Turnaround Of Indian Railways

01.Introduction

“Lifeline to the Nation“
Indian Railways (reporting mark- IR) is an Indian state-owned enterprise, owned and
operated by the Government of India through the Ministry of Railways. It is one of the
world's largest railway networks comprising 115,000 km of track over a route of
65,000 km and 7,500 stations. It is the world's fourth-largest railway network after
those of the United States, China and Russia. The railways traverse the length and
breadth of the country and carry over 30 million passengers and 2.8 million tons of
freight daily. It is also The Country‘s largest employer with over 1.4 million
employees.
Indian Railways have also been the prime movers and have the distinction of being
one of the largest railway systems in the world under a single management.
As for rolling stock, IR holds over 239,281 Freight Wagons, 59,713 Passenger
Coaches and 9,549 Locomotives (43 steam, 5,197 diesel and 4,309 electric
locomotives). The trains have a 5 digit numbering system as the Indian Railways runs
about 14,450 trains daily. As of 31 March 2013, 23,541 km (36%) of the total 65,000
km route length was electrified.
Indian Railways also successfully completed 160 years of its services to the people of
India on the 16th of April, 2013. Indian Railways, which had a modest beginning in
1853, has since then been an integral part of the nation -- a network that has held
together a population of one billion.

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Turnaround of Indian Railways

02.Products Offered:
(A)

Passenger Services

Indian Railways transports 30 million passengers daily across India. Indian Railways
generates 30% of the revenue through passenger services. Sikkim and Meghalaya are
the only states not connected by rail. A standard passenger train consists of eighteen
coaches, but popular trains can have 26 coaches or even more. Most regular trains
have coaches connected through vestibules. Provision for purchasing tickets via online
mode (website of Indian Railway) and offline mode- purchasing tickets from the
ticket counter at each station is well set up. Reservation against cancellation
service is a provision for shared berth in case the travel ticket is not confirmed. All
current passenger service is provided using electric or diesel locomotives.
Several long trains are composed of two to three classes of travel, such as a 1st and
2nd classes which have different pricing systems for various amenities. The 1st Class
refers to coaches with separate cabins, coaches can or cannot be air-conditioned. 3-tier
non-AC coaches and 2nd class seating coaches, which are highly popular among
passengers going on shorter journeys. In air-conditioned sleeper classes, passengers
are provided with sheets, pillows and blankets. Meals and refreshments are provided,
to all the passengers of reserved classes, either through the on-board pantry service or
through special catering arrangements in trains without pantry car. Unreserved coach
passengers have options of purchasing from licensed vendors either on board or on the
platform of intermediate tops. The amenities depend on the popularity and length
of the route. Lavatories are communal and feature both the Indian style as well as
the Western style.

(B)

Freight Services

Indian Railways carries a huge variety of goods such as mineral ores, fertilizers, iron
& steel, petrochemicals, agricultural products, etc. 70% of revenue comes from freight
services. Freight is a profit making business segment of Indian Railways and is the
backbone of railway revenues. But, recently it is seen that the market share of Indian
Railways has been consistently shrinking and railways is losing out to road.
Achievement of projected freight targets largely depended on the manner in which the
Indian Railways reshaped its policies and strategies not only to regain the lost share in
freight traffic but also to provide value for money to customers in terms of better
facilities and improved services.
The recent growth in freight loading due to more intensive asset utilization and
adoption of market responsive strategies has brought into focus its long term

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sustainability. The average annual growth of 8.1 per cent in freight loading
corresponds to the average annual growth of 8-9 per cent in Gross Domestic Product
during the last five years, the incentive schemes at best contributed to retention of the
market share. The marketing strategy needs to be restructured for improving the
market share of Indian Railways.
(a) Financial Performance of Indian Railways: (Net Revenue:2004-2011)

**The amount presented in the graph is in crores rupees.
There was an increase in the net revenue including revenue from passenger as well as
freight from 2003-04 to 2007-08. From the low of 4000 cr of net revenue in FY 2004
to as high as 18000 cr in FY 2008.But, after 2008, in the FY 2009 and FY 2010 there
was a dip in the revenue collection to a low of Rs 4500 Crores in the FY 2010. The net
revenue of the Indian Railways had been decreasing with little improvement in 201011.

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03.Railway History
In the year 1846, there was a major failure of cotton crop in America. Following this,
textile merchants of Great Britain had to seek alternative markets. It was then that
traders in the UK turned their attention on the cotton crop in India, one of British
colonies then, rich in cotton crop.
However, cotton was produced in various parts of the Indian sub-continent and it took
days to bring it to the nearest port to transport it to England through ships, the only
major means of international communication then. The British then had to build a link
from the hinterland to India‘s major ports for quicker transport of cotton and other
goods as demand soared. This expedited matters for the British to introduce a railway
in India.
As early as 1843, Lord Dalhousie had proposed to link the three ports of Bombay,
Calcutta and Madras by a railway. In the same year he sent George T. Clarke, an
engineer, to Bombay to assess the possibility. A Couple of years later, a strong lobby
in Bombay, supporting railway communication formed a body called the Bombay
Great Eastern Railway. The Bombay Great Eastern Railway locally prepared plans for
constructing a railway line from Bombay to the Deccan. As the British already had a
concrete plan in their minds, things soon started taking a good shape.
The bill to incorporate India‘s first railway company, the Great Indian Peninsular
Railway Company [G.I.P.R], came up before the British Parliament twice-First in
March 1847 and then in 1849.
In March 1847, the East Indian Company, which then ruled India, opposed the bill on
certain clauses forcing it to be withdrawn. Matters dragged on till 1849 when Lord
Dalhousie, who had some experience in railway matters of England, took over as the
Governor-General of India. On August 1, 1849, the Act to incorporate the Great
Indian Peninsula Railway came into being.
The line in Bombay was ready by November 1852. However officially, the first train
in India (and in Asia) was flagged off on April 16, 1853, a Saturday, at 3:35 pm
between Boree Bunder (Mumbai) and Thane, a distance of 34 kilometers. The train,
hauled by three engines -- Sindh, Sahib and Sultan -- carried as many as 400
passengers in its 14 coaches on its debut run. The importance of this day can be
gauged from the fact the Bombay government declared the day as a public holiday.

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04.Independence and Indian Railways
(A)

Pre- Independence

By 1895, India had started manufacturing its own locomotives. In no time, different
kingdoms assembled their independent rail systems and the network extended to the
regions including Assam, Rajasthan and Andhra Pradesh. In 1901, a Railway Board
was formed though the administrative power was reserved for the Viceroy, Lord
Curzon. The Railway Board worked under the guidance of the Department of
Commerce and Industry. It was comprised of three members - a Chairman, a Railway
Manager and an Agent respectively.
For the very first time in its history, the Railways instigated to draw a neat profit. In
1907, most of the rail companies were came under the government control.
Subsequently, the first electric locomotive emerged in the next year. During the First
World War, the railways were exclusively used by the British. In view of the War, the
condition of railways became miserable. In 1920, the Government captured the
administration of the Railways and the linkage between the funding of the Railways
and other governmental revenues was detached.
With the Second World War, the railways got incapacitated since the trains were
diverted to the Middle East. On the occasion of India's Independence in 1947, the
maximum share of the railways went under the terrain of Pakistan. On the whole, 42
independent railway systems with thirty-two lines were merged in a single unit and
were acknowledged as Indian Railways.
(B)

Independence & Partition

The Partition of India changed everything the subcontinent forever including the
Railways. As per the line and map drawn up by Sir Cyril Radcliffe dividing India,
8070 km of line from the erstwhile Northern Frontier Railway went to the newly
created state of Pakistan and almost all of the Assam-Bengal Railway went to
Bangladesh. The partition cut through many railway lines and as a result the entire
North-Eastern part of India was cut off from the rest of the country as all lines
leading there passed through the new state of East Pakistan (Present day Bangladesh).
Personnel, equipment, assets, rolling stock and such had to be divided between the
two dominions, along with transportation of documents, files, personnel and other
railway related stuff. Despite the acute shortage of everything, the Railways
transported 4.7 million refugees in 1947-1948, something that was never heard of
before in history.

