17 Apr 2016 16:10 IST

Expert Analysis

On track to becoming leaner and meaner

Looking at the Railways from the supply side, demand side and supporting ecosystem

The case on Indian Railways typifies the dilemma of many a state-run enterprise. Started with the noble agenda of providing an impetus to the economic growth of a nascent economy post-Independence many institutions now face a crisis of existence. The situation continues to plague many organisations run on governmental support.

The story of the Indian Railways is no different. One of the largest employers in the world, the IR manages not only passenger trains but a variety of other services such as schools and hospitals. It is integrated vertically, which makes running the value chain a major challenge. Managing 23 million passengers and about 3 million tonnes of freight every day is no mean task. Given the information in the case it will be easier to analyse the situation from three perspectives — the supply side, the demand side and the supporting ecosystem.

Supply Side

On the supply side, freight management can be a big game-changer for IR. It requires application of technology that enables the smallest customer to book parcels or goods as per his choice. A computer-based interface on the lines of the IRCTC website will reduce offline hassles, curb corruption and simplify the process. Dedicated freight trains with assured deliveries can help attract ecommerce companies and smaller organisations. For larger industries like steel and fertilisers, a lower turnaround time will help cut down on wastage and costs rising out of delayed deliveries. Parcel tracking technology is not very expensive and, with very low investments, customer services can improve perceptibly.

Improved facilities in coaches, such as the universal availability of Wi-Fi, wider berths, assured security, charging terminals that work, timely arrivals and departures, and clean and hygienic coaches and railway stations will undoubtedly make travel a pleasure. The Railways can tie up with cab aggregators, hotels and tourism corporations, with support from State governments, to provide end-to-end solutions.

This will need investments in managing data analytics to monitor passenger travel and expenditure on rail services. To succeed, IR must leverage the tons of data generated every day through customer transactions. Travellers’ needs can be better assessed and analysed using scientific tools and techniques that are now easily available. This initiative will need trained manpower and infrastructure at very low investments.

Investments, revenue

Investments in replacing aging tracks, signalling systems and rail coaches, and in creating safe road crossings will go a long way in reducing accidents and make for more efficient running of trains. The highly publicised bullet train project is very expensive and time-consuming and is better run as a special project without hindering the regular operations. This project, we hear, costs about ₹120 crore per km of railroad while the conventional model needs just ₹8-10 crore. Funding from LIC and the Japanese government is a welcome relief but the operating expense ratio has to go down from the current 93 per cent if the IR has to be leaner. Wasteful expenditure needs curbing. Performance rewards have to be linked to output and should not be automatic.

During holidays, festivals and social occasions, passenger traffic peaks, and most trains carry passengers beyond their capacity. During such occasions, ticket costs can be based on a surge pricing model adopted by taxi aggregators but, in non-peak months, prices should go down to attract passengers. Over time, travellers will appreciate such a move.

Reports indicate availability of unsold tatkal tickets because a high proportion (about 30 per cent, in certain cases) of the total seats are blocked to enable tatkal bookings. This leads to high uncertainty for waitlisted passengers till the last hour and, many times, they switch preferences. People prefer to travel by cheaper modes if substitutes are available and ticket reservation is not a cumbersome process.

If the government can be an enabler to the aviation industry (motivating private party investments to enter the passenger airline industry, calling private participation in building airports and related infrastructure) based on the PPP model we believe the Railways too can benefit from private and FD investments. This calls for speedier clearances and greater transparency. Private participation areas may include railway station maintenance, new rakes, setting up restaurants and vending machines, and expanding meal options, to name a few.

Demand side

From the demand side, it is observed that the share of passenger revenue has grown very marginally from 25 per cent to 26 per cent while freight has gone down from 69 per cent to 67 per cent, although total traffic earnings has gone up by 13 per cent. Given its near monopoly in passenger services, the Railways can do well by connecting to the traveller more meaningfully through tested CRM practices. The perception that rail travel is troublesome, tiring and boring has to be removed. Travellers want to be sure of arrivals and departures. Apparently, the bottlenecks that delay trains have to be addressed on a war footing.

The success of Indigo Airways in India is largely due to its commitment of on-time arrivals and departures. Customer education is another area the IR should focus on. Heavier fines for ticketless travel, open defecation and littering in bogies can be immediate priorities, monitored at a very low cost by private agencies. Rail station maintenance is already with private agencies and the results are encouraging. Crowds of non-travelling public in railway stations can be discouraged through costlier platform tickets, much like what the airports charge. Rewarding frequent travellers could be another way to attract a higher number of passengers and augment revenue.

Supporting ecosystem

The demand-side and supply-side initiatives will thrive only when there is an enabling ecosystem. It is heartening to note the budgetary allocation for the opening up of a University in Gujarat for Railways. Strong technology infrastructure is the need of the hour. Companies like Microsoft, Google and Cisco will be more than happy to lend their support to create the technology infrastructure. Their services should be paid for at a negotiated discount. This way, accountability is assured.

An agency for monitoring of services and passenger / client feedback needs to be created, much on the lines of an ombudsman. Its officials must be approachable and available at major junctions / zones. Mobile apps should be created to connect passengers to the Ombudsman and the officials concerned made accountable for their decisions. Local passenger associations need to be encouraged and their feedback respected and publicised. The antiquated IVRS system needs to be replaced with a more active mobile application.

Better connectivity

Last-mile connectivity for freight customers needs to be established. Customers today have to necessarily make their own arrangements to collect their freight from respective parcel offices; this is avoidable if the necessary linkages are provided. The IR would do well to tie-up with a logistics organisation such as GATI. Information about such alliances must be shared with the general public and customers.

If the IR is to become leaner and meaner, this would require doing away with populist announcements of projects that will never see the light of day. This year’s Rail Budget is a positive beginning. People cost being a major expenditure, IR would do well to have a look at their recruitment strategy in non-core and non-technical areas. This will bring down the manpower cost burden. Regular training in customer-centric service should be imparted to customer executives and officials.

The IR is not a poor organisation. It is highly resourceful and capable and some of the best human resources work for this public sector transporter. Some intelligent running of the organisation is needed to increase revenues and reduce costs. Modern management approaches, younger frontline managers and a responsive culture are all crucial. If China could more than double its track coverage, having started much later than India, and can run trains at much higher speeds why can’t the Indian Railways? Collectively this is a national challenge, and all of us working together can help bring about a change for the better.

(The expert analysis was done by KS Venu Gopal Rao, Professor & Coordinator, Marketing & Strategy, IBS Hyderabad. Achyut Telang assisted in evaluation of the entries.)