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  • From the Desk of Executive Editor 1

    In conversation

    Interview with Dr. John R. MoonTeam Abhivyakti 2

    Articles(i) Whither Indian Railways ?

    Performance and Possibilities vis-a-vis the Chinese RailwaysRavindra Kumar Tandon 9

    (ii) Strategic Interventions for Controlling Agency Costin Public Commercial Enterprises : The Case of Indian RailwaysDr. R. C. Rai 17

    (iii) Operations on Major Divisions :Selected statistics and some observationsUppuluri Krishna Murty 26

    (iv) Dynamic Effects of Wheel Flats- Manjul Mathur 36

    (v) gyMZm H$m A{YH$ma : EH$ Ñ{ï>H$moUAmZÝX {dO` 41

    Project Report

    (i) Compressed natural Gas (CNG) : An Alternatefuel for Railway TractionGopal K. GuptaH. N. JaiswalNaresh K. DewaniHarish GuptaNavneet Kaushik 44




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    Book ReviewConfidenceRosabeth Moss Kanter 61

    Youth Forum

    [email protected] Pateriya 64

    Gavaksha 67


    (i) AmO Vmo Amo gKZ KZ Vw_ Iy~ ~agoHo$. Eb. nmÊS>o` 67

    (ii) gVH©$Vm gámhadrÝÐHw$_ma 69

    (iii) öX`mKmVS>m. àH$me _rZm 73

  • Editorial Board

    ChairpersonSmt. Shobhna Jain : DG

    Vice ChairmanPramod Uniyal : Dy.DG

    Executive EditorK. L. Dixit : SPTM

    MembersRavinder Kumar : SPOBA. Vijayvargiya : SPSTA. K. Shukla : PAMDr. Sanjeevan Kapshe : PMS

    "Abhivyakti"is published quarterly by Railway Staff College. AllEditorial correspondence and articles should be addressed to theExecutive Editor, Abhivyakti, Railway Staff College, Lal Baug,Vadodara - 390 004 (India)

    E-mail : [email protected] Site : http://www.rscbrc.ac.inPhone - BSNL : 0265-2651975 (Off.)

    0265-2653488 (Resi.)Phone - Rly. : 091-45004 (Off.) / 091-45005 (Resi.)

    Fax : 0265 - 2638607 (Office)

    Views expressed in the articles are those of therespective authors. Neither Abhivyakti norRailways can accept any responsibility for nordo they agree with the views expressed in thearticles. Every effort is made to acknowledgesource material relied upon or referred to butAbhivyakti does not accept any responsibility forany inadvertent omission.

    Printed by M/s. Javanika Printers,3, Laxmi Estate, Bahucharaji Road,Karelibaug, Vadodara-390 018

    aFrom the desk ofExecutive Editor..We feel sorry at the outset for not having been ableto bring out the issue in time.

    In this issue we carry a very special interview withDr. John R. Moon Chief of Transport Policy &Tourism section in UNESCAP, an agency whichhas been strenuously furthering the cause of a DreamProject for us, the railwaymen, that of "Trans AsianRailway Network". Talking to him on this andvarious other issues gives one an impression thatthis dream project may turn into a reality soonerthan expected.

    Talking of Asian Context, a comparison betweentwo Asian giants India & China is natural, thatof their railway systems equally so. Shri R K TandonEDTT(F) Railway Board gives an overview ofboth these railway systems in his article, while Dr.R. C. Rai, a faculty in Railway Staff Collegealso touches upon the subject in his article.

    Another development of momentous significance fornot only IR but entire governmental machinery hasbeen passage of Right to Information Act. It isrightly being seen as the ultimate weapon in thehands of people at large. Views on this are includedin the article by Shri Anand Vijay Professor (LawManagement), it also finds a topical mention inthe article by Dr. R. C. Rai.

    Besides above other standing columns and projectreports etc. find their place as usual. We are alsoreintroducing the picture gallery "Gavaksha".

    We are sure we shall get encouraging responsesfrom all of you, our readers, who are our realsource of inspiration.

    -Executive Editor


  • In Conversation

    Dr. John R. Moon


    T eam Abhivyakti : Welcome to Rai lway Sta f fCollege…..Dr.John R Moon: Thank you very much. It is apleasure to be here at the Railway Staff College. Thisis the first time I have been here. I am very impressedwith the surroundings and with faculty members that Ihave met so far. I am really happy the way the courseis being organized for the benefit of the members ofBIMSTEC (Bay of Bengal Initiative for Multi-SectoralTechnical and Economic Cooperation) and the Mekong-Ganga cooperation countries.

    TA: While going through your curriculum vitae, we noticed thatyou were born in Australia but you are a Britisher….

    JRM: I do not want to give away my age (laughs), soI will answer the question by saying that I have spentapproximately, very approximately one third of my lifein Australia, one third in Europe and the UK and onethird in Thailand. I was born in Australia and did myPrimary and Secondary Education there followed bytraining as a Merchant Navy Officer. After that I decidedto go across to UK to do a Bachelor’s degree. At thatpoint of time there was a promising future in the MerchantNavy. When I started off, it was quite an interestingprofession to be in, particularly working on general cargoships – problems to solve and places to visit. However,with the advent of the container and the bulk cargo ships,while in port, one would just watch containers going on-and-off ships and bulk cargo being loaded onto the shipwith very large, long conveyor belts and being unloadedwith massive grabs. Then at sea, one was basically juststeaming from a port in the middle of nowhere to anotherport in the middle of nowhere.