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Once the dust settled after the partition, the Railways lay in tatters along with the rest
of India. Most of the lines, locomotives and rolling stock were damaged or unusable,
much went missing and on the wrong side of the border. There was a severe shortage
of fuel and a lot many of the staff had either fled or were missing after the rioting. IR
had to start from scratch. They needed new locomotives, new lines, Assam and
Kashmir needed to be linked with the rest of the country and they had to overhaul the
entire network. But first, they needed a properly organized and centralized authority
for that, something that had never existed in India before. All those 52 (42 as per
some) companies had to be nationalized, integrated and merged and a central
authority had to be created which would run the Railways. Also, new stock had to be
procured, lines laid and replaced and coaches had to be made, modernized and
standardized. All this must have been a mammoth accounting task and bureaucratic
nightmare that took years to complete. But it did complete, and the Indian Railways
was born!
(C)

Post-Independence (upto 2001)

As the economy of India improved, almost all railway production units were
'indigenised' (produced in India). By 1985, steam locomotives were phased out in
favour of diesel and electric locomotives. The entire railway reservation system was
streamlined with computerization between 1987 and 1995. The existing rail networks
were forfeited for zones in 1951 and 6 zones were formed in 1952. With 1985, the
diesel and electric locomotives took the place of steam locomotives. In 1995, the
whole railway reservation system was rationalized with computerization.
Statistical Summary of Select Variables – IR (1950-51 through 2000-01)

Year

Freight
NTKM
No. of
(million)
employees

195051
196061
197071

6

37565
914
72333
1157
110696
1374
147652


Passenger

Employees

Earning
PKM
Earning
Expenditure
(Rs crore)
(million)
(Rs crore)
(Rs. Crore)
(thousands)

139.3
113.8
280.5
205.2
600.7
459.9
1550.9

66517
77665

98.2
131.6

118120

295.5

208558

827.5

198081
199091

1572
235785
1652
312371
1545

1316.7
8247.0
5166.3
23045.4
18841.4

295644
457022

3144.7
10483.2

200001

05.Bankruptcy Scenario
IR was considered to be heading towards bankruptcy, as per the report of Expert
Group on Indian Railways (also called the Rakesh Mohan Committee report),
submitted in July 2001 which studied the IR for nearly two years [NCAER, 2001] .
They 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.61000 crores. On a pure operating level, IR is in a term in terminal
debt trap.‖
World Bank said ‗Railways have no future in India unless they downsize, increase
passenger fares, divest and introduce a tariff regulator.‘
Indian railways had a market share of nearly 100% in 1947 which declined to 90% in
the by the year 1990 further by 2004 the market share of IR dwindled to less than 15%
in passenger business and to less than 35% in freight business.

Key Recommendations of The Indian Railways Report - 2001
1. If IR is to survive as an ongoing transportation, organization it has to modernize
and expand its capacity to serve the emerging needs of a growing economy. This will
require substantial investment on a regular basis for the foreseeable future.
2. IR will have to compete even harder with other modes in order to sustain its traffic
volumes, let alone accelerate growth. Thus a significant change is needed in IR‘s
strategy towards its freight services.
3. IR should take steps to recover its market share through a combination of tariff rebalancing and quality enhancement measures, and to increase its share of the
transportation of ―other commodities‖.

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4. The Committee has constructed three possible investment strategies for IR over
the next fifteen years. The first two scenarios, ―Low Growth ‖ and ―Medium Growth‖
are constructed in a ―Business as Usual‖ framework, whereas the third scenario,
―Strategic High Growth ‖ will require substantial focused remunerative investment
and corresponding organizational restructuring of IR internally and in its relationship
with government, including corporatization.
5. For IR to survive over the next 20 years and beyond, it has to adopt a ―strategic
perspective‖ where it rekindles high growth in both the passenger and freight
segments.
6.
IR will have to explore every avenue of cost reduction.
reductions to be implemented staff cost reduction will be crucial.

Among the cost

7. From the point of view of investment strategy, the most undesirable feature of the
annual budget exercise is the very short-term focus it imparts to all investment
initiatives. The priority for IR is to invest in debottlenecking points of congestion in
the network.
8. The Expert Group‘s focus on root causes has highlighted three priority areas:
institutional separation of roles; clear differentiation between social obligations and
performance imperatives; and the need to create a leadership team committed to and
capable of redefining the status quo.
9.
The current system has two flaws that the Expert Group believes must be
corrected: tenure and skills. A system which effectively rewards those on the basis of
seniority and age with a position on the Board for a few months prior to retirement is
not the mechanism to breed leaders. Skills in the leadership team need to be
broadened and deepened. IR urgently requires an injection of fresh ideas and fresh
skills to accelerate its development into a commercially savvy market oriented set of
businesses.
10. The Expert Group has carefully examined the experience of European and other
railways in their restructuring efforts. The focus should be on commercialization
rather than privatization. This involves re organizing the rail system into its
component parts, spinning off non-core activities, restructuring what remains along
business lines and adopting commercial accounting performance management
systems. IR‘s management needs to
be allowed a degree of autonomy that is
comparable to any other commercial organization.
11. IR must eventually be corporatized into the Indian Railways Corporation. The
Government of India should be in charge of setting policy direction. It would also

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need to set up an Indian Rail Regulatory Authority (IRRA), which would be necessary
to regulate IRC‘s activities as a monopoly supplier of rail services, particularly related
to tariff setting. The Indian Railways Corporation would
be governed
by a
reconstituted Indian Railways Executive Board (IREB).
[NCAER, 2001]

06.The Paradigm Shift
Government of India wanted a leader who comes front with the Problem of Indian
Railways- Face various challenges and take Indian railways out of the debt trap. At
the very time they elected Mr. Lalu Prasad Yadav as the Railway Minister.
On the 23rd of May, 2004 Mr. Lalu Prasad Yadav was made the Railway Minister
(MR) of Indian Railways.
Indian Railways is a function of the general buoyancy in the Indian economy and most
of the reforms were initiated by the former Railway Minister Mr. Nitish Kumar.
In Indian politics it‘s a rarity that the successor carries forward the initiatives of the
predecessor. But, Lalu Prasad Yadav carried on with the foundations laid by Nitish
Kumar. In fact, in his first railway budget, Lalu Prasad Yadav implicitly accepts that
the foundation for a turnaround has already been laid by Nitish Kumar. It goes to the
credit of Mr. Yadav that he not only continued those policies (though initiated by a
rival political party member) but importantly ensured that they produced results. This
demonstrates that the organization moved away from past malaise of politicization of
decision making processes and policies, to a more corporate minded commercial
focus.

The Style of the Present MR
The operationalization of the various strategies depended significantly on the
leadership style of Mr Lalu Prasad. It was a common sense based approach, showing
an astute understanding of the market reality, the asset base of the IR and the expertise
and capability of the IR‘s management and systems. Consequently, he followed this
up with the principles of leveraging the assets (―milk the cow fully‖ ) and
empowerment and delegation . With whatever has been achieved in the ‗turnaround,‘
Mr Lalu Prasad has demonstrated that good economics is good politics.

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Non Interference: Dealing with the RB
―Mr Lalu Prasad is a non-interfering, yet aware MR, who sets the goals and expects
results.‖ was stated by most of the ex-Members and people who had worked with Mr.
Lalu Prasad during that critical phase. ―This has given him a position of strength to
build organizational alignment to see through fundamental initiatives.‖
Mr. Lalu‘s employees are very with his approach towards work and his way of
working. The OSD and various others who were working with him, are thankful to
him because he gave them opportunity to come ahead and solve problems in their
Department.

Caring Attitude: Staff and Unions
Mr Lalu Prasad had a positive approach in dealing with the staff and unions. Given
the financial performance of the IR, the unions wanted a doubling of the contribution
to the staff welfare fund. He offered them more.
Whenever concerns were raised about downsizing of the IR, he came out with his
Hindi one liner which translated to, ―Downsizing may make IR thinner, but not
necessarily healthier.‖ On presenting the future, his pitch was, ―regenerate
competitiveness and leverage resources rather than restructure and downsize.‖ He
believed in instilling hope and excitement rather than fear and anxiety.

Image Building: Media
Given his penchant for wit and one-liners, Mr Lalu Prasad was sought after by the
media. Whenever there was an opportunity to highlight an initiative or an
achievement, advertisements were released. Exhibit 14 gives an example of two
advertisements of initiatives in the freight and passenger segments respectively.
Exhibits provides a comparative brief on ―Sizing up the Railway Ministers‖ [Indian
Express, April 2006]. In recognition of his initiatives, Mr Lalu Prasad has also been
ranked as the second best minister in the current cabinet [India Today, May 29, 2006]

Identifying Right People: Choice of OSD
In this tenure, in all the dealings of the MR with the IR, a nodal person has been the
OSD, Mr Sudhir Kumar. He was specially chosen by the MR for this position, based
on earlier interactions when Mr Sudhir Kumar held different positions in Bihar as an
IAS officer. He joined as the OSD on 1st September, 2004. It had been clarified
between him and the MR that his role would be to provide the link between the MR
and the RB to translate the MR‘s vision for IR into action.

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The first task that the OSD took upon himself was to understand the functioning of the
IR and what has been said about the IR in a studied manner. In his own words, ―I read
whatever reports on IR that I could lay my hands on, and there were plenty. I read
various correspondence to understand the decision making processes. I soon realized
that the IR had tremendous strengths in its systems that ensured robust decision
making.‖ This understanding that he developed gained him acceptance in the RB.
The OSD understood that the IR officers themselves were a source of ideas for
innovation that would be in line with the MR‘s thinking. He made it a point to be open
to ideas from within the IR, so that they could be examined by the concerned
functional departments and appropriate action finalized and implemented quickly.
Given his unique position, he could cut across the hierarchy of the IR.
Whenever initiatives were taken up, he was relentless in follow up. The initiatives
related to axle load increase, market oriented tariffs, reducing wagon turnaround,
innumerable freight incentive schemes, passenger profile management, upgradation of
passengers, zero based time tabling, leasing of parcel capacity, catering, are among the
many which have been followed up for execution. This is even more significant, given
that all this has happened through the existing systems and culture of the IR.
Table 1: Paradigm Shift-IR
Past Approach

Present Approach

Nothing can Change
IR is in the Business
Railways.(i.e. A monopoly)

Passion and Integrity to Change
of

Tariff focused

IR is in the business of
transportation.
A
highly
competitive market.
Unit-Cost focused

Restructuring and Rightsizing

Regeneration and Competitiveness

The Railway Minister had that passion to bring the Indian railways out of the debt
trap. He broke the shackles of the restrictive thinking that nothing can possibly change
the ill conditioned Indian Railways. With the new flow of thinking he led the
Railways, always from the front and he emerged as a great leader for the Railway
Board. He initiated the thinking that Indian Railways is in the business of
Transportation rather than the General monopolist thinking that IR was in the business
of Railways. By bringing in this change he brought himself and IR into a scenario of
Perfect competition from a Monopolist scenario.

