSF)

was set up in 2001-02, to wipe out the arrears of replacements/ renewals of vital safety

equipment on Railways in fixed time schedule of 5 to 7 years. This fund was to be

financed partly through Railway Revenues by levy of safety surcharge (Rs.5000 crore) and

balance (Rs.12000 crore) through additional financial assistance (dividend free Capital)

from General Revenues. During the year 2002-03 this fund received Rs.1350 crore by

transfer from Capital and appropriation of Rs.1167.91 crore (inclusive of Rs.602.51 crore

of safety surcharge receipts) from Revenue. The outgo on account of plan expenditure

chargeable to this fund amounted to Rs.2486.31 crore leaving a balance of Rs.52.42 crore

in the fund on 31 March 2003.

The balance in SRSF is shown in the following table:

(Rupees in crore)

YearOpening Balance

Accretion during the year

Withdrawals during the year

Closing Balance

2001-02

– 1455.10 1434.28 20.82

2002-03

20.82 2517.91 2486.31 52.42

NET REVENUE RECEIPTS TREND

YEAR 1950-51 1960-61 1970-71 1980-81 1990-91 1993-94 1994-95Net Revenue Receipts 47.56 87.87 144.73 127.49 1,113.78 3,102.13 3,808.111995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-034,135.07 3,624.52 3,024.43 2,141.16 2,735.67 1,071.23 2,337.53 3,830.23

Lalu’s railways: An IIM case study

There are few political leaders in the country who have been more

sharply criticised than Railways Minister Lalu Prasad Yadav.  But now, there is a genuine

sense of respect for what Lalu has been able to achieve for Indian railways, which is

looking healthier than it has in years.

In fact, Lalu and his Railways Ministry have been so impressive that they are now a case

study for the Indian Institute of Management (IIM).

When he wrestled the Railways Ministry from Ram Vilas Paswan, many had written the

obituary of the Indian railways, saying Lalu would drive it into the ground. But he’s

proved the skeptics wrong.

Amazing feat

The Indian railways, an organisation heading towards bankruptcy three years ago when

he took over, now has a surplus revenue of Rs. 11,000 crore, a feat that has won grudging

respect for Lalu.

And with success has come recognition. IIM-A is taking the railways success as a case

study.

Effective steps

Lalu achieved the feat by taking simple steps like competitive passenger fares

and reducing the wagons’ turnaround time from seven to five days.

He also raised the carrying capacity of goods trains from 3,200 tonnes to 4,000 tonnes,

which led to higher freight earnings.

“This is just the start. We will soon have a surplus of Rs 20,000 crore. We will do more,

you see our profits will climb even further,” added a confident Lalu.

Railways officials are in a celebratory mood, as they know their organisation has turned

the corner and the architect of this success is the railways minister.

Turning to the Aam Aadmi slogan, the minister said the railways will soon create

economic opportunities for the farmers. “We plan to create a public-private partnership

model, wherein retail stores would be set up at around 7,500 stations across the country.

It will facilitate procurement, distribution and marketing. We plan to involve corporates in

this project. Global tenders will be invited,” he said.

He also talked about providing rail connectivity to all the ports in the country. “We intend

to ease the congestion on the road. This would mainly facilitate the car exports from

India,” he said.

While the minister termed the bullet train project unviable for the country, he

told media persons that the ministry plans to take measures to tighten security in the

system.

“We plan to introduce close circuit TVs and metal detectors at all the major stations. We

also plan to restrict entry at the platforms. Only passengers will be allowed to enter the

platforms,” he said.

The minister also stated that he had big plans to enable travellers to get a worldclass

experience. Starting with stations at major cities like Ahmedabad, Delhi, Chennai,

Mumbai and Patna the new station will have underground cross-over system to reach

different platforms instead of an overbridge.

Taking a dig at his predecessor Nitish Kumar, Lalu Prasad said, “I am aware what he has

been saying about our turnaround story and the situation in Bihar. Let us see if he is able

to deliver. I don’t think he can.”

However, he steered clear of making any controversial statements. When asked about his

views on reservation, he said, “Today is not the day to discuss it.”