    Dr. John R. Moon is Chief of Transport Policy& Tourism Section, UNESCAP (UnitedNations Economic & Social Commission forAsia & the Pacific). Under his leadership thisagency has done pionnering work in the fieldof Trans-Asian Railway Network.


    In Conversation

    So, I did not see too much future in that anddecided to go across to UK to University of Cardiffto do a degree in Maritime Studies. Followingthat, I went to Cambridge to do a postgraduatediploma in Economics and then went across toJohn Moore’s University in Liverpool doing myPh.D. and teaching at the same time.

    Thereafter, I became an education professionalwhich led to another crisis point in my life. Ihad to decide, whether to stay in education foreveror to somehow move out of it. My feeling atthe time was that going into the consulting businessand looking at the economic appraisal of transportprojects was of particular interest to me. Thedifficulties in those times and at any time, isto try and get work with one of the internationalfinancial organizations. For that one needsconsulting experience. Unless you are Thirty Fiveyears of age and have got at least Thirty Sixyears of experience, it is very difficult to getemployment with these organizations (laughs).

    At that very time the opportunity arose for meto go across to Europe to work with the MaritimeEconomic Research Centre, where I could getthe required experience of working oninternational projects, through Dutch GovernmentProjects as a consultant

    After that, I went into, I think it must have beenmy (counts) one, two, three, four, my fourthprofession of life (starting with my life at sea,then lecturing and then consulting), that is asan international civil servant working with, asyou know, the transport division of UNESCAP.

    TA: What had attracted you as a child towards acareer in shipping?

    JRM: I think, it started with one of thosepsychological tests that one does in school (laughs).Perhaps, also a combination of the fact that someof my relatives were accountants. I looked atthe life they had; that is waking up at a certain

    time in the morning, getting dressed, jumpingon to their trains, going to their office, sittingat a desk all day then coming home in the train,eating dinner, going to bed and starting the samecycle next morning, and was looking for somethingwhich was a little bit more exciting than that,which provided a little bit more interest and alsoprovided perhaps outdoor activity. Certainly theMerchant Navy offered of some of those things.

    TA: What is your first memory of train journey inyour childhood in Australia?

    JRM: Probably, traveling on a train with mygrandmother during school holidays. At one pointin time, I was a student in Sydney and mygrandmother was living in Brisbane. She usedto come down for her annual visit. After oneof these visits I travelled on a fairly old trainwith her from Sydney up to Brisbane. If I recallcorrectly, the distance is something in the regionof 600 Kms. with the train making the journeyovernight. Since that time, there are a coupleof trains trips I had made which still remainin my memory.

    At one point in time I was working on someof the pre-feasibility studies for the Jamuna Bridgein Bangladesh and had the opportunity oneevening to travel on the train from Bahadarabadback down to Dhaka. The vision I still haveis of the sun sinking, a very soft and ambergreen and the rhythm of train wheels as we passedthrough the countryside. More recently, I hadan absolutely magnificent train trip from Viennato Geneva, which was still during the skiingseason. Luckily, the day that I chose to travelwas one when the sky was brilliantly blue.Watching out of the windows, one could seethe snow covered mountains contrasted withbrilliant blue sky and small figures skiing downthe slopes. That was something not to be missed.

    TA: And your most memorable ship journey?


    In Conversation

    JRM: Working on ships is sometimes extremelyboring, because all you see is “sea” for days anddays. At one point in time I was on a containership going between Australia and the UK. Onthe way back – the trip was approximately 21days coming from London to Melbourne – formost of that time we did not see any land atall. Basically after passing the Canary Islandsyou go straight across the South Atlantic downto South Africa, then you go down to about 45degree south and steam straight across theAtlantic Ocean. Luckily we did not have anybad weather. The Southern Ocean does howeverhave a very long swell and one of the thingsI remember is a ship of over 1000 feet in lengthas it were meandering along with the waves.

    Another thing, which you find down there is thatyou usually pick up a couple of “friends” in theform of Albatross birds. I still remember thesemassive birds with wing spans perhaps more thana couple of meters gracefully gliding along, overthe tops of the very large waves. Waves andAlbatross may not sound that exciting, howeverI think that the solitude of such an ocean crossingraised some of one’s other perceptions of thewaves we live in and are therefore some of thethings we remember

    Some of the coastal trips were interesting. OnceI was working with a company called Palm Linethat used to run from the UK down to WestAfrica. We used to call at nearly every porton the West African Cost as well as going upthe creeks in some of the countries. So, for examplein Nigeria, we used to go up to Wam and Sapelewhich were some distance up inside the creeksof Nigeria.

    TA: What is your impression about train journey inIndia?