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With bringing in such changes he also changed certain policies of Indian Railways
and also choose to continue the policies adopted by the Mr Nitish Kumar and brought
glory, in the way of profits to the Indian Railways.

07.Policy Changes
I - Strategic Changes
A)

Downsizing

Exhibit 15.The Number of employees which peaked at 1.65 million in the year 199091 was brought down to 1.47 million by the year 2003 and further these numbers fell
to 1.41 million by the end of 2006.
One of the elements of the Retrenchment strategy is to trim off excess staff. The
approach that Indian Railways adopted was of not filling vacancies created due to
retirement or any other reasons.

Outsourcing

B)

Besides the catering and parcel service activity, the Indian Railways also outsourced
advertising activity. In this area of parcel, catering and advertisements the strategy of
outsourcing through Public-Private Partnership and wholesaling rather than retailing
was adopted.
C)

Product Innovation

The Indian railways introduced ‗Double stack container trains‘ on some diesel routes.
These increased their carrying capacity of each trains to 2500 tonnes against 1500
tonnes and they also reduced line capacity constraint by nearly half.
This led to savings of about 7% on Capital cost and about 25% in the operating
expenses.
In the same way, newly designed wagons were of higher pay load but lower tare
weight which improved the safety feature of the wagons. The effect of these measured
can be seen in the higher freight revenue.(As Shown in Exhibit-18)

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Rise in Demand

D)

In the year 2004, Mr. Lalu Prasad decided to reduce Passenger fares by 45%. Indian
railway earns about 70% of the revenue from freight traffic (i.e. 686.2 billion against
304.6 billion from passenger). Hence it deliberately keeps passenger fares low and
cross subsidises the loss making passenger traffic with profit making freight traffic.
The rise in freight revenue -the main plank of the Indian Railway turnaround -was
facilitated by the increased domestic demand for coal (for electricity generation), for
cement (for construction) and pig iron (for steel plants) due to economic growth.
(Rise in freight revenue was as much as 500%)
There was also an increase in the iron ore for exports (mainly to the Chinese market).
In 2006, China bought more than 74 million tonnes, accounting for about 84 percent
of India‘s total iron ore exports. The IR used the favorable international demand
reflected in substantial increase in iron ore price by raising the freight on iron ore.
(Indian railway raised the freight on iron ore by 17%)
E)

Asset Utilization
a)

Enhancement of carrying capacity of wagons

The Indian railways introduced ‗Double stack container trains‘ where they increased
their carrying capacity from 1500 tonnes to 2500 tonnes. By doing this, they carried
double the quantities they used to carry earlier. This also reduced the per unit cost,
ultimately increasing profits for the Indian Railways.
(i) BOX-N increased from 60 tonnes to 70 tonnes
(ii) BCN increased from 58 tonnes to 63 tonnes Capacities
b)

Faster Recycling time

Faster here means Faster Recycling time or Faster Turnaround time of trains. IR
currently holds 4000 goods trains, if they turnaround these trains every 7 days they
have 570 trains/day. While, if they turnaround the same 4000 trains in every 5 days
they will have 800 trains/day.
For Faster Turnaround of trains the following things were very essential:
Full rake placements ,Round the clock working, Electrification of diesel sidings on
electrified routes, Amendment in Preferential Tariff Schedule (PTS),Faster train
examination. This faster turnaround time of trains accounts to 3 billion USD profit per
annum to IR.
c)

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Enhancing Passenger Volumes

IR was thinking to reduce per unit cost of its products so that the people at large could
gain benefits from the services that they offer. Earlier the Unit Cost of a Rajdhani
Express was about Rs.1200 and the carrying capacity of these trains was about 800
People. Later, in the same trains they accommodated about 2000 people which by
itself reduced the unit cost to around Rs.500
As more people could more people could afford the services offered by IR, more
people started demanding to travel through Indian Railways.

F) Dynamic Pricing
Earlier IR had a uniform pricing strategy for all – Lean season/Peak season,
Congested route/Light route. There was only one Price.
Now IR has placed in a new Dynamic Pricing Policy, in which, they give discounts of
30-40% during lean seasons and levy surcharge of 10-15% during the peak season. In
loaded direction they levy surcharges and in empty direction they give huge discounts
of up to 50%.
G) Length Expansion
IR introduced many new products like Garibrath express in which they made the
Trains longer. While other trains used to have 17 coaches, the new trains now have 24
coaches.
Other trains have a pantry car, a Luggage van, a Power van but these new trains had
no frills in them. These new products were Commercial Products designed to make
profits.

II – Developmental/ Infrastructure Changes
A) Electrification of routes
Electric traction reduces nation‘s dependence on largely imported diesel oil as it is
capable of using indigenously available alternative sources of energy, like coal of any
grade, hydel-power, surplus liquified petroleum gas, nuclear power etc. and provides a
pollution-free and energy efficient mode of transport.
Electrification was first introduced on IR in 1925 with 1500 Volts DC and
subsequently extended by installing 3000 Volts DC system. In 1957, IR introduced
electrification on single phase 25 KV AC system for all future schemes and thus

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selected main lines and high-density routes were taken up for energisation in a
planned manner. At present, out of the seven major trunk routes connecting Mumbai,
Kolkata, New Delhi and Chennai, five are fully electrified and work is in progress on
the other two routes viz. Kolkata-Chennai and Mumbai-Chennai. During 2004-05, 320
route kilometers were electrified. Over the years, progress of electrification on IR has
been as under:
Thus about 27.33% of the total route kms. on IR is electrified. Of the total 17,280
electrified route kms., 1,379 route kms. are on the suburban sections and the balance
15,901 on heavy density freight routes. During 2004-05, 47.5% of passenger train
kms. and 62.9% of the BG freight gross tonne kms, were operated on electric
traction.In the following 2 year of the X five year plan after 2004-05, total route
kilometeres electrified were 170 kms. and 361 kms. Respectivelyand it was also seen
in the Xth Plan period that 1,810 route kms had been electrified against the Plan target
of 1,800 route kms.
B) Meter gauge to Broad gauge conversion
Indian Railways currently has significant lengths of four different gauges: the 1,676
mm (5 ft 6 in) broad gauge, the 1,000 mm (3 ft 3 3⁄8 in) meter gauge, and two narrow
gauges 762 mm (2 ft 6 in) and 610 mm (2 ft).
Project Unigauge is an ongoing exercise by Indian Railways to standardize most of
the rail gauges in India to 1,676 mm (5 ft 6 in) broad gauge because it was observed
for a long time that towns and cities on the meter gauge (MG) and narrow gauge (NG)
lines had a poorer service than equivalent towns on the broad gauge system, the speed
of trains was slower and the freight traffic (ton per kilometer) on meter gauge tracks
was only a small fraction of the freight traffic on broad gauge tracks. It was decided
that conversion of meter and narrow gauge railway lines to broad gauge would make
Indian Railways more efficient, avoid the current break of gauges, increase the
freight-carrying capacity and shorten the routes with many re-gauged links. (Exhibit
21)
C)

Replacing diesel engines with Electric engines

One advantage of electrification is the lack of pollution from the locomotives.
Electrification results in higher performance, lower maintenance costs and lower
energy costs.
Power plants, even if they burn fossil fuels, are far cleaner than mobile sources such
as locomotive engines. The power can come from clean or renewable sources,
including geothermal power, hydroelectric power, nuclear power, solar power and
wind turbines.
Electric locomotives are quiet compared to diesel locomotives since there is no engine
and exhaust noise and less mechanical noise. The lack of reciprocating parts means
electric locomotives are easier on the track, reducing track maintenance.

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D)

Doubling of Railway routes

Capacity improvement through doubling has been steady ( Figure B), in the range of
about 5 percent with the initial priority being on the Golden Quadrilateral and the
Diagonals. The Golden Quadrilateral is a route Connecting the four metro cities of
New Delhi, Mumbai, Chennai, and Kolkata . These routes generating most revenue
for Indian Railway have dedicated tracks to passenger & freight trains. In terms of
total route length which is 15% of network, they carry 65% of the Goods traffic and
55% of the passenger traffic.

E)

Accounting Practice

Only one accounting change for capitalization of capital repayment component of
lease charges payable to Indian Railways Finance Corporation was made with the
approval of Comptroller & Auditor General of India during 2005-06. Rs.1615 crores
of lease charges to IRFC towards Principle account for wagon procurement had been
shifted from Working expenses to Miscellaneous expenditure. As regards to the
Accounting of reimbursement of loss on Strategic Lines received from General
Revenues as reduction in working expenses, Audit has suggested to account for the
amount as sundry other earnings instead of reduction in working expenses as proposed
by Railways. The contention of Audit for accounting of interest earned on Railway
Fund Balances as Railway Revenues is that this would lead to accounting of interest
on fund balance as expenditure by both Ministry of Finance as well as Ministry of
Railways.

