Indian Railways: The Turnaround

Submitted By:

Bibhu Prasad Das

Ajay Kumar

Ashutosh Singh

Anshuman

Adwate

Shromona

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Brief Background

Since the introduction of railway services by British in 1853 between Bombay and Thane,

Indian railways has come a long way to becoming one of the largest railway systems in the

world with a route length of approximately 65000 Km, one of the biggest employers with

over 1.5 million employees (down from 1.75 million in 1990’s when it was the world’s largest

employer), and hauling approximately 2.8 million tons of freight and 25 million passengers

on a daily basis. Indian Railways has also played a very significant role in the country’s socio-

economic development providing cheap form of transport for the masses and is crucial to the

country’s growth in the coming years with increased demand for efficient transportation.

IR was built upon public private partnership and till the early 1950’s was the principal mode

of transport for passengers as well as freight. But with the growth of road infrastructure, the

monopolistic position of the Indian railways was challenged by the trucking industry which

grew by leaps and bounds through aggressive private sector participation. Though Railways

had several advantages compared to roads such as better fuel efficiency, reduced pollution,

minimum land requirements and reduced accident levels, it wasn’t able to capitalize upon

them due to managerial inadequacies and policy distortions because of the confusion

whether it existed to serve a commercial or a social purpose. Management did not respond

well to the changing competitive landscape resulting in decreasing market share of railways

in transport. Historically Railways had developed as a monopolistic organization, and was

regulated by India’s Railways act of 1890 while road transport being in the private sector and

faced with intense competition since its initiation was flexible and innovated continuously to

provide cost effective services and stay ahead of the curve. Hence it was not surprising that

the railways shackled by inflexible and outdated rules and regulations, and rigid

organizational structure could not face these challenges effectively. This, in spite of the

implementation of Acworth committee recommendations in 1924, which recognized the

importance of commercialization of Indian Railways and the separation of the railways from

government.

Crisis Building:

External Environment:

The liberalization policy of 1990’s brewed up fresh problems for the already stretched

organization. As the country integrated with the global economy, all the prices in the

economy had to realign themselves to international standards and the regulation protection

that the domestic sectors enjoyed were gone. It faced market pressures from predominantly

five factors:

The trucking industry after deregulation captured a large chunk of the freight transfer

markets which contributed to around 75% of the revenues of Railways

Petroleum products, another stronghold of the railways were increasingly moving

towards pipelines as the preferred mode of transport

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Coastal shipping and inland waterways were also taking away market shares with

products like cement and coal preferring them.

After fifth pay commission, the internal finances of Railways became strained due to

highly bloated number of employees.

Budgetary support had been continuously declining over the years from 75% in the

fifth plan to 23% by eighth plan.

Internal Problems:

A look into the expenditures of the Railways shows 60% being spent on staff wages and

pensions while the remaining divided equally between material and energy. The high

number of employees was not resulting in higher productivity levels. In 1989 the number of

employees was at an all-time high of 1.75 million. While layoff of employees was not an

option, Railways restricted fresh intake of employees to cover up for the people retiring,

which resulted in decrease of staff from around 1.75 million to 1.4 million, representing

annual savings of around 700 crores.

On the revenues side, railways had not expanded rapidly to deal with the rapid growth in

infrastructure areas such as power, electricity and steel, which resulted in high value traffic

that provided higher profit margins moving away from railways. While the demand for

transport was growing at an average rate of 9%, railways were growing at a rate of around

3%. On the passenger side, pricing was rigid and followed populist decisions rather than

economical ones.

On the Organizational structure side, management followed a dictatorial approach with rigid

controls in place. The increasing influence of trade unions combined with ineffective human

resource development programs further led to the neglect of motivational and organizational

issues thrown up in such a setup. Mangers were incapable of handling the rapidly changing

transport landscape and maintenance of status quo became the order of the day.

Crisis

Declining budget support combined with non-productive investments and high cost of

internally sourced products and services, increased the financial distress of the organization,

that had to turn to the market for funds. Market borrowings amounted to Rs 3000 crores in

1999-2000 and lease, interest charges amounted to approximately Rs2,615 crores. The

operating ratio (Operating expenses/ Gross Revenues) hit a maximum of around 98% by

2001 resulting in all time low surpluses of 763 Crores. The dividend payment was also

suspended for the year 2001.