    JRM: Unfortunately, I haven’t done any majortrain journeys in India apart from Delhi to Agra

    and back. Most of the traveling I have donehere is either by plane or by car.

    TA: From economic perspective trains are a ‘lifeline’of India. How do you see future of railways in India?

    JRM: The future is rail, and if one looks atthe railway systems that are being developed,the opportunity is there for that future to berealized. In particular there has been quite a lotof attention paid to running of container blocktrains from the ports to the hinterland and thedevelopment of inland container depots. I wouldcertainly see this as being a very good modelfor further development of India and also forthe development of rail between countries ofthe region.

    TA: How have the things evolved over last, say, thirtyyears across the spectrum in transport sector. May befirst you can tell us about the Maritime, then Road,and finally about Trans-Asian Railway Network, whichis very close to your heart, today.

    JRM: One of the major changes that haveoccurred in the Maritime Transport sector is therapid increase in the ship size, in the containersector. As I mentioned earlier, I started my careerwith one of the early container ships, sailingbetween Australia and the UK. At that pointof time the container ship I was working on,was a very large one compared with general cargoships that it replaced. If I recall correctly, it carriedsomething in the region of 1200 containers. Ifone looks back at that time and then looks attoday, ships of that size are now used as feederships going from Singapore to Chennai or fromSingapore to Bangkok. If you look atinternational mainline routes, today ship sizesare getting very close to carrying 10,000containers. I see massive changes in the containership size.

    This has also led to massive changes in the portsector. If you have ships of that size, you have


    to have cranes of very long outreach to be ableto pick up the containers on the opposite sideof the ship and you have to move those shipsas quickly as you can into and out of the ports.One of the sayings in the maritime sector is ifthe ship is not moving, it is not making money.The objective of exercise therefore is to moveships into and out of the ports as quickly aspossible.

    There have also been major changes in the routestructures for mainline container ships. One findsthese days and, in fact, over the past decadesthat there have been the development of the hub-and- spoke system whereby there is a relativelysmall number of ports that are handling thesevery large ships. Containers are dropped off atthese small number of large ports and then feededto smaller ports in the region. So that is probablyone of the major advances that has happenedin the maritime sector.

    One of the most interesting developments in theroad transport sector is the accessibility that hasbeen provided by the sector. When I read someof the ESCAP Transport & CommunicationsBulletins from the early 50s there was no allweather road for example from Bangkok up tothe North East of Thailand. When I go there,today there are, in places, six lane highways.

    Another major development has been the extentof regional economic co-operation betweencountries. This has occurred even since I joinedESCAP. When I first joined ESCAP, one couldnot even think of these possibilities. For example:driving to Ho Chi Minh from say Bangkok, orfurther from Singapore to London. In principle,it is now possible to go from Singapore to London“without getting your feet wet”. With theconstruction of a bridge across the Mekong Riverthe level of integration between countries, theend of some of the conflicts which had arisenin a number of countries, and the adoption of

    a lot more outward looking policies, it is possibleto drive from Singapore to Bangkok, up throughLao, through China, through Central Asia, throughEurope and through a tunnel going from Franceto London.

    In the railway sector, when one looks at someof the statistics then traffic has been decliningover time. There are however tremendousopportunities to the rail transport sector. Wesee massive congestion on our roads for themoment. We see massive 22-wheeled trucksrunning up & down on the highways. We seepollution coming from vehicles. If one looksat the possibilities of moving over to railways,with high-speed trains connecting cities and withcontainer block trains on dedicated tracks movingbetween major transshipment centers, we seeopportunities for development in inland areas incountries of the region as well as opportunitiesfor these areas and landlocked countriesparticipating in the globalization process. In somecountries where these changes are being madethe declining shares of rail are being reversed.

    TA: What is the future of Trans-Asian RailwayNetwork?

    JRM: The Trans-Asian Railway Network, theinitial concept, so to say, started off in the early1960s. This was in the time of the EconomicCommission for Asia and the Far East (ECAFE)the predecessor of ESCAP. The concept was thatone would be looking at a railway, where onecould move from Singapore all the way throughSouth East Asia, through South Asia, IslamicRepublic of Iran, Turkey and then through toIstanbul with further connections going throughto Europe. Since that time when ECAFÉ waschanged to the Economic and Social Commissionfor Asia and Pacific (ESCAP) a lot more countrieshave joined ESCAP or became active members.Following the collapse of the former Soviet Union,for example, all the countries of Central Asia

    In Conversation


    have joined with ESCAP. With adoption of moreoutward looking policies China has become alot more important in our activities and RussianFederation has also now become a full memberof ESCAP. As a result, the initial concept whichstarted off in the early 60s of connection fromSingapore through to Istanbul on a southerncorridor has now extended so that one is lookingat a northern corridor, going from a number ofports in China, Russia and the Korean Peninsulathrough to Central Asia and Europe.

    One is looking at North-South connections and,in fact, India was instrumental in the developmentof an agreement which included the RussianFederation and the Islamic Republic of Iran, indeveloping a North-South corridor. In fact, therewas a very famous Russian explorer of thefifteenth century (Afanasy Niktin) who came downthrough a similar route from Tver in Russia toIndia. Thus there are also historic and culturallinkages between Russia and India through someof the modern day connections.