16


During 2006-07, following two accounting changes have been carried out in
consultation with Ministry of Finance, in accordance with the generally accepted
accounting practices and to reflect correct picture of financial status in the financial
statements of railways with due disclosure in the budget documents:
i) Accountable of reimbursement of loss on Strategic lines received from General
Revenues as reduction in working expenses of concerned Railways. Previously, this
amount was deducted from dividend payable by Indian Railways to General
Revenues.
ii) Accountable of interest earned on Railway Fund balances to Railway Revenues as
Miscellaneous Receipt. Previously, this amount was credited to fund balances directly
without routing through railway revenues. The matter is under reference with
Comptroller & Auditor General of India for their approval.
However, the accounting changes would increase the cash surplus by Rs. 2,183.47
crore in 2006-07, whereas these had no effect on the cash surplus of 2005-06. The
fund balances of Indian Railways available for investment remains unaffected.

III -Other Changes
1) Cluster ticket
Earlier, if you wanted to travel from Mumbai to Guwahati, you could buy a reserved
ticket on the ‗Gitanjali Express‘ that terminates at Howrah and a second ticket from
Howrah to Guwahati all at a cost of Rs.557. This was called a cluster ticket. Such
cluster tickets have now been discontinued. For the same journey, you now have to
buy a reserved ticket for Howrah at Rs.517 and then buy another ticket to travel
between Howrah and Guwahati at Rs.369. The total charges now add up to Rs.886 - a
full Rs.329 extra.

2) Cancellation charges
People purchase reservation tickets much in advance but for various reasons they fail
to turn up and decide to cancel such ticket. Sometimes people terminate their journey
midway for some unforeseen reasons. Obviously, they ask for refund on such unused
or partially used tickets. Railway has got a set of rules regarding refund.Railway
deducts either clerkage charge or cancellation charges on such tickets. The amount of
refund also is determined according to the time of cancellation.
Unused unreserved ticket when presented at the booking office within three hours of
purchase is refunded deducting a cancellation charge of Rs 10 per passenger not per
ticket. In reserved a different set of rules are applied.

17


If someone approaches the booking office more than 24 hours before the scheduled
departure of the train on which reservation is made refund is granted after granting a
specified amount as cancellation charge that varies according to the class of
reservation. The Cancellation charge happens to be in the following way. Rs. 70 for
Ac First class/ Executive class, Rs. 60 for ticket of 2nd Ac/ 3rd Ac/ First class/ Ac
Chair Car, Rs 40 for sleeper class and Rs 20 for Second class sitting tickets.
If a ticket is presented within 24 hours and upto four hours before the scheduled
departure of the train, a flat 25 per cent is deducted. When a train leaves a station and
a reserved ticket is presented for refund a flat 50 per cent is deducted and rest is
refunded.
Unused Rac or Waitlisted ticket is granted full refund is granted instantly. But there is
a time limit as per kilometers of such ticket which is as follow. 3 hours for ticket of
200 kilometres. 6 hours for ticket of 200 to 500 kilometres and 12 hours when a ticket
happens to be of more than 500 kilometres. After this period refund is granted when a
TDR (Ticket Deposit Receipt) is presented to the Head office of the issuing station of
such ticket.
Ticket issued on Credit Card or Electronic Ticket is refunded by the issuing authority
that is the IRCTC. IRCTC takes the ticket and verifies with the original ticket and
grants refund accordingly. Unused confirmed Tatkal ticket is not refunded when the
same is presented when it is not presented 24 hours before the scheduled departure of
a train. Unused wait listed Tatkal ticket is refunded usually

About 27% of all tickets sold are cancelled. So what Lalu Prasad did was simply
double the charges on all tickets cancelled. While the older charges for cancellation were
Rs 20 for second class and Rs.30 for AC class, the new charges are Rs.40 and Rs.60
respectively.

3) The ‘superfast’
Several trains have been upgraded to ‗super-fast‘ status by Mr.Lalu Prasad. For every
ticket you purchase for these trains you pay Rs.20 extra under the ‗super-fast‘ train
charge. Several of these trains have only 20 minutes to one hour shaved off their old
the running time. So these trains may have minor delays and end up reaching their
destination on the original arrival time anyway. Among the trains that have been given
super-fast status in Mumbai are Kurla - Bhubaneshwar, Kurla-Howrah Samratan
Express, CST-Manmad Panchvati Express, Bandra-Surat, Surat Flying Ranee,

18


Bandra-Bhavnagar and Mumbai Central-Bhuj. All these trains are heavily patronised
by the people of Mumbai.

4) The return ticket hidden charge
Say you buy a second class ticket from Mumbai to New Delhi on the Paschim
Express. You will pay Rs.421 for it. However, if you also book a return ticket (New
Delhi-Mumbai) you will pay Rs.431 for this ticket- Rs.10 extra. This is because an
enhanced reservation fee has been introduced as Passenger Reservation System
charges. Earlier, you paid the same amount for tickets booked from anywhere in
India. Now if you buy a ticket at a Mumbai counter for a journey originating from
New Delhi, you have to pay Rs.10 extra for second class tickets and Rs.15 extra for
AC tickets. This is unfair to the vast majority that buys return tickets to avoid standing
in a crowded queue a second time.

5) Chargeable distance
IR's fares are generally computed on the basis of the official distance between the end
points for a particular route. The fares for some routes, however, are different than the
fare expected based on looking up the fares for the actual route-km in a fare table.
These are lines with very sparse traffic, tourist lines or lines with other special
conditions. In such cases, there is a chargeable distance associated with the route,
which is the distance to be used when looking up fares in a fare table, regardless of the
actual route length.
For instance, the Neral-Matheran NG route is only about 21km long, however the
ticket fare for the journey is based on a chargeable distance of 126km (and in fact, the
distance markers along the way show the chargeable distances, not the physical
distance!). Other routes for which chargeable distances differ from the actual distance
are Kalka-Shimla, Pathankot - Joginder Nagar, Purna-Khandwa (MG, in the 1980s),
etc.
Konkan Railway also charges fares based on a chargeable distance being 40% higher
than the actual distance, a measure intended to recover some of the construction costs
for the lines. In some rare cases the chargeable distance is lower than the route length
-- for instance, at one time trains on the Grand Chord and the Main Line between
Howrah and Mughalsarai had tickets with the same chargeable distance (660km), even
though the Main Line route came to 757km.

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IV -Other proposed initiatives
Continuing and building on the strategies adopted, the focus for the future is on
capacity enhancement, reduction in unit cost , reducing transit times and having world
class terminals.

Freight
The MR, with inputs from the RB, has proposed various initiatives towards (i)
improving the wagon productivity (ii) improving the mobility of wagons (iii) running
of higher axle load trains (iv) improvements in asset liability and (v) infrastructure
development for reducing transit times.
Exhibit 9 provides a perspective on the freight traffic trends in IR. Over a thirty year
horizon, coal has become the most important commodity for IR. Other commodities
had reduced in significance, but have the potential for the future, especially due to
growth in container traffic and other customer oriented schemes. The wagon turn
around has been reducing consistently from a peak of 15.2 days in 1980-81 to just
over 6 days in 2005-06.

Passenger
A recent initiative has been providing automatic upgrades to passengers in case of
vacancy in a higher class, while there is a waiting list in a lower class and increasing
the number of superfast trains. The MR has suggested a range of initiatives focused on
(i) reducing passenger losses by increasing volumes by increasing the length and
occupancy of trains (ii) modifying train length and composition based on passenger
profile management (analysis of the passenger reservation system data to understand
class wise and season wise occupancy of trains) (iii) increasing average speeds of
trains (iv) providing affordable air-conditioned travel for the poor and (v) improved
design of coaches.
Related ‗touch and feel‘ initiatives at stations and on board trains focused on the
passenger would be stepped up, driven by the zonal GMs and executed through

20


IRCTC. Exhibit 10 provides a perspective on the passenger traffic trends in IR. In
terms of passenger earnings, the long term trend in earnings shows a growth in second
class mail/express and upper class and a reduction in second class ordinary. The trends
in number of passengers are similar. This reflects an increasing focus on the long
distance reserved passenger rather than the short distance unreserved passengers.
Between suburban and non-suburban, the originating passengers are more for
suburban, while it is the reverse in earnings.

Others
Parcel, catering and advertising are expected to witness more aggressive efforts. In his
budget speech in February 2006, he described the outcomes and process as, ―Present
capacity utilization in parcel is less than 25% which is causing a loss in the parcel
business. Certain measures were employed in parcel business in the current year
which has registered a growth of 30% in parcel earnings. Open tenders were invited
with reserve prices set at the initial rates and if inadequate response was obtained, the
prices were reduced to 50% in 2nd round and then to 25% in 3rd round.‖
Initiatives focused on the passenger being implemented by the IRCTC are (i)
improving the quality of the ticketing transaction, (ii) improving value added and
basic services at stations, (iii) passenger amenities on board trains, especially as an
integrated service, (iv)low cost hotels and (v) leveraging tourism business.