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Turnaround of Indian Railways and HR strategies adopted

by Indian Railways

In the late 90s IR found itself in a grave situation with profitability declining at a rapid pace.

The continuous decline in performance caught the attention of the top leadership and the

need for diagnosing the sickness was felt. This resulted into the constitution of Expert Group

on Indian Railways, also known as Rakesh Mohan Committee which delivered its report in

the year 2001. This Committee among other things also recommended certain operational

strategies to be adopted by Indian Railways.

At the outset, IR earned the cooperation of the workers union by not taking up the route of

retrenchment as suggested by the Expert Group. However, reduction in staff was achieved by

not filling up the vacancies created by retirement and resignation of the employees. A major

achievement of IR in its relationship with the unions is the gaining of their support for the

Public Private Partnerships for the future expansion programme. The increase in

productivity-linked bonus (PLB) acted as incentive to the workforce. There was an increasing

emphasis on the quality of officers' training and the need to expose them to international

environments.

Changes in organizational culture

Probably the most significant cultural change witnessed by the IR in recent years is the

philosophical change — from politicised decision making to commercial, business oriented

decision making. Mr Nitish Kumar while presenting his 2001-02-budget stated ‘Railways

need to develop market oriented and customer friendly outlook due to emerging competition

within the transport sector’. The transformation of the IR to a customer-focussed

organisation is remarkable. For example, the IR has responded to the enhanced competition

from the aviation sector, with improved information for passengers through the creation of

enquiry call centres and regular updating of current vacancy positions. The IR introduced

improved accounting and management information systems to provide financial, operating

and management information needed to increase efficiency, meet emerging business needs

and improve commercial orientation. It introduced Long-Range Decision-Support System

and related systems for investment selection on the basis of expected returns. To cater to the

rising passenger numbers which run into millions each day, the IR introduced state-of-art

passenger reservation system. Similarly, the freight business was streamlined through the

Freight Operating Information System and Enterprise Resource Planning (ERP) packages

were implemented in workshops, production units and selected zonal railways.

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The last two pay commissions had increased the pay levels of all employees substantially.

They also introduced several strategies to attract and retain key talent. Some of them include

substantial pay hike, personal development initiatives which include a 2-year study leave and

a 2-year child-care leave for female employees.

More and more emphasis is being placed on quality training both nationally and

internationally. Safety is paramount as the accident levels within the Indian Railways is one

of the lowest globally. Also, the latest management practices such as benchmarking’ within

its workforce management, supply chain management, operations management, logistics

management to name a few- are being introduced in the railways.

There is a growing realization among the three main stakeholders - staff, management and

trade unions that their goals are common. Hence, a movement from being pluralist to

unitarist.

They are shedding their image and culture of a typical PSU as the benefits of a global

economy are seen to be trickling down. The respondents comprising officers and other staff

said they want to be seen as a professional and transparent organization (the RTI-right to

information act has now been in force in the Indian Railways) as they are now seen to be on

the global stage with the world’s eyes on them.

Human resources initiatives

As fatigue enhances probability of accidents, several measures were initiated by the IR to

improve working conditions of drivers and guards. Crew friendly driver’s cabins and brake

vans were designed. Another initiative was the establishment of International Railway

Strategic Management Institute in 2005 under the aegis of International Union of Railways.

It is a premier institute to serve the training needs of managerial staff. To increase

participation of railway employees in management, regular dialogue with the officers and the

staff federations through a specially constituted forum called ‘Participation of Railway

Employees in Management (PREM)’ was established. The IR was also in the forefront of

taking affirmative action. It ensured that adequate representation is given to disadvantaged

sections of the society and to physically challenged people as required under the relevant

legislations. Suitable sports facilities were also made available to the employees and the IR

sports team won several laurels at national and international level. ‘More effective use of

manpower led to improvement in staff productivity. Multi-skilling of staff was emphasized.

These strategies resulted in doubling of the staff productivity compared to the productivity in

the 1990s’. Revenue per staff witnessed a rise by 68 percent (2001–2006) as against 49

percent (1996–2001).

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Downsizing

The number of employees, which peaked at 1.652 million in 1991, was brought down

progressively to 1.472 million by 2003, and to 1.412 million by 2006. One of the elements of

retrenchment strategy is to trim off excess staff. The approach that the IR adopted was not to

fill in vacancies created due to retirement or other reasons. This approach commenced

during the term of Mr Nitish Kumar as the Railway Minister and has been continued by Mr

Yadav. Again, downsizing as a strategy for reducing costs was initiated when Mr Nitish

Kumar was the Railway Minister. Over the years the IR reduced the staff on payroll from

about 1.58 million in 1999 to about 1.41 million by 2006, down 0.17 million or 10 percent.