    In addition, there are possibilities of a North-South route on the Eastern side of Asia, comingdown from the Korean Peninsula to YunnanProvince in Southern China, through to SouthEast Asia. In fact, one of the railway projects,which is being promoted at the moment in SouthEast Asia, is from Kumming to Singapore.

    While looking at the development of Trans-AsianRailways, ESCAP has adopted a step-by-stepapproach. The first step was the formulationof the basic network itself. Certainly, this wasthe idea in the 1960s. The next step, whichtook a little longer was the formalization of thehighways through an IntergovernmentalAgreement on the Asian Highway Network. ThatAgreement entered into force on 5th July, 2005.More recently ESCAP member countries haveadopted an Agreement on the Trans-AsianRailway. This Intergovernmental Agreement on

    the Trans-Asian Railways will be taken to theESCAP Commission for adoption then forsignature at the Ministerial Conference onTransport in November 2006 to be signed. So,we have got to the point now where we havea formalized network for the Trans-Asian Railway.

    The next step we need to look at is buildingsome of the missing links and upgrading thesystem. There are now missing links betweenVietnam-Cambodia, between Cambodia-Thailand,between Thailand-Myanmar, and Myanmar &South Asia and also between Pakistan and IslamicRepublic of Iran. So, to increase connectivitybetween the countries of the region, one needsto look at these missing links to assess theinvestment requirements for completing thenetwork.

    Another major issue one is looking at is themovement of trains across borders and thefacilitation issues, both at the border crossingsand also transit through countries. On theNorthern corridor this is a reality already. ESCAPhas organized a number of demonstration trainsin conjunction with the countries of the region,which have provided interesting results. Withthese runs we have demonstrated that countriescan provide the required train services. Theycan even get the fast transit time at a reasonablecost. The functions of the demonstration runswere to help to identify, to highlight and to bringto the attention of the policy makers some ofthe difficulties, which were involved in runninginter-country container block trains.

    TA: What is the vision of ESCAP for Trans-AsianRailways?

    JRM: The vision that we have at ESCAP is theone, which was highlighted at the last MinisterialConference that we had on infrastructure, wherethe part icular focus was on transportinfrastructure. The vis ion was one of

    In Conversation


    international, integrated, inter-modal transport.So one was looking at sea ports at shipping, andthe natural extensions away from ports both interms of roads and railways.

    If one looks at what is happening within theregion; one sees rapid development in the coastalareas of the region, and one sees the developmentof international production networks, and ofregional production networks. Location of themain growth poles of these networks, however,is in coastal regions, in other words in the vicinityof seaports where there are very good transportconnections or services to other places in theworld.

    The vision that we are looking at within ourinternational integrated, inter-modal transportsystem is : to f ind ways to develop theseinternational production networks and regionalnetworks to hinterlands of countries. One canthink, for example, of Yunnan province in Chinaand the Northeastern part of India and tryingto link those areas together. Now, if one drawsa parallel with the maritime sector that has seena fast, efficient, low cost transport systemprovided not only by ships but also the technologyof “the container”, that is something which isrelatively simple–it is just a box–then one canapply these concepts to land transport. If onecan provide very good land transport linkagesbetween major centers. Using containers, thisprovides the opportunity for developing majorinland centers. It can be provided by roadtransport, but can also be provided by rail. Itis likely that the rail transport can be providedat a cheaper cost, cheaper energy cost, lessenvironmental problems and also provide fasterspeed. One can see development of the Trans-Asian Railway as being a logical extension ofthe maritime sector to move on to majorhinterlands centers in a land-locked country.

    We should have an integrated, inter-modal

    approach, because the railways operate very wellon trunk routes. There are still major distributionproblems, where one gets close to the destinationand that is the exact point at which we needvery good inter-modal transfer facilities. So thecontainer from ships go straight on to trains thenon to trucks and then distributed to the placesthey need to go to.

    One sees another thing happening with ports.Because they act as major nodes they not onlyattract industries close to them, but they alsoattract a lot of other ancillary services that areprovided. Now one can envisage similar typesof ancillary services being provided at ICDs. Atthe simplest level, it is a railway station wherecontainers can be moved on to trucks and thatis the only function that it performs. One cansee very many value added services being providedat those points. Some of these concepts are alreadybeing adopted in other parts of the world. Oneof the major initiatives, for example, in Europe,is the freight village. Most of these freight villageshave inter-modal connectivity with inlandwaterways, with railway systems, with truckingsystem. They are performing well, they havewarehousing facilities and they provide valueadded facilities such as warehousing and sortingof goods. One could even expand the conceptfurther by having various developments of zonesin the vicinity of these freight villages, so thatthey can have manufacturing processes with thegoods to be transported very quickly to the transferpoints and then moved on elsewhere.

    So, the concept we see is international integrated,inter-modal, traffic of which railways will beperforming a key part in that system.

    TA: Can you foresee by what time is it going to turninto a reality on ground?