Investment
To support the above, appropriate investments are being considered. The focus has
been on low cost, short gestation and high return projects. Route based throughput
enhancement works are being aggressively pursued by relaxing any cap on resource
availability. The other thrust areas are gauge conversions to improve the BG network
flexibility, sidings and the dedicated freight corridor. Exhibit 3 provides a perspective
on the investment trends in IR.
These changes all together helped IR to come out of the debt trap and register itself
as an profit making asset to the Government of India.
____________________________________________________________________

21


08.Achievements
The total investment being planned for the eight year time frame (2007-2015) was
tentatively in the order of Rs 350,000 crores. This was a significant increase from the
planned Rs 60,000 crores (actual expected to cross Rs 80,000 crores) in the X Plan
period of 2002-07. This confidence was a result of what the Indian Railways (IR)
achieved, not only due to the rising trend of performance, but also due to the
significant growth in the past two years (2004-06) (Exhibit 1) The fund balances had
crossed Rs 12,000 crores. These two years coincided with Mr Lalu Prasad being at the
helm of affairs of the IR. Mr. Lalu Prasad, in his opening remarks of the budget
speech of 2006-07 on 24th February 2006 had said, ―Mr. Speaker Sir, I rise to present
the Budget Estimates 2006-07 for the Indian Railways at a point in time when, there
has seen a historical ‗turnaround‘ in the financial situation of the Indian Railways.‖
The fund balance at the end of 1999-00 had reached a low of Rs 149 crores,
improving to Rs 5228 crores by the end of 2003-04 and over Rs 12,000 crores by the
end of 2005-06. A 20 year perspective since 1987-88 gives a bird‘s eye view of the
performance of IR, in terms of total earnings, total working expenses, operating ratio
and net revenues (Exhibit 2). The operating ratio (ratio of total working expenses
(including depreciation and pension, but exclude dividend to GOI) to total earnings)
and net revenues (total earnings less total working expenses, adjusted with
miscellaneous transactions) had reached low levels of performance in 2000-01
(98.3%) and then had consistently improved till 2005-06 (83.7%).The figures were
however not strictly comparable. There had been a decrease in allocations to the
depreciation reserve fund during the late 1990s from over Rs 2000 crores to a low of
Rs 1155 crores in 1998-99. This was followed by a gradual increase until 2004-05 to
Rs 2700 crores. In 2005-06, the allocation jumped to Rs 3600 crores (Exhibit 3).
Further, there was a change in accounting practice in 2005-06 when Rs 1615 crores of
lease charges to IRFC towards the principal amount for wagon procurement had been
shifted from working expenses to miscellaneous expenditure. The operating ratio, for

22


the sake of comparability with earlier years, would be 86.6%. Exhibit 4 gives the key
statistics of IR as on 31st March, 2005.
As recognition to this ‗turnaround,‘ some of the world‘s biggest asset managers,
investment bankers and consultants including Goldman Sachs, Deutsche Bank, HSBC,
etc had shown interest in working with IR.

09.Turnaround Diagnosis
A) To diagnose the ‗turnaround,‘ the first question would be whether it really was
a turnaround.‘?
The total earnings in 2005-06 increased by Rs 7121 crores, a 15.0% growth with
Respect to 2004-05. The total earnings in 2004-05 increased by Rs 4465 crores, a
10.4% growth with respect to 2003-04. Similar figures for the earlier years since
2001-02 ranged between 4.5% and 8.5% with respect to the previous year.
The total working expenses plus the lease charges towards principal payments in
2005-06 increased by Rs 4431 crores, a 10.37% rise with respect to 2004-05. The total
working expenses in 2004-05 increased by Rs 3277 crores, a 8.3% rise with respect to
2003-04. Similar figures for the earlier years since 2001-02 ranged between 3.8% and
4.8% with respect to the previous year.
As a consequence of the total earnings and total working expenses, the net revenue
reached a record of Rs 8005 crores in 2005-06, following the Rs 5274 cr ores in 200405. This was a record increase of Rs 2731 crores, reflecting a 52% increase in the net
revenues.
Earlier, until 2004-05, there had been a steady climb from the low of Rs 1071 crores
in 2000-01. The internal generation of cash surplus including provision for
depreciation and Special Railway Safety Fund (SRSF) reached an historic level of
Rs.13,068 crores for 2005-06, following the Rs 7603 crores in 2004-05.
This justified the principles that ―freight business is a play on volumes,‖ and that
―passenger business is a play on volumes and quality‖ which were behind various
focused initiatives undertaken by the MR, and driven by the RB. Further, the
initiatives were pursued in a manner that results could be obtained as quickly as
possible, yet laying the foundation for continued performance improvements.
An interesting aspect was that the total earnings in 2005-06 had gone up by a record
Rs 3523 crores with respect to the budget estimates (BE) for the year. While this could

23


raise questions about the budgeting process, for the year 2005-06 it is more of a
consequence of initiatives that were put in place during the year, with results coming
in the same year.
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 trend.

10.Determinants of the Turnaround :
B) The next question would be The Determinants of the ' Turnaround ' .
The increase in total earnings of Rs 7121 crores could be attributed to:
(i)Goods earnings of Rs 5509 crores (17.9% increase on a base of Rs 30,778 crores),
(ii)Passenger earnings of Rs 1013 crores (7.2% increase on a base of Rs 14,113
crores) and
(iii) Other earnings including parcel, catering, advertising etc of Rs 599 crores (24.2%
increase on a base of Rs 2479 crores) in 2005-06, out of the total earnings, goods
constituted 67%, passenger constituted 28% and others 6%.

Goods Earnings:
The increase in goods earnings for 2005-06 over 2004-05 was Rs 5509 crores,
including miscellaneous earnings due to wharfage and demurrage. Excluding the
miscellaneous, the increase was Rs 5482 crores. Exhibit 5 provides an analysis of the
commodities through which the increased goods earnings were obtained.
Coal (Rs 1365 crores), other goods including raw material (iron ore, limestone and
dolomite) for other than major steel plants, and other stones, sugar, salt, non-bulk
goods and containers (Rs 1121 crores), iron ore for exports (Rs 733 crores), cement
(Rs 550crores), raw material for steel plants (Rs 475 crores), fertilizers (Rs. 449
crores) and pig iron and finished steel (Rs 373 crores) accounted for 92% of the
increase in earnings, in that order.
The increase in earnings from coal and other goods were largely due to the increased
loadings. The increase in earnings from iron ore for exports was both due to increase
in loading and increase in rates by change of classification. The increase in earnings
from cement was due to increase in loading. The increase in earnings from raw
material for steel plants was due to the increased loading and increase in rates by

24


change of classification. The increase in earnings from fertilizers was due to the
increased loading and higher lead. The increase in earnings from pig iron and finished
steel was primarily due to higher lead. Exhibit 6gives the change in freight
classification and rates since 2000-01.
A comparison of the loading figures between FY 2005 and FY 2006 shows that
increased loadings have been achieved in coal, other goods, raw material for steel
plants, and iron ore for exports. The percentage increase with respect to 2004-05 was
most significant for other goods (25%) followed by raw material for steel plants
(19%), cement (14%), and iron ore for exports (13%). The increase in coal was 8%.
The increased axle load would account for a maximum of 14%. The rest would be due
to increased rake availability as a consequence of improvements in wagon turnaround,
and reduced train examination.
A whole host of schemes have been put in place to attract the freight customer, since
July 2005 [MOR, 2006-b] . 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.

Passenger Earnings:
The passenger earnings in 2005-06 had gone up by Rs 1013 crores (7.2%) over 200405.
The possible reasons for the earnings in 2005- 06 being higher were due to initiatives
in running 24 coach trains , deploying additional coaches in well patronized trains
and even running of additional trains. These initiatives were made possible by
ensuring analysis of demand based on the passenger reservation system data and
requiring the field level officers to respond to it by additional supply where possible.
In the passenger segment, a reduction of one rupee was offered in the second class
ordinary fare, 10% in ACII and 18% in ACI. 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.
Emphasis has been laid on what has been called ‗touch and feel‘ initiatives to improve
the service quality for the passenger.

25


Consequent to the above initiatives, the growth in number of passengers has been
7.5% in 2005-06 over 2004-05 and 7.1% in 2004-05 over 2003-04. The growth in the
earlier three years had ranged between -2.4% to 5.4% (Exhibit 1).

