Lalu ji ki Chuk Chuk Gaadi

Lalu Yadav's new innings as the Railway Minister has seen a complete transformation of his image as well as the image of Indian Railways. The Indian Express carried out study on this (http://www.indianexpress.com/story/9023.html) and found the turnaround to be real, beyond-mere-restructuring and has indeed been led by Lalu. No wonder students from IIM-A, Harvard and Wharton listen when he speaks. But for a man who was at the helm of Bihar for 15 years and still could not provide basic governance and maintain law and order there, the question becomes too obvious - what has he done?

Not long ago, in 2001, Indian Railways was declared to be 'heading towards bankruptcy' by the Expert Group on Indian Railways(the Rakesh Mohan Committee). And today, it stands as the second largest profit making Public Sector Undertaking after ONGC. The Railway's balance crossed Rs.12,000 crores in 2005-06, (from Rs.149 crores in 1990-2000) and the total investments being planned for the eight-year time frame (2007-2015) is tentatively in the order of Rs.350,000 crores. This turnaround in two years has coincided with Lalu Prasad Yadav being at the helm of affairs. As a recognition of this ‘turnaround,’ some of the world’s biggest asset managers, investment bankers and consultants including Goldman Sachs, Deutsche Bank, HSBC, Mckinsey etc have shown interest in working with Indian Railways. The essence of the ‘turnaround’ was in the fact that
(i) total revenues increased by a significant percentage in the last two years and
(ii) the net revenues continued a robust upward move.

Without getting into figures, almost all segments have shown growth - goods, passenger, parcel, catering, advertising - everything.

The brightest segment is of goods - a combination of increased loading (as for coal, cement) and increasing rate by change of classification of raw material (as iron ore) has done the trick here. It is important to note that while the public perception had been that there was no tariff increase, iron ore etc. had been subject to tariff increases by revision of classification. Taking the case of iron ore for exports, a maximum of Rs 277 crores (current yield multiplied by the increase in traffic) out of the increase of Rs 733 crores was attributable to the increase in loading. Some of the extra income may be attributed to
(i) busy route surcharges, (ii) busy season surcharges and (iii) priority allotment of rakes for willingness to pay at two classes higher. A whole host of schemes have been put in place to attract the freight customer, since July 2005. These include mini rakes for the small customer, volume discounts for the large customer, lean season discount scheme, long term freight incentive scheme, loyalty discount scheme, discounts for providing traffic in the empty direction, incentives at terminals like engine on load and construction of sidings, wagon investment scheme etc.

In the passenger segment, a reduction of one rupee was offered in the second class ordinary fare, 10% in AC-II and 18% in AC-I. However, there has been increase in cancellation charges, more trains being made superfast with a reduction in time and thus imposing a superfast charge, booking tickets from an origin different from the place of reservation, separation of tickets if a through a journey involved more than one train or a break of journey – thus not offering the telescopic benefits (the last charge has since been withdrawn).
The tatkal scheme, targeted at the ‘last minute’ passenger was extended first from one day to three days and then to five days. This offered a window of opportunity to increase earnings through differential pricing, based on the time of booking. Outsourcing in catering through the IRCTC was a major initiative, which received increased attention during the past two years.

Underlying all this was the strategy of increasing asset utilisation.
More significantly, in the past two years, the approach to freight tariffs has recognised the market scenario and price elasticity of demand where in
(i) Railway has a competitive advantage in the generally ‘low rated’ bulk raw materials and can afford higher rates and (ii) it faces tough competition in the generally ‘high rated’ finished goods and cannot afford higher rates.

On the tariff strategy, it is important that the stance that tariffs have not been increased be underplayed, since tariffs have actually been increased, and significantly so in the case of iron ore, by reclassification. The Railway Board had taken a decision in early May 2004 to increase the chargeable carrying capacity (CC) to CC+2 for all commodities loaded in BOXN/BOXNHS wagons. As per section 72 of the Indian Railways’ Act 1989, the maximum CC for wagons had to be fixed by the Central Government and hence the approval of the Railway Ministry was required. Initially, there was resistance from the engineering department, fearing implications on track and bridges, and consequently on safety. A consistency of direction from the Ministry got the initiative going. Similarly, the initiative on providing automatic upgrades to passengers was initially resisted as a loss making proposition. Again, consistency of direction from the Ministry got the initiative going. All major policy initiatives require the Rail Minister’s approval. Hence the role of the Ministry vis-à-vis the Board became critical.

Initiatives of market oriented tariffs, asset utilization and competition in container movement are attributable to Mr Lalu Prasad. Non interference with Railway Board has done the trick for him. “Downsizing may make thinner, but not necessarily healthier” has been his answer to all those asking for downsizing Indian Railways - Regenerate competitiveness and leverage resources rather than restructure and downsize. He believed in instilling hope and excitement rather than fear and anxiety. The vital question is whether the strategies and processes are sustainable ? Only time will tell. Till then, its bravo Lalu and team !!