    JRM: I am not a fortune-tel ler ( laughs) .Sometimes these things do take a long time. AsI mentioned earlier, some of the initial conceptual

    In Conversation

  • ideas for the Trans-Asian Railway in the southerncorridor started in the early 60s. It has takennearly 50 years for those ideas to materialize.Now, we have got to the point where we havean inter- governmental agreement, a convention,an instrument, which is very similar to say theKyoto convention or any other major convention,which is signed and ratified. It has taken time.

    If one stands back and looks at the some ofthe recent developments which are occurringwithin the region then some of this time spancould be shortened considerably. Today thereis a lot more cooperation in the region thanthat has been in the past. There are countriesthat have lot more outward looking policies.They are a lot more receptive to ideas of crossborder movements . Now, some of theinvestments would probably be very large,

    particularly to fill in some of the missing links.It is certainly hoped that the work of ESCAPin this sector to influence, to promote and toadvocate to the policy makers the importanceof some of these decisions in providing efficienttransport will be effective in accelerating thisprocess. The importance of removing missinglinks between countries, the need for a lot morecooperation and a lot more integration isrecognized by most countries. My feeling is thatwe are in a sound position this time, and wehave the opportunity to compress the time spanof implementat ion

    But again, as I started by saying in answer tothis question, I am not a fortune-teller so I amnot going to tell you in which year it is goingto happen. There is certainly considerablepotential for it to happen quickly.

    In Conversation



  • Article

    Whither Indian Railways?Performance andPossibilitiesvis-a-vis the ChineseRailways

    Ravindra Kumar Tandon Last one decade has seen the Chinese Railways createmany a milestone and progress by leaps and bounds. Ithas shown a spectacular development, which is commensurate withits remarkable performance. Mammoth investments have beenmade in creating new assets, overcoming capacity constraints throughforeign investments, joint ventures, public-private partnership,restructuring and re-engineering; all this has been done very fast.In this backdrop, while the Indian Railways have given a goodaccount of itself in the last half century to remain financiallyviable, although not really competitive, it has studiously triedto cope with the ever increasing demand of freight and passengerbusiness. The IR is definitely to give a proof of its versatilitythrough integrated modernization and implementation of reformslike construction of dedicated freight corridors, improved terminalmanagement through public-private partnership, multi-modallogistics, synergy between rail/road/pipeline/ports, etc., whichwill help realize its vision 2020 by making the most of abuoyant economy.

    They say comparisons are odious, but there is no escapefrom making a reference to the Chinese Railways (CR)

    Shri Ravindra Kumar Tandon is IRTS Officerof 1980 batch. He is presently posted asExecutive Director (Passanger Marketing) inRailway Board.




    when it comes to adjudge Indian Railways' (IR)performance; this is particularly true if we focuson the last few years. While it may or may notemulate the CR's fashion, method and pace ofexpansion in the freight sector primarily and thepassenger segment in general, the IR has shownflashes of amazingly creative brilliance of late.It is only hoped that they are not a flash in thepan after all.

    Has the elephant finally started to dance?

    Consider the following excerpts from Friedman'slatest book: The World is Flat, albeit in adifferent context.

    "...If India and China were both highways, the Chinesehighway would be a six-lane, perfectly paved road, butwith a huge speed bump off in the distance labeled"Political reform: how in the world do we get fromCommunism to a more open society?" When 1.3 billionpeople going 80 miles an hour hit a speed bump, oneof two things happen: Either the car flies into theair and slams down, and all the parts hold togetherand it keeps on moving - or the car flies into the air,slams down and all the wheels fall off. Which itwill be with China, I don't know. India, by contrast,is like a highway full of potholes, with no sidewalksand half the streetlamps broken. But off in the distance,the road seems to smooth out, and if it does, thiscountry will be a dynamo…."

    The IR is Asia's largest and the world's secondlargest state owned Railway system under oneumbrella. The Ministry of Railways functionsunder a Minister of Railways assisted by twoMinisters of State and consists of a Railway Boardcompris ing the Chairman, the Financia lCommissioner and functional members, whoformulate and monitor the policy. The railwayis divided into 16 Zonal Systems (which haveproliferated from six to nine to sixteen in thelast fifty years).The Zonal Railways are furthersub-divided into sixty seven divisions.

    The IR has a dual role to play by renderingcommercial services, but at the same time, ithas to perform myriad social functions.Movement of freight in general and carriage ofsome classes of passengers on a commercial basisare some of such activities, but the IR also runssuburban and other passenger services at muchbelow costs. In addition to transporting essentialcommodities at loss , it runs branch lines whichare not remunerative but are expected to provideincreasing employment to the people. Whilethe Railways cannot be absolved of these burdens,it is imperative for an efficient functioning thatthe two roles are separated to whatever extentpossible and that this schizogenous dilemma todischarge public utility role and to run thecommercial expertise on sound business principlesis ultimately resolved.