Other Earnings:
The increase in other earnings of Rs 599 crores (24.2% over 2004-05) came through
parcel, catering, advertising, dividends from the public sector units under the ministry
etc (Exhibit 7).
The increase of 24.2% in 2005-06 over 2004-05 followed a similar growth of 24.7%
in 2004-05 over 2003-04.
In the earlier year‘s, the growth in this segment had been marginal this source of
revenue had not received as much focus as in the past two years A slew of initiatives
on these areas had been implemented over the past two years, m a king it attractive for
private parties to take advantage of the market opportunity that IR could offer.
Parcel
For the parcel business, even though the leasing concept had been in place earlier, the
implementation had been slow due to poor market response. In a correspondence to
the GMs in July 2005, the MR urged, ―The GMs should ensure that all tender notices
concerning parcel contracts are issued within 15 days and tenders are finalized within
2 months from the date of receipt of this letter.‖ The zones were empowered to fix up
leases if they could get a bid at 20% more than the previous year‘s earnings.
Catering
Catering was an essential service to IR passengers, both on the trains (mobile) and at
the stations (static). Outsourcing in catering through the IRCTC was a major initiative,
which received increased attention during the previous few years. Like parcel, in the
MR‘s correspondence to GMs, a sense of urgency was communicated focusing on the
need to quickly finalize the catering contracts within three months of issuing the
tender. Open competitive bidding, many times having to deal with pressures
(including court litigation) brought by incumbents, had been a strategy to unlock the
potential of this business activity. The political stature of Mr Lalu Prasad and his
ability to deal with such pressures had enabled the GMs and IRCTC to move forward.
Even then, at the end of the year, there were pending cases in courts.
Advertising
As stated by CCM, NR, ―easy processing of innovative ideas for advertising was put
in place.‖ This enabled zonal railways to be more proactive on this front. As an

26


example, the NR doubled its advertising income from the three major terminal
stations: Delhi, New Delhi and Hazrat Nizamuddin in two years. The increase in
earnings from advertising had been even more significant in the CR and WR,
leveraging the Mumbai area. The overall IR earnings had gone up from Rs 50.2 crores
in 2004-05 to Rs 78.1 crores in 2005-06.

11. Overall Strategy
The country‘s economy was growing faster than before, moving from the 4% to 6%
GDP growth rates (from 1996-97 until 2002-03 ) to the 8.5%, 7.5% and 8.4%
achieved in 2003-04, 2004-05 and 2005-06 respectively. This growth environment
offered an opportunity for IR and had a significant impact on the turnaround.
In the freight business, there was focus on higher volumes, on the premise that
marginal revenues were significantly higher than marginal costs (Exhibit 8). This was
done with the objective of lowering the unit costs, resulting in the record surplus.
The strategy for freight rates made a clean departure from the past by (i)Freezing
freight rate increases and (ii) rationalizing the commodity classification to benefit the
high value goods and charge more from the low rated commodities ( Exhibit 6).
The strategy of higher volumes was also carried through in the passenger business.
The concept of revenue management, wherein differential prices could be charged for
differential services like tatkal and superfast were leveraged.
In the other business areas of parcel, catering and advertising, the strategy of
outsourcing through public private partnership (PPP) and wholesaling rather than
retailing was adopted.
Underlying all this was mainly the strategy of Asset utilization which goes to the
credit of Lalu Prasad Yadav.

27


Exhibits 1-21

28


Exhibit 1: Performance of Indian Railway

29


Exhibit 2: Performance Review (1987-88 to 2006-07)
The trend of IR‘s total earnings and total working expenses are shown in Figure A and
Figure B. The good years were between 1993-94 to 1995- 96, after which the
expenses caught up with the revenues until 2000-01, when the net revenue shrunk to a
little over Rs 1000 crores. The situation started improving steadily to reach an actual
net revenue of just over Rs 8000 crores in 2005-06, for a total earnings of Rs 54,404
crores. Th is figure, collated after the financial year ended 2005-06, has been a
significant increased achievement over and above the budgeted and revised estimates
for the same year. The increase in net revenue is attributed significantly due to better
utilization of freight rolling stock. The budgeted estimate for the year 2006- 07, before
the actuals for 2005-06 were collated, is total earnings of nearly Rs 60,000 crores
with a surplus of about Rs 7500 crores. The actuals are expected to be at least 10%
higher on earnings and 50% higher on the net revenue.

30


Based on the ratio of total working expenses to total earnings, a parameter called the
operating ratio is assessed as a percentage. Figure C presents the operating ratio since
1987-88.
The operating ratio had reached a peak of 98.3 in 2000- 01, reflecting a relatively
poor performance. After that, it had reduced year on year till 91.0 in 2004-05. It
dropped sharply to 83.8 in 2005-06. (As stated above, this was both due to better
utilization of rolling stock and changes in accounting practice.)
The IR was targeting an improvement in the operating ratio of 77% for 2006- 07. This
means that it aims to earn Re 1 by spending 77 paise in 2006-07, against 83.8 paise in
the last financial year [Business Line, May 6, 2006]. Which in the Same year was
achieved, and in the next year i.e,2007-08 they managed to further reduce it to 74.9%
which was appreciable .

The net revenue receipts are then appropriated for dividends payable to the
government of India and into various capital funds. Figure D gives the dividends p aid
out of the net revenues including when the pay ment was due to deferred dividends.
As can be seen, the deferred dividend payments have happened in the ―good‖ years,
which have followed the ―bad‖ years when the IR would have sought deferment of the
dividend.
The deferred dividend liability from 1978-79 onwards aggregated to Rs 428.43 crore
by end of March, 1990. The amount was cleared by 1992-93. The dividend payable
in 2000-01 and 2001-02 worked out to be Rs 2,131 crore and 2,337 crore respectively,
out of which Rs 1823 crore and Rs 1000 crore respectively have been transferred to a
deferred dividend liability account.

31


32


Exhibit 3: Analysis of Past Investment Strategies
A review of the investment record of the past would be in order, not only to assess the
shortcomings in the existing planning process but also to identify the changes that are
required. There has been an effort on continuity of investment on three items, namely
on gauge conversion/doubling, asset replacements, new lines and rolling stock . The
focus no wis more on through put enhancement works, terminal infrastructure works,
user amenities, and information technology.

Gauge Conversion
While earlier, the policy of gauge conversion had been one of selectivity on high
density ―bridging ‖ routes, in the early 90s, the IR launched the project ―unigauge‖, in
an attempt to standardize in most of the networks. The gauge conversion project,
which peaked between 1992- 93 to 1998 -99 ( F igure A ), had a severe impact on
track renewals and to an extent on safety. Both these had a consequent impact on the
finances of IR, with the operating ratio peaking to 98.3 in 2000-01. With the safety
related investments on IR and a better balance on gauge conversion, the IR
recovered fr om 2002-03 onwards.

Doubling
Capacity improvement through doubling has been steady ( Figure B), in the range of
about 5 percent with the initial priority being on the Golden Quadrilateral and the
Diagonals.

33


Track Renewal
The average spends on track replacements has been 16 percent to 23 percent of the
Plan Outlay over a period of 20 years. Despite this, resource constraint has had a
pronounced impact as, unlike rolling stock , the leasing route is not followed and the
funding is only through DRF. Priority accorded to other investments, also funded from
revenue surplus (i.e, gauge conversions funded from Railway Capital Fund ) is one
reason . Figure C gives the appropriation to DRF.

Another reason is IR not adhering to a systematic method of accounting for
depreciation and the allocations to DRF tend to be adhoc. A third reason is premature
renewal of assets, needing extra money. And lastly, as appropriation made to DRF
reflects on the operating ratio and the size of net surplus, there is a perverse incentive
in the financial structure now to under provide for replacements. This has been

34


corrected for the last three years and the provision for DRF has steadily gone up from
Rs 2692 crores in 2003-04 , Rs 3704 crores in 2005-06 and BE of Rs 4407 crores for
2006-07.
The net result has been a build up of arrears that are now being liquidated through
SRSF. One outcome of setting up of this Fund has been decrease in IR‘s allocation
to/spend from DRF, leading to apprehensions of a future re -occurrence of the
problem. Figure D gives the trend of track renewals. This shows a clear reduction
during the 90s, consequent built of arrears attempt to liqu idate the same after 2001 02 .

Rolling Stock
The emphasis has been on both replacements and additions. Investments have
averaged about 40 percent of the Plan Outlay, over the period of past 20 years. In fact,
the expenditure has had a steady relationship with earnings, the average coming to
around 15 percent. This has been made possible by the IR adopting a combination of
measures, such as using DRF and Budgetary Support, leasing via IRFC and
deploying various schemes such as Own Your Wagon. Yet another reason to ensure
this ‗investment stability‘ has been to ensure work load to manufacturing units.
Despite this emphasis, IR was hampered by shor tage of rolling stock , contributing to
a decline in the share of the transport output.

35


36


Exhibit 5: Commodity-wise Analysis

37


Exhibit 6 : Change in Frieght class and rates

38


39


Exhibit 7: Other Source of Earnings
Parcel:
A passenger train has 16 tons of capacity for carrying parcel. The IR has an annual
parcel carrying capacity of around 35mt, of which the utilization in 2005-6 and 200607 was 5mt (14%). This generates revenue of about Rs 500 crore (Table A). The cost
of haulage and parcel office staff is Rs 1800 crore. Thus, the parcel segment i s
making a loss of Rs 1300 crore per annum

In the recent past, IR has taken several initiatives to improve the performance of the
parcel segment. Following is a study done by CRI SIL [CRISIL, 2005 ]:
1. Introduction of Millennium Parcel Express: Operation of express parcel trains,
termed as ‗Millennium Parcel Express‘. The scheme was introduced in March 2001
whereby a parcel train, consisting of a minimum of 10 parcel vans, was leased out to
private service providers by inviting bids through open tenders. To start with, two
such trains were introduced between Mumbai and Kolkatta/Delhi .These were ‗timetabled‘ trains with guaranteed lease earnings ranging between Rs.7 to 9 lakhs. The
scheme was later extended to six other pairs of stations. As a concept, this was not
new, a similar scheme had been tried in the past too. However, these parcel express
trains lost their popularity due to non-adherence of scheduled running time.
2. Introduction of refrigerated vans: In 2003-2004, IR introduced refrigerated vans
on popular long distance trains for perishable commodities. This Concept too has not
been a success.
3. Rationalization of the rate structure: With the objective of simplifying the booking
procedures and optimize capacity utilization, IR undertook the rationalization of the
rate structure. This exercise commenced in the Budget of 2003 -2004 and was carried
forward in the ‗next years‘ budget.
4. Additional leasing of parcel space: This scheme was introduced by IR from 01-042003, whereby additional leasing of parcel space in luggage vans of certain nominated
Mail and Express trains was allowed. IR has been leasing parcel space in the front
luggage vans of passenger trains since the early 1990 s and this was basically a further
enhancement of the scheme. Similarly, leasing of the vacant compartment of guard in