This resulted in the decline of overall expenditure by at least Rs 2,000 crores in 2006,

compared to what it would have been had the staffing levels been comparable to those in

1999. In 1998, due to the impact of the Fifth Pay Commission the expenditure on staff and

pension payments increased by almost 35 percent in just one year. It will be seen that growth

rate in wage bill was contained (brought down to single digit growth rate from double digit

growth rate) during the period of Mr Nitish Kumar who was the Railway Minister in 1998-

1999 and again in 2001-2004.

Outsourcing

In the other business areas of parcel, catering and advertising, the strategy of outsourcing

through public private partnership and wholesaling rather than retailing was adopted. The

IR reviewed its catering and parcel service business and decided to lease it out. The Railway

Minister stated ‘…by leasing out catering and parcel services we have reduced our catering

and parcel losses of more than a thousand crores’. Similarly, the IR attracted private

investments under the wagon investment schemes and siding liberalisation scheme. This

freed up resources for utilisation in more remunerative activities. Besides the catering and

parcel service activity, the IR also outsourced advertising activity.

Decentralizing

The IR decentralised its organisational operations by creating more zonal centres. The

number of zones was raised from nine in 2003 to 16 in 2005 which helped faster Turnaround

of the Indian Railways decision making and provided better customer service. The CAGI

(2006) states the IR decentralised procurement through the introduction of Vendor

Management System which considerably raised vendor satisfaction due to the transparency,

fair play and equal opportunity it provided –something that was missing in the earlier

system.

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CURRENT PROBLEMS IN INDIAN RAILWAY

1. Overcrowding

Overcrowding has been a very big issue with the growing population, and often it is seen that

the General compartments are overly filled. During holiday seasons, booking of tickets have

to be done 90 days advance, to avoid such static waiting list. Even then, it has been found

that the reserved compartments are swamped by many who travel without any tickets. With

the price sensitive market, the government subsidized the prices as increasing the prices

transcends to political damage and widespread discontent and bad mouthing. These factors

impose a strong opposing force at which the Indian railways can expand and modernize it.

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2. Accidents

The count for accident rate for Indian railways stand at about three hundred per year, and it

is one of the main problems plaguing the Railways. Derailment and collisions are less but

incidents of getting run over by trains; especially in crowded areas are more common. 83%

of the mishaps happen due to human error. Other reasons like landslides in the monsoon

season for Konkan Railways in the recent past contribute to more accidents. If not less, the

antique communication systems, safety equipment and signaling systems contribute to the

problems of Railways. Colonial era bridges and century old tracks do require regular

maintenance and upgrading.

3. Level crossings and fencing

Pedestrians, vehicles or cyclists may cut across the tracks to save time and that causes a

safety hazard to the railways. The reasons given are that suitable bridges or level crossings

over the tracks are non-existent or are inconveniently placed. Most of the railway land in

India is not fenced or restricted in any way and allow free trespasses. In other

areas, cattle and other animals like elephants stray onto the tracks and pose a much more

serious safety hazard.

4. Sanitation

Sanitation is a big problem for Indian Railways. Due to the size of network, journeys may last

many days, and the toilets on Indian railway trains are of direct vent type, without any

effluent storage tanks on board. This causes an accumulation of human waste on tracks

where the train stands still in large stations. With the increasing number of travelers, the

toilets are often in bad conditions. Indian Railways is considering eco-san toilets for its

trains.

5. Old Track and Poor State of Rolling Stock

The Indian railways tracks are old and outdated, and cause many serious railways accidents.

This has also resulted in speed restrictions. Railways in other advanced countries have

brought the running time down whereas in every new timetable, running time of all trains in

IR has been increased.

6. Travel without Tickets

With the increasing number of passengers travelling without purchasing tickets, Indian

railways have to bear extra losses of about INR 5 crore per year.

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7. Attack on Railways

Due to the attacks on railways during the time of disturbances and violence's that arise in

any part of the country, Indian railways has to bear crores of losses. For instance, there was

heavy loss of railways in the movements of West Bengal & Assam etc.

8. Lack of Modern Management

The lack of modern management has made the railways fail to attract adequate incentives

and good talent.