    The Chinese Railways (CR)on the other handcontrols 14 geographical ly based rai lwayadministrations centered on Beijing, Chengdu,Guangzhou, Harbin, Hohhot, Lanzhou, Liuzhou,Jinan, Kunming, Nanchang, Shanghai, Shenyang,Urnmqi and Zhengzhou. While no time tablehas been publically set, the CR has taken a decisionto move towards restructuring i.e. an overallstructure for the national railway system wherebyinfrastructure is separated from operations. Asa part of this restructuring, in late 2000, theChina National Railway Locomotive & RollingStock Industry Corporation (LORIC) was splitinto two autonomous organizations. Focusingonly on safety and regulation, the CR intendsto undertake splitting freight business, passengerbusiness and network management intoindependent divisions. The government has alsoencouraged local authorities to build and operatetheir own railways.

    The CR is also opening up rail freight marketin three stages - till 2006 foreign investors maypurchase up to 49% of shares in new Sino-foreignrail freight joint ventures. After 2006 foreign



    investors will be allowed to hold the majorityof shares in the joint ventures three years afterChina's entry into the WTO. Finally the foreigninvestors will be allowed to establish their ownrail freight transport companies six years afterChina's entry into the WTO.

    That Railways is the main artery of China'snational economy and the skeleton of China'stransportation system, can be seen from the factthat in 1949 there were only 21,800 kms ofRailway lines, of which only half were operationaland were mainly confined to the Eastern andNE regions. However, about 44,000 kms wereadded by 1995 which included 9,700 kms ofelectrified lines and 16,900 kms of double tracklines. In 1995, 1,660 million tonnes of freightwas loaded and carried by rail, an increase ofabout 50% over 1980. In the same period, therewas an increase of only 11.5% in passengermovement. It is pertinent to point out that in2003-04, the CR loaded 2214 million tonnesof freight.

    This quick and comprehensive growth is furtherestablished by the fact that about 14,000 kmsof track has been added to the already existing58,000 route track kms. which represents a growthof 24% in the last decade itself. In the sameperiod, 400 billion tonnes kms in the movementof goods have been added which is equivalentto almost one year's freight movement achievedby the IR.

    Looking at the IR's development, we find that53600 route Kms, 208500 wagon FW units and8200 steam / diesel/electric engines resulted inonly 73.2 million tonnes of freight in 1950-51.Since then only 10,000 route kms have beenadded while the wagon and loco fleet has grownto 465000 wagon FW units and 7820 locos (Diesel+ Electric) respectively but resulted in remarkablegrowth of more than eight times both in freightloading and passenger movement while the wagon

    fleet has grown less than three times, passengercoaches only slightly more than three times andless than 20% of route kms have been added.This has been possible by intensive and efficientuse of its assets and a very slow change of mindset.The IR's growth in the last half century can beseen as under :


    Vital Statistics - a comparison ofCR & IR 2003-04

    Chinese Rly. Indian Rly.

    Total track Kms 73002 63221Standard BG+MG+gauge NG

    National + 60446 –Local/JV 12556 –

    Double Line 24650 16281(40.8%) (25.7%)

    Electrified 18060 16960(30%) (26.8%)

    Freight Million tonne 2212 557Net Billion tonne kms 1724 381PKMs-Billion kms 478 541Productivity (NTKM+PKM) per employee 1452 686Total Revenue 75000 42842

    (Rs.in crores)Freight 40000 27403

    (Rs.in crores)Passenger 25000 13298

    (Rs.in crores)No. of locomotives 16320 7817

    Diesel 11335 4769Electric 4622 3003

    No. of wagons 510327 228170

    No. of coaches 40487 35772

    To improve its efficiency of transport operationsbased on the increased capacity for both freight andpassenger as also to compete effectively with othermodes, the CR has done remarkably well to generateits financial resources internally to build a worldclass Railway system. It has embarked upon massivereforms in every sphere : all operational activitieslike infrastructure, rolling stock, train operations,etc. have been consolidated under the TransportationDepartment, hiving-off non-core activities, abolishingas many as 44 sub-administrations while increasingRailway Administrations from 14 to 18. In addition,tariff reforms particularly making customers to payhigher for more comfort, better speed; differentialpassenger fares and freight, introducing high speedpassenger trains, fast and convenient freight services,high performance rolling stock, etc. are some ofother reforms.

    In this context, the IR's performance andachievements, although quite decent, pale intoinsignificance. The IR has of late given a goodaccount of itself, specially in the last few years.



    Has it taken off or is it just a freak? At the endof the day, the IR's operating ratio is superiorto the CR's which can be seen from the tablebelow :

    Ratio of Operating Expenses to Income

    Chinese Indian RailwaysRailways

    Year Including ExcludingAppropriation Appropriation

    to DRF to DRF

    2001 0.917 0.960 0.907

    2002 0.923 0.923 0.865

    2003 0.996 0.921 0.861

    2004 0.984 0.912 0.854

    UIC data

    Actually, several cost cutting measures taken by theIR to reduce the cost of operation, maintenanceof rolling stock, coupled with innovative measureshave gone a long way in putting the IR on theladder of improved performance.

    Some of the measures are referred to as follows:

    Reduction in the Cost of Operation• Block rake movement

    • Reduced requirement of marshalling yards

    • End to end running, close circuit movementof rakes has improved wagon utilizationsignificantly and thereby reduced cost.