40


the front luggage vans to courier services, lowering of reserve price, permitting short
term lease of one year etc., were other initiatives introduced from 01 -04 -2003 .
5. Computerization of parcel traffic: Computerization of parcel traffic for improved
results has been initiated by IR. A pilot project, linking Howrah and Delhi area was
included in the budget of 2004 -2005.
The above initiatives have reduced the direct marketing and operations efforts for IR,
while increasing the revenues. The past year has witnessed continuous follow up from
the OSD. Innovations like leasing of parcel vans for a round trip have also yielded
results. The increased leasing of SLR space through bidding is expected to increase
the parcel revenues in the coming years.
While the figures for 2005-06 have yet to be consolidated , significant increase in
earnings is expected due to open competitive bidding, where in flexibility has been
given in 2006-07 to reduce the reserve price for leasing from 100% to 50% to 25%
for successive rounds of bidding, if required. During 2005-06, the reserve price for
leasing was set at the previous year‘s earnings plus 20%.

Catering:
IR has formulated a new catering policy in order to improve the standards of food
being served in the trains and in the stationary units to generate more revenue. Under
this policy, the catering contracts will now be given through an annual open tendering
system, under the ownership of IRCTC. Previously, catering contracts were based on
an application-based system. Often, an administrative extension would be granted to
the incumbent. The rates used were not commercially contested.
With the new policy, as an example, an annual catering contract for an important train
like Howrah-Kalka mail was awarded for Rs 83.6 lakhs, when earlier it fetched Rs 5
lakhs. After open competitive bidding, earnings have increased from Rs 13 crore to
over Rs 100 crore due to mobile catering. On stationary catering, due to the open
competitive bidding, as an example, the license fee at Bandra and Nagpur went up
from Rs 78,000 and Rs 32,000 to Rs 16 lakhs and Rs 34 lakhs respectively. The pace
of open bidding for stationary units has been slowed down since some of the
incumbents have gone to courts to contest IR‘s move
Table B gives key statistics, including earnings from catering. As is evident an
increasing share of private participation and the consequent earnings from license
fees.

41


Other initiatives through IRCTC are public-private partnerships for: (i) automatic
vending machines (ii) base kitchens (iii) launderettes for bed rolls etc (iv)combined
catering and hygiene on trains (v) food plazas and (vi) budget hotels. Efforts are on
to ensure national brands for food related products.
The potential earning from catering is assessed at over Rs 600 crore per annum,
given the annual passenger journeys of 5480 million, an average spend of Rs 10 per
journey on catering and license fees at 12%
Advertising

The various strategies on advertising currently being leveraged are: (i) wholesale
leasing rather than retail leasing (ii) leasing for a division as a whole (iii) open
competitive bidding and (iv) trains and wagons. This earning option is expected to
yield significantly higher returns in the future.

42


43


44


45


46


Exhibit 11: Sample of Superfast Trains having common Route and Timings
with Non-Superfast Trains

47


Exhibit 12: Organizational Structure

48


Exhibit 13 : Zonal Railways
(A)

49

Zonal Railways and their Divisions


(B)

50

Zonal Division of IR and their Headquaters:


Exhibit 14: Sample Advertisements

These Advertisements were in all the leading national Newspapers and Hoardings.

51


Exhibit 15 : Downsizing
The number of regular employees as on 31.3.2011 stood at 13,28,199.
The table below shows, the strength of railway employees under various groups,
together with total expenditure on them, for some selected years:

Management personnel (Groups A&B) constitute up 1.3% of the total strength, while
Group C and D account for 81.1% and 17.6% respectively. Of the employees in
Group C and D, 3.85 lakhs (29.3%) are workshop employees and artisans and 9.27
lakhs (70.66%) from other categories including running staff.
Railway Protection Force/RPSF personnel totaled 61,949.In the non-gazetted cadres,
the ratio of Group C to D changed from 25:75 in 1950-51 to 82:18 in 201011,indicating a shift towards induction of skilled manpower.

52


Exhibit 16: Railways-Facts

First Passenger Train Ran On

16th April 1853 (between Bombay to Thane)

First Railway Bridge

Dapoorie Viaduct on the Mumbai-Thane route

First Rail Tunnel

Parsik Tunnel

First Ghats Covered by the Rail lines

Thal and Bhore Ghats

First Underground Railway

Calcutta METRO

First Computerized Reservation System started in

New Delhi (1986)

First Electric Train ran on

3rd Feb' 1925 (between Bombay VT and Kurla)

Toilets on Trains were introduced in

1891 (1st Class) & 1907 (lower classes)

Shortest Station

Ib (Orissa)

Longest Station Name

Sri Venkatanarasimharajuvariapeta

Busiest Railway Station

Lucknow (64 trains everyday)

Longest Run for Daily Train

Kerala Express (3054 km in 42.5 hrs)

Longest Railway Platform in the World

Kharagpur (2,733 ft in length)

Indian Railway's Fastest Train

Bhopal-Shatabdi (speed of 140 Km/per h)

Train with Maximum Number of Halts

Howrah-Amritsar Express (115 halts)

Oldest Preserved Locomotive

Fairy Queen (1855), still in working order

Longest Railway Bridge

Nehru Setu on Sone River (10044ft in length)

53


Exhibit 17: Railway Network

54


Exhibit 18: Product Innovation : Double Stack Containers

Mundra Port operates double stack diesel trains on 1,676 mm (5 ft 6 in)gauge
using flatcars It is one of only 3 countries to commercially double stack 9 ft 6 in
(2,896 mm) tall containers on a train.
Because of the broad gauge used in India and Pakistan, trains can carry standard
shipping containers double-stacked on standard flatcars, which is more economical
than single containers, but standard gauge railways in North American and elsewhere
must use special double stack cars to lower the center of gravity and reduce
the loading gauge.

55


Indian Railways is able to carry containers double-stacked on standard flatcars at
100 km/h (62 mph). (Triple-stacked operation with lower, 6-foot-6-inch (1,981 mm)
containers, is planned).
Flatcars, in addition to being much less expensive than well cars, can carry more
containers in a given length of train. Experiments for double stacking under 25kV
overhead line have begun because of funds given by Japan.
Weights
Containers have weight limits designed to fit road trucks, which have clearly smaller
weight limits than trains. A common limit for railways is 8 tonnes (7.9 long tons;
8.8 short tons) per meter train length and 22.5 tonnes (22.1 long tons; 24.8 short tons)
per axle. A four axle container car can take 90 tonnes (99.2 short tons; 88.6 long tons).
Since a container is limited to 30.5 tonnes (33.6 short tons; 30.0 long tons) (plus a rail
car), single stacking clearly does not use the load capacity of the railway. A 20-foot
(6.1 m) container is limited to 24 tonnes (26.5 short tons; 23.6 long tons) and two such
can fit into a car for a 40-foot (12.2 m) container, or even three if double-stacking, but
not four unless very high axle load is permitted. The North American railways permit
two 53-foot (16.15 m) or four 20-foot (6.1 m) containers as shown in the images on
this page.
Another consideration is the maximum weight of a train. A maximum length train in
Europe, 750 m (2,461 ft) long can have 50 container cars with a total weight of 2,250
tonnes (2,480 short tons; 2,210 long tons), and more if 20 ft containers are included.
This is not so far from the limit using standard European couplers. Double-stacking
requires allowing higher train weight to be meaningful, since it is higher train weights
that saves costs. In the US, the AAR coupler used allows much higher train weight.

Sizes and Clearances
Double-stack cars come in a number of sizes, related to the standard sizes of the
containers they are designed to carry. Well lengths of 40 ft (12.19 m), 48 ft (14.63 m)
and 53 ft (16.15 m) are most common.[1] Heights range from 8 ft (2.44 m) to 9 ft 6 in
(2.9 m) ("high cube").
CSX lists three clearance heights above top of rail for double stack service:[2]
Doublestack 1 — 18 ft 2 in (5.54 m)
The last clearance offers the most flexibility, allowing two high cube containers to be
stacked

56


Exhibit 19: Indian Railways: Revenue Chart 2002-2011
The growth in India railway revenues has also been declining since its peak during the
fiscal year ending March 2007. Although India Railway revenues grew at 7.5% and
improved to INR 864.8 billion in 2010-2011 from INR 804.3 billion the previous year,
this growth rate was barely half of its peak growth of 15.1% in 2006-2007. The
sluggish growth rate in total railway revenues is attributable to slower growth in
revenues from goods transportation, accounting for about 70% of total railway
revenues. Although growth in passenger revenue – constituting 30% of total railway
revenues – increased by 9.8% in 2010-2011, compared to 7.1% in the previous year,
these growth rates were insufficient to compensate for the sharper decline in revenues
from goods transportation.

