17 Apr 2016 16:15 IST

Winning Pick

Hack functions that don’t pay; explore new revenue streams

Capex has to be trebled during 2015-19; one way to do this is by forming JVs with States

Putting ourselves in the position of members of the expert committee on Railways, we identified the major problems and have suggested possible solutions. Before recommending any strategy for turning around Railways, however, we should remember that the Railways does not function completely as a commercial organisation but has social service obligations and its functioning is also impacted by political decisions.

Problem: Financial Crunch

₹6-8 lakh crore of investment is required at present. The Railways obtained a loan of ₹1.5 lakh crore from LIC but this is clearly insufficient. This is because of the high operating ratio of 94 per cent compared to 71 per cent of the US rail network.


(a) The Railways should reduce all the unremunerative activities that are causing a huge financial burden. Some of these are:

Railway Schools: Instead of maintaining schools, railways can subsidise the educational expenses of the staff’s children.

Law and order: Instead of bearing the entire expenses on RPF and RPSF, a part of the expenses can be passed on to State governments as law and order is a State issue

(b) New Revenue Generation

Explore e-commerce: The Railways must allow on-board catering by large food chains and local restaurants through transparent bidding

Marketing: There is huge potential for generating revenue from advertising on railway properties

Attract customers: Increase fare revenue by enhancing customer experience

Problem: Decreasing share of revenue from freight due to


Delays in delivery due to priority given to passenger trains has led to cargo moving to other modes of transport

Sluggish industrial growth


Cross-subsidisation, done to gain political mileage, must be strictly avoided by setting up separate regulatory authorities for freight and passenger services, without scope for interference in each other’s pricing policies.

Dedicated freight corridors to avoid delays, fixed time-tables for freight trains and introduction of road-railers which can travel both on road and rail tracks, with a capacity to load/unload 40 trucks per hour.

Problem: Lack of adequate infrastructure, leading to

Low average speed of trains; late running of trains

Severe congestion


The focus has always been on introducing new trains but not on development of existing infrastructure. This is due to high spending on operating expenses, leaving very little for capital expenditure. Capital expenditure on railways has to be increased by 3.5 times the present amount during 2015-19, which would result in a 20 per cent increase in GDP and a 10 per cent reduction in logistics costs. This can be achieved by forming joint ventures with States and obtaining funding from external sources.

Problem: Safety issues

Unmanned Crossings (11,563 out of total 30,348), causing 67 per cent of deaths

Theft and other crimes such as eve-teasing, bullying and harassing of passengers

Frequent accidents

Lack of smoke detectors and fire-alarms


Since safety is of utmost importance, safety surcharge has to be levied on passenger fares

Based on the train vehicle unit (Number of trains * Number of Vehicles), for TVU more than 50,000, the crossing must be replaced with a road under bridge (RUB) or a road over bridge (ROB). For TVU of less than 50,000 close the over-bridge and divert traffic to a nearby crossing. The expenses for construction of ROBs/RUBs have to be borne by the States. If the TVU exceeds 1,00,000, the Railways has to share 50 per cent of the expenses.

24X7 CCTV monitoring in railway stations and at both the doors of the train, covering entire coach, and deployment of security personnel in each coach.

Implement technologies like Positive Train Control, which helps identify the relative locations of trains with respect to other trains, to avoid collisions.

Problem: Hygiene and Convenience


Apart from the measures already suggested, the following improvements can be implemented:

In many short-distance routes, slow sleeper trains have less occupancy because of low speeds, these trains can be replaced with faster sitting trains which have more occupancy

Maintenance of toilets and railway stations, as well as food catering, can all be outsourced to private players for better quality and more professional approach to maintaining infrastructure

Other issues

~ The Railways’ accounting system does not adhere to generally accepted accounting principles; it has to be standardised

~ Low employee productivity. About 30 per cent of surplus workforce is contributing to the public sector transporter’s higher operating costs

~ Departmentalism: Decisions are being based on departmental goals instead of overall organisational benefits


The Railway Budget 2016-17 addresses most of these problems through the three-pillar model — Nav Arjan, Nav Manak and Nav Sanrachna. But it will take time for the results of these efforts to become visible.

(The winners are first-year PGPM students at IIM-Indore.)