    • Longer trains with higher trailing loads

    • Reduced detention at the terminals andconcept of "engine on load" .

    • Steps have been taken for reduction inexpenditure on account of electricityconsumption.

    • Increasing the fleet of the state-of-art highhorse power electric locomotives for main lineoperation.

    • Introduction of AC/DC & AC EMUs which

    are more energy efficient and have regenerativebraking.

    Conservation of electrical energy by variousmeans such as :• Switching off stand-by transformers

    • Daily analysis of light engine movement

    • Switching off locomotives in yards• Review of pumping installations

    • Replacement of incandescent lamps withfluorescent tube lights

    • Elimination of leakage of compressed airin workshops and sheds, etc.

    • Training of drivers with the help of simulators• Electrical energy cost reduction

    Reduction in Cost of Maintenance


    Diesel Locos:

    • Improvements in technology

    • Use in multi-grade generation 5 oil (RR 606/RR 513/RR813)

    • Conversion of 2600 HP WDM2 locos into3100 WM2C locomotives during rebuilding

    • Improvement in Lube Oil Consumption

    • Introduction of "State of the art" high horsepower locomotives

    • Development of long life lube oil filters fordiesel electric locos

    Electric Locos

    • Increase in time interval between twosuccessive intervention

    • Rationalisation of electric loco holdings insheds

    • Increasing the fleet of state of art 3 phaseelectric locos and EMUs.

    • Provision of static convertors



    • Use of e-beam irradiated cables

    • Technological inputs like composite brakeblocks, cast wheels.

    • Benchmarking of staff for maintenance


    • Introduction of new coach designs withsuperior earnings capability.

    • Design improvements aimed at higher reliabilityand lower maintenance cost.

    Aerodynamically profiled Diesel Electric MultipleUnit rake

    System improvements

    • Increasing the number of trains with 24 coachesto carry more traffic

    • Introduction of revised maintenance pattern

    • Introduction of mechanized material handling

    Rolling Stock

    • Induction of only Bogie wagons

    • Decision to phase out maintenance intensiveplain-bearing stock

    • Introduction of less maintenance intensiveCASNUB Bogie

    • Induction of only air brake stock

    • Use of Composition Brake Blocks

    • Close circuit operation of rakes

    • Introduction of new generation container flats

    However satisfying the present performance maybe, the IR cannot afford to become complacent.Initiatives taken by the IR certainly give evidenceof its cohesiveness and progressive attitude butthere exists greater potential to achieve much more.It is time to forge ahead fast and strike when theiron is hot.

    Booming business: Container Terminal in India

    In India, the Railway has been losing freight businessto roadways although less rapidly than in advancedcountries. However, Railways retain their relativeadvantage mainly in natural resources andintermediary goods markets in which there arelarge volume movements and relatively no value-to-weight ratios and tend to lose it as the value-to-weight ratios of manufactured commoditiesincrease unless they can provide high qualitycontainer services on medium and long distancehauls. To meet with the ever increasing demandand efficient movement, there is an urgency toincrease pay-load to tare ratio, which is in therange of 4-5 internationally, against India's 2.5.The Railways will not be in a position to copewith the container traffic growing at 15% per annumwithout resorting to double stack containermovement. In addition to increasing the axle loadsfrom the present 20.3 tonnes to 25/30 tonnesper axle, increasing the throughput by runningmuch longer trains will have to be resorted to.For instance, one train in Australia clears the samepay-load as would require 6-7 trains in India.



    Again, the IR cannot afford to continue growing at5% and 7%, it must follow the strategy of stretchwhen the going is good and exhibit growth in certainfields even upto 30-40% within one year.

    Significant strides have been made in movingthe freight revenue traffic in the last few years;519 million tonnes in 2000-03, 557 in 2003-04,602 in 2004-05 to 660+ (expected) in the year2005-06.It is worth noting that cost per NTKmhas been continuously reducing year after year. Thistrend is required to be reinforced by concrete,indigenous reforms and a few lessons learnt fromthe CR. There is no reason why the turn aroundof the IR cannot be sustained, doubling the currentfreight output in five to seven years flat.

    A side view of a CONCOR train

    The IR is indeed the life line of the nation whichcarries 67% of coal and fertilizers, 58% of ironore, 40% of cement and 26% of POL productstransported in the country by all means. All thisis done through complex operations which ischaracterized by intense freight-passenger interactionon common infrastructure with high density corridor(Golden Quadrilateral and Diagonals) having only16% of route Kms carrying 52% of passengerand 58% of freight traffic. Incidentally, a recentPlanning Commission draft report on IntegratedEnergy Policy has estimated a requirement of 2001million tonnes of coal in the energy sector by2030. It is a challenge and an opportunity for theIR to be prepared to transport about 70 to 80%

    of this volume in addition to other commoditiestransported by rail. In order to realize this vision,the IR will be called upon to generate not onlythe required capacity to meet with itstransportation needs, it will have to be ahead ofdemand by several steps. To do so, followingstrategies will have to be adopted :