Source:CEIC

57


Exhibit 20:Railways & IT
(a) Websites & Online Bookings
While IR was among the earliest Indian organizations to bring in computers in the
early 70s , there was a lull for over a decade. In the mid 80s, the passenger
reservation system(PRS) made its appearance through development support from a
public sector software company. In July 1987, MOR established the Centre for
Railway Information systems (CRIS) to be an umbrella organization for all
computer activities on IR. After taking on the PRS, CRIS played the driving role in
the Freight Operations Information System (FOIS) , which really established only
in the recent few years. CRIS is engaged in the development and maintenance of
major computer systems on the IR . Apar t from the PRS and FOIS, the following
are some of the projects that are handle d by CRIS [IRRE, 2006 ]:
1National Train Enquiry System (NTES)
1. - Alpha Migration of the PRS
2. - PRS enquiry through ‗Internet,‘ front ended by IRCTC
3. - Booking of tickets on ‗ Internet,‘ f ront ended by IRCTC
4.
- Unreserved ticketing system (UTS )
(b) Mobile Applications
There are various applications available on iOS and Android (m-Indicator & Indian
Railways App). These applications help to track the ticket confirmation with the help of
PNR status given to the customer by the Railways. IRCTC has also come up with
environment free idea of saving Paper usage, a person booking tickets through Online can
just save a picture and keep it with him, instead of Printing the ticket. These various
application and ideas are really Customer friendly and customer centric.
(c) Mobile Ticketing (Reaching the Customer)
Steps for booking Railway Reserved Ticket on IRCTC website from a browser enabled
mobile Phone
(i) Login to URL https://www.irctc.co.in/mobile with your existing IRCTC user id and
password.
(ii) Click on Book Ticket and fill in details for plan my travel.
(iii) Use existing passenger list or add passengers
(iv) Confirm booking details and pay through Credit/debit card to get successful booking.
(v) To save paper they have come with SMS services, and all Railway centers approve
Mobile Tickets instead of Print outs.

58


Picture: IRCTC-Homepage

Source: IRCTC website

One can just log on to the Webpage and book the tickets personally, without any help from
an agent. This enables IRCTC to reach the customers directly.
You can also check the fares, alternate journey plans and various other things available on
the website.

59


Mobile Softwares: Indian Railways & m-indicator

In these mobile application you can check the availability of the tickets and also you can
Check the PNR status , the Railway Map, Ticket Fares, Times of Various trains etc.

(M-Indicator iOS Screenshot)

60


Exhibit 21 : Project Unigauge- Sprecification

Source : Wikipedia
It was observed for a long time that towns and cities on the meter gauge (MG) and
narrow gauge (NG) lines had a poorer service than equivalent towns on the broad
gauge system, the speed of trains was slower and the freight traffic (ton per kilometer)
on metre gauge tracks was only a small fraction of the freight traffic on broad gauge
tracks. It was decided that conversion of meter and narrow gauge railway lines to
broad gauge would make Indian Railways more efficient.
As of 2012, 107,500 km of track length (93% of entire track length of all the gauges)
and 58,300 km of route-kilometer (90% of entire route-kilometer of all the gauges)
was broad gauge; 6,000 km of track length (5% of entire track length of all the gauges)
and 5,210 km of route-kilometer (8% of entire route-kilometer of all the gauges) was
meter gauge and 1,500 route-kilometer (2% of entire route-kilometer of all the gauges)
was of the narrow gauges.
As a result of Project Uni-gauge, the share of broad gauge in the total route-kilometer
has been steadily rising, increasing from 47% (25,258 route-km) in 1951 to 89%
(58,300 route-km) in 2012 whereas the share of meter gauge has declined from 45%
(24,185 route-km) to 8% (5,210 route-km) in the same period. The share of narrow
gauges has decreased from 8% in 1951 to 2% (1,500 route-km) in 2012.
India has converted its meter gauge lines into broad gauge up to its border with Nepal.
Narrow gauge railway lines that extend for a short length from India into Nepal
(Raxaul-Amlekhagunj and Jayanagar-Janakpuur-Bijalpura) need conversion by Nepal
Railways to avoid trans-shipment.

61


Conclusion
Indian Railways from its inception until now, has evolved into a massive organization.
Indian Railway has seen a stagnant growth, but after the policy changes done by the
Ministry of Railways in the last decade, Indian Railways has seen an impressive boom.
This performance of Indian Railways has been recognized by Harvard University,
which led to a detailed study of the same.
The SWOT analysis of the Industry reveals the position of the Indian Railways with
respect to its internal and external environment.
Strength
1. Availability of abundant low cost land near country stations provides possibility for
development
2. Less damage of goods compared to other modes of transport
3. Better connectivity across the length and breadth of India
4. More carrying capacity of goods.
5. Largest commercial employer with almost 1.5 million staff.
6. It transports over six billion passengers and almost 750 million tons of freight
annually
7. Approx 120,000 km of tracks and nearly 8000 stations
Weakness
1. Passenger sector is loss making
2. Accidents and delays cause a dent to the image
3. Facilities not comparable to international standards still
Opportunity
1.It can capture large chunk of container traffic by introducing block container trains
operating at passenger speeds
2.It‘s 70% of revenue and most of its profits comes from freight sector and there is a
tremendous growth in emerging companies, hence has a great future for freight sector
3.Operating ratio has been decreasing drastically in last 10 years
Threats
1.Increase in allowable gross weight of road vehicles
2.Possible introduction of double road trailers
3.High accident rates

62


13. Bibliography
(A)
Videos:
Youtube:
www.youtube .com - Lalu at his best @ Rail Budget 08
OSD-Sudhir Mishra‘s and MR‘s (Lalu) Lecture at Lee Kuan yew School
of Public Policy.
https://www.youtube.com/watch?v=4wvoO5phs-8
(B) Websites:
IR Website:
http://www.indianrailways.gov.in
Indian railway fan clubhttp://www.irfca.org/faq/faq-hist.html
www.irfca.org/faq/faq-history4.html
http://www.irfca.org/faq/faq-name.html
Counterview of Turnaround:
http://www.creative.sulekha.com/turnaround-of-indian-railways-undermr-lalu-prasad-yadav-a-counterview_325027.blog
Indian Railways-Wikipedia:
http://www.en.wikipedia.org/wiki/indian_railways
India Data Talk:
http://blog.securities.com/2012/06/will-indian-railways-meet-its-visiom2020
Financial Performance of IR:
http://indiabudget.nic.in
IR-Largest employer in India:
www.rediff.com/worlds-17-biggest-employers
www.railwayrecruitment.co.in
FIMI (2006). ‗Indian Iron-ore,‘ Federation of Industrial Mineral
Industries:
http://www.fedmin.com
IRRE ( 2006) . Indian Railways Reservation Enquiry:
http://www.indianrail.gov.in
Project Uni-gauge:
http://en.wikipedia.org/wiki/Project_Unigauge

63


History of Indian Railways
http://en.wikipedia.org/wiki/History_of_rail_transport_in_India
Electrification of Routes:
http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_
econ/2004_05/YB_04_05/Electrification.pdf
Electrification:
http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_
econ/annual-rep-0607/electrification.pdf
Electric Locomotives:
Http://en.wikipedia.org/wiki/Electric_locomotive
Change in accounting policy :
http://pib.nic.in/newsite/erelease.aspx?relid=33060
Product innovation: Double stack Containers
http://en.wikipedia.org/wiki/Double-stack_rail_transport

Cancellation Charges :
http://ekikrat.in/Ticket-Cancellation-and-Refund-Rules-Indian-Railways
http://www.irfca.org/faq/faq-jargon.html
Top Railway Network across the globe –
http://en.wikipedia.org/wiki/List_of_countries_by_rail_transport_networ
k_size
Wikipedia -‗Indian Railways: Railway Zones:
http://en .wikipedia.org
(C) Reports:
Whitepaper submitted to parliament (soft copy)
Vision 2020_Indian Railways
Strategic Changes: Turnaround
Semester 3_Strategic Management Book_Mumbai University
Statistical Summary on Page 11 :
Indian Railways-Annual report and accounts.Ministry of
Railways,Government of India, Various Issues

64


Information of Other Changes
Mumbai Mirror April 20,2006
Key strategies to IR:
NCAER(National Council of applied economic research),2001
Status of Electrification:
Rail business report, 1999
Study of the turnaround by OSD, Sudhir Kumar
(D)
Images:
m-indicator:
Screenshot from iOS application
IRCTC-Homepage
www.irctc.com
Double Stack Containers:
http://en.wikipedia.org/wiki/File:DTTX_724681_20050529_IL_Rochelle.jpg

Sample Advertisements:
https://www.google.cm/search?q=advertisement+in+indian+railways&tb
m=isch&tbo=u&source=univ&sa=X&ei=rN1gUqe_M8nriAf7hoGQDA
&sqi=2&ved=0CDwQsAQ&biw=1024&bih=67
Indian Railways Logo:
http://agnesbpl.com/images/rail.jpg
Double stack-Rail transport:
http://en.wikipedia.org/wiki/Double-stack_rail_transport

--THE END-65


Turnaround Of Indian Railways

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