9. Outmoded Technology

The Indian railway system is beset with excessive manpower and the development has not

kept the pace up with technology up gradation , and this has made railways incapable of

coping up with increasing transport demand and the increasing travelers volume are creating

more problems.

10. Problem of Replacement

The problem of replacement is a serious problem as there are hardly any dumping places for

old and obsolete railways engines and wagons.

11. Problem of Laying Double Lines

Since most of the railway lines are single lines, it creates greater inconvenience to the railway

organization as well as the passengers.

12. Inadequate Investment

The railway transport is lagging behind in the requirement due to inadequate investment.

13. Competition with Road Transport

IR is now in tough competition with the roadways as the road networks are getting better

and being networked more. The intensity of competition has increased and the lack of

coordination between both railways and road transport has led to decrease in earning

capacity of railways.

14. Lack of emphasis on adequate HR’s

This is by far the biggest obstacle in Railways IT strategy. Despite having a large pool of

talented and informed manpower, no committed effort has been made to familiarize them

with IT concepts.

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15. Technological advancement

The development and strengthening of roadways are giving a stiff condition to the railways

and the IR is planning on introducing modern technology in various levels of its working.

Civil engineering, electrical engineering and material science are being harnessed to run

trains efficiently in current scenario. And it is helping in downsizing the manpower

challenge.

16. Infrastructural development

Massive investments are required for expansion of the rail infrastructure and to give the

railways a due share in the country’s infrastructure development. Constructive and financial

support from the Government and the pro-active, market oriented response to the challenges

of an open economy will set the tone for the renaissance of the IR as we move towards the

new millennium.

17. Information technology

IT in India is at boom and IR uses the best of IT. However a concerted effort to introduce IT

has been delayed. This has raised fears that they may become laggards rather than leaders in

the use of IT. Harnessing IT for effective and efficient collection and dissemination of

information is a necessity for any rail operator. The efficient introduction of IT saves costs

and decreases expenditure in today’s competitive environment.

18. Inter-departmental parochial fighting

The inter-departmental parochial is making a lot of problems and eating away whole

developmental attitude in Indian Railways. Thus, if one department proposes a project for

overall development involving other departments, surely other departments will oppose to

protect its own interest ignoring the bigger picture.

19. Presence of existing multi-cadres system

Presence of multi-cadres system is the biggest hindrance for any sustainable development of

IR. This system has become worse due to heterogeneous and essential entry qualifications of

supervisory cadres and directly recruited gazette through UPSC and RRB (Railway

Recruitment Board). These non-uniform entry qualifications which are essential, do not help

to create an aptitude and also an attitude for a good perception of day-to-day working

problems, which includes strategic planning, its speedily and cordial implementation,

amongst the different departments with a sense of integrity. Ultimately who suffers, the

customers.

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HR Opportunities

Issues which the Railways need to Address with extreme urgency are given below.

1. Satisfying Customer Requirements: The railways ought to provide greater

flexibility, higher reliability and lesser documentation for their freight services, if they

want to win back the share that they have lost to the other sectors of transport.

2. Clarifying its Vision: The railways should operate as a commercial organization

rather than viewing itself as a government department, which would be financially

self-sufficient.

3. Adopting a Contemporary Business Structure: The Railways should start

empowering employees to take quick decisions and start focusing on its core

competencies.

The HR of Indian Railways industry can avail the following opportunities:

1. Significance of human resource in IR Industry: People are needed for various

activities and they should be available at the right place at the right time. Advanced

technology adopted by the industry need to be complemented with the necessary

efforts of the manpower employed to get the required results. The HR is

indispensible in the service industry which delivers its value through information,

group work or personal interaction.

2. The vision aspect of resources: The resources namely software, hardware, HR

and networking, required to make the vision of IR a reality must be identified, made

available and accessible. As IT becomes more pervasive in the educational

curriculum, thus by increasing the number of railway employees, the IR can serve the

needs of IT projects.

3. Expenses and Budgeting: As all departments require money for their work, its

expenditure should be monitored and controlled. Thus for this purpose, right amount

of information should flow between the Finance Department (managed by HR) and

the Executive.

4. Increasing role of HR in IT for the management of IR: HR in the form of

Contract managers and IT Architects, Content Developers, In-House Software

Developers, Database Managers, System Administrators and Network Managers in

Indian Railways are expected to efficiently handle the latest IT introduced in the IR.

