Should the Indian Railways be privatized?

Presented by : Group I2

The answer is “NO”, Because :

• Indian Railways (IR) is a socio-economic organization.

• It has shown impressive growth and its turnaround story is case study at leading B-schools.

• Its too complex to be given in one hand.• Lessons from privatization of British Railways

are not very encouraging.• IR needs modernization and not privatization.

Introduction

• Indian Railways - the sinews of the Indian economy

• Reached out to bring together the great Indian family.

• World’s largest single employer –over 16 lakh

Is privatization “THE ANSWER”

• Distinction of being the largest railway system in the world under a single management

• Profit maximization not the only motive

Contd…

• British railway privatization- the most unpopular government policy in a generation

• Private players will not think from social perspective.

What are we talking about?• Ever imagined the entire population

of Netherlands — 16.41 million — transported in trains on a single day?

• The combined population of Switzerland, Denmark and Sweden similarly transported on a single day in trains.

• Undoubtedly, it is a massive operation. But that is exactly what the Indian Railways (IR) does every day — without a fuss!

Grim PhaseThe Expert-Group reportsubmitted in July 2001 stated:

“Today Indian Railway is on the verge of a financial crisis... To put it bluntly, the ‘business as usual low growth’ will rapidly drive IR to fatal bankruptcy, and in sixteen years Government of India will be saddled with an additional financial liability of over Rs 61,000 crores… On a pure operating level, IR is in a terminal debt trap.”

Turnaround

• Today’s second largest profit making Public Sector Undertaking after ONGC.

• Total earnings in 2005-06 increased by Rs 7121 crores

• Railway budget 07-08 – A surplus of Rs 215 billion

• Railway’s growth has exceeded the GDP of India

92.0

89.5

87.4

82.5

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82.682.9

91.592.5

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1987

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BE)

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ntOperating Ratio

Proposed Services

• Railway stations into Malls • Internet• Movies on demand• Music downloads

The franchising system

Criticisms • Too complex• Leads to confusion in responsibilities• Rail/Wheel interface is an integral part

“The whole idea of separating track from train operations in this way is fundamentally misconceived, being based on the model of air transport, where the infrastructure, engineering and operational considerations are entirely different.”

– Opinion from some heads of Swiss Federal Railways

British Rail Privatisation• Most unpopular Govt. Policy in a

generation• Opinion polls show that 3/4th of UK wants

public ownership back– Crashes at Ladbroke, Hatfield and Potters Bar– Price rise– Rail company directors paid huge bonuses

themselves• Massive Skills shortage• Boundaries and responsibility• Huge variations in pay led to high staff

turnover

Steps post Disasters• Placed RailTrack under the control of Govt-appointed administrators by

obtaining an order from British High Court.• Considered as the first step towards renationalization

“ It was due to the inherent contradiction between the goal of a company that was to maximise profit and the nature of the business from which public interest cannot be separated. The functioning of privatized RailTrack was termed as 'monumental incompetence'. The fact that the privatized company had to go to Government with begging bowl for subsidy to pay dividend to its Shareholders clearly and abundantly proved that it made no commercial sense to privatize British Rail.”

– British Prime minister at Labour Party Conference

Organizational Structure of Indian Railways MINISTER OF RAILWAYS

MINISTER OF STATE FOR RAILWAYS-MSR (A)

MINISTER OF STATE FOR RAILWAYS – MSR (B)

RAILWAY BOARD

MEMBER ELECTRICAL

MEMBER STAFF

MEMBER ENGINEERING

MEMBER MECHANICAL

MEMBER TRAFFIC

FINANCIAL COMMISSIONER

DIRECTOR GENERAL RLY. HEALTH SERVICE

DIRECTOR-GENERAL RPF

ESTT MATTERS

ADMIN MATTERS

SECRETARY

CHAIRMAN RAILWAY BOARD

ZONAL RAILWAYSGENERAL MANAGERSCRERNRNERNFRWRSERSCRSR

NEW ZONAL RAILWAYSOSD**ECentralRECoastRNCRNWRSECRSWRWCR

PRODUCTION UNITSGENERAL MANAGERS

CLW ChittaranjanDLW VaranasiRCF KapurthalaICF VillivakkamWAP YelahankaCAO(R)*DCW Patiala

OTHER UNITSGENERAL MANAGERS

NF Railway (Construction)Metro Railway Kolkata

Central Organization for Railway Electrification Allahabad

DIRECTORS-GENERALRDSO Lucknow

Railway Staff College VadodraCAO(R)*

Central Organization For Modernization Of Workshops

PSUsIRCONRITESCRISCONCORIRFCKRCIRCTCRCILMRVC

*CHIEF ADMINISTRATIVE OFFICER (RAILWAYS)

** OFFICER ON SPECIAL DUTY

Indian Railways – A Complex Organization

"Indian Railways is a large and extremely complex organization. It is not easy for outside experts to grasp the many complexities that govern the operations of this massive enterprise"

- Mr. Rakesh Mohan - Chairman of Expert Group

Contd…

• Large and complex organization.• Requires flawless coordination among different

departments.• Bureaucratic structure becomes a necessity.• A single private entity cannot ensure such a level of

coordination.• So different activities have to be given to different private

players.• These private players would need coordination. • Ensuring this coordination can become a serious challenge

and make privatization a complete failure.

Modernization and not Privatization

Core activities:Transportation of freight and passengers.

Non-core activities : Catering etc.

Modernization and not privatization PPP way

Public Private partnership

• Private sector risks

• Public sector risks

• Example : Ending Monopoly of CCI

Railway stations modernizationby PPP

22 Railway Stations

• Huge potential for non-ticket-based revenues like non-aeronautical revenues

• Restaurants, shopping malls

• Different terminals

Mumbai Airport

Vision 2020•Target 3% of GDP.•Organizational Reform•Customer centric

Marketing Hyperopia (anti-Myopia) : Road Transport - biggest competitor

Vision 2020High Speed Corridors: 4 corridors of 2000 kms.: Rs 2, 00,000 crore for the modernization

Modernization of signaling set up : 3569.52 Crore Rs

References

• http://en.wikipedia.org/wiki/Indian_Railways• http://www.hindu.com/2001/07/03/stories/0

203000j.htm• http://www.medianama.com/2009/01/223-w

ifi-in-trains-piloted-on-shatabdi-express-music-downloads-movies-on-demand/

• http://pib.nic.in/release/release.asp?relid=9225

• http://vijaycn.sulekha.com/blog/post/2008/01/turnaround-of-indian-railways-under-mr-lalu-prasad.htm

• http://indiainteracts.in/columnist/2007/07/21/Tracking-the-Indian-Railways-turnaround-saga/

• http://www.qcin.org/nbqp/qualityindia/Vol-2-No4/16_20.php

Thank you