Suggestive Measures: Structural changes and

organisational reforms

1. Managing the “Virtual Cadre”: There is need of people who can comprehend the

technologies available today, their limitations and capabilities, in order to grab the

available opportunities, so that they can conceptualize and decide the use of

technologies in their work areas. Carefully developed training programs, will

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safeguard that the railways retain within itself, a pool of knowledge, in sync with the

technology trends. There would be a central updating of the database so as to reflect

the changing composition of the resource pool, which includes, updating the skill-sets

of each person periodically.

2. Collaborating with the Academic Institutions: Collaboration with the

renowned academic institutions is needed to guarantee that the IT effort of the IR

remains on track with innovative and apt projects being taken up to address its IT

needs. Such collaborations, involving the setting up of specialized centers catering to

IR’s specific needs in the participating institutions, will lead to two-way movement of

expertise. Academic Institutions like IITs should offer graduate programs in Railway

technology and IIMs should offer Railway management to students.

3. Conducting development and training programmes: For those employed in

the Railway industry, appropriate training programmes should be conducted.

4. Flexible and smooth structure: The middle management has become redundant

because of current facilities of direct communication from the top level to the lowest

field level. The structure can be made more flexible and smooth as China did in 2005

by restructuring its 4-tiered railway system into a three tiered railway system.

5. More authority and responsibility to grass root level employees: There is

an urge to give more authority to the employees at the grass root level to quote

competitive freight rates so as to generate more business. In addition it will also help

to resolve the inter-departmental conflict.

6. A more critical look at manpower costs and a sharper technological

thrust are important:

Reassign, rebalance, reorient and reinstruct workers.

Introduce multi-skills, multi-disciplinary approach.

Scrutinize the recruitment policy more methodically.

Train employees in customer care.

Start quality circles.

Emphasize greater employee participation.

7. The populism in political outlook, will help in a better governance.

8. Creation of a system of reward for combined performance and variable pay associated

with incremental surplus generated by different units.

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Conclusion

At the end it can be concluded that the IR has emerged as the most important means for the

socio- economic development of the nation. Organizational reforms are quintessential to

ensure that IR is able to achieve the goals set out for modernization. The vision for

information technology in the Indian Railways for the coming 25 years is to attain a juncture

where all the information needs of the organization can be met by a broad information

highway, accessible to all internal and external stakeholders. The vision is to improve and

enhance personal productivity at all the levels by the effective and efficient use of

information technology. An effort has been made to develop a road-map for the future

growth of information technology in Indian Railways. Conditions today are apt for them to

obtain the benefits of IT, since its benefits have been proven and general awareness of the

technology is high. A commitment to utilize the IT and Human Resource suitably in the

organization already exists. Funding has been increasing in the current period, and should

not be a major constraint in the coming future. Hence the organizational drive should be to

ensure, that the human resources as well as technology are allocated wisely, in a planned

manner with suitable structural changes, the vision concretized, and followed through.

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References

http://wiki.iricen.gov.in/doku/doku.php?id=status_of_manpower_in_indian_railway

http://www.tribuneindia.com/2013/20130512/pers.htm http://www.pjitm.com/Doc/issu%20jan%20june%202013/Sanchayan%20Vol%202(

1)%20paper%2010.pdf http://www.scribd.com/doc/24315672/Indian-Railways TRIPATHI P.C.,”Human Resource Development”: Sultan Chand and Sons, 2010. OVASDI J. M., “Railway Administration and Management”: Deep and Deep, 1990. Report by V.K.Agarwal, Chairman Railway Board. Report of Indian Defence Analysis. Report of Indian Railways. IT Vision 2005: A paper presented at Railway Staff College Vadodara, June 5, 2005 KHURANA S. S., “Trains at a Glance”: Southern Railways for the Ministry of

Railways. www.preservearticles.com

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Prof. Anand K Sharma, Prof. Mathew J Manimala, Sustainability of the Indian Railways Turnaround: A Stage Theory Perspective,IIM Bangalore Working Paper, January 2008http://www.iimb.ernet.in/research/sites/default/files/WP.IIMB_.266.pdf

Dr. A. Nilasco Arputharaj, CASE STUDY ON PERFORMANCE MANAGEMENT SYSTEM IN INDIAN RAILWAY http://www.pjitm.com/Doc/issu%20jan-%20june%202013/Sanchayan%20Vol%202(1)%20paper%2010.pdf