    • Dedicated freight corridor

    • Double stack container operation

    • Port hinterland connectivity

    • Terminal investments

    • Technological upgradations

    • Public-private partnerships

    • Innovative financing strategies

    • Rationalised tariff structure

    • Right sizing staff strength

    • Leveraging information technology

    • Multi-modal logistics

    Test track/Konkan Railway

    Future holds great things for the Indian Railwaysonly if the vision for the coming decade is followedmeticulously and earnestly. To do so, several othermeasures in addition to the above, like runningof time tabled freight trains, synergy with roadoperators for 300 to 400 km stretches, providingcomplete logistic solution to customers speciallyin parcel and piecemeal traffic, improved, disciplined


  • wagon examination of CC rakes after every 10,000kms/one month, shrinking Empty Return Ratioto half in one year, reducing terminal detentionsto 5-6 hours or less, implementing the EOL system,keeping down the proliferation of wagon design,linking ports with rail, improving informationmanagement on freight movement through FOISand embedded IT chip in the wagons, developingmammoth passenger handling systems, stationslike airports, etc., will go a long way in achievingwhat has been dreamt of but tried half heartedly.

    The IR has to give a proof of its versatility throughintegrated modernization and reforms, synergy

    between rail/road/pipe line/ports on one hand, longterm contracts with customers for specificcommodities, rational and differential pricing whichis creative at the same time, tariff flexibility andcustomer care in real earnest and not merely a lipservice; it is high time the customer was treatedas king. Buoyant economic growth, buoyant freightand passenger business and an open mind leveragingthe benefits of the ongoing reforms will certainlymake the IR realize its vision and its full potentialof a viable and efficient railway system.

    The shell must break before the bird can fly,wrote Tennyson, the English poet.




  • Article

    Strategic Interventions forControlling Agency Costin Public CommercialEnterprises- The Case ofIndian Railways

    Dr. Ram Chandra Rai Introduction

    An enterprise established to carry out selectedactivities, could be constituted to be either of thesole proprietorship, partnership, society, cooperative society,private limited company, public limited company or statutorybody. In very small size organizations like sole proprietorship,partnerships & cooperative societies and private limitedcompanies, the owners are able to participate in day-to-day management of the enterprise and as such can takecare of their own interests. However in case of large publiclimited companies owners (share holders) typically are notactive mangers. Instead they entrust this responsibility toprofessional managers, who may have little or no ownershipinterest or equity in the company.

    It is another matter that many of the cooperative societiesare manipulated and hijacked by the dominant membersto further their vested interests. Similarly in case of publiclimited companies dominant shareholders, who find placein Board of Directors and have their own person as managingdirector, are able to draw benefits disproportionate to their

    Dr. Ram Chandra Rai is an officer of IndianRailway Accounts Service and is currentlyworking as Sr. Professor ( Financial Man-agement) Railway Staff College, Vadodara.The views expressed in this article are his per-sonal views and in no way reflect the viewsof RSC or Ministry of Railways. He welcomesviews and reactions and can be approachedon [email protected]




    shareholding at the cost of minority shareholders.This is a breach of trust reposed by othershareholders in them. This is a problem relatedto maturity of democratic values and inherenthuman greed.

    This article details the problem of conflictinginterests of professional managers/ civil servantsmanaging the affairs of public commercial enterpriseand their owners, defines the agency cost, lists outmitigating strategies in general, defines publiccommercial enterprise, examines the current statusof agency problem/cost obtaining in publiccommercial enterprises and recommends specificstrategic interventions for controlling the agencycost. It also briefly outlines the strategies to controlthe agency cost in Indian Railways and indicatesthe scope for further research in this area.

    Separation of Ownership and Management

    There are several reasons for separation of ownershipand management. Few important ones are listedbelow:-

    (i) Large enterprises require large investment toachieve economy of scale. Hence it becomesnecessary to pool capital from thousands oreven hundreds of thousands of investors. Itis therefore, impractical for these investorsto participate actively in management of theenterprise.

    (ii) Professional Managers are more qualified torun the business because of their technical& managerial expertise experiences andpersonality traits. They are expected tocontribute their best for a consideration (salary& allowances) commensurate to their caliber.

    (iii) Separation of ownership and managementfacilitates unrestricted change in ownershipthrough transfer of shares without affectingthe operations of the firm. It ensures thatthe `knowledge' of the firm is not impaireddespite frequent changes in the constitutionof the ownership

    (iv) Given economic uncertainty, investors wouldlike to hold diversified portfolio of securitiesto minimize the unique risks. Having stakein so many firms and also changing thesecurities frequently, they cannot participatein management of these enterprises.

    Public Commercial Enterprises

    Public commercial enterprises, whether departmentalor corporate, are, in principle, owned by generalpublic through the state and are managed by civilservants or professional managers selected througha system of recruitment for mostly life timeemployment with almost total job security.Commercial State Enterprises are authorized tocharge users fee from the customers who are alsotheir owners, for the services utilized. Basic traitsof a commercial enterprise are cost plus pricingand overall financial viability unlike non-commercialpublic institutions where user charges collected fromor taxes/duties paid by general public have no co-relation with cost of services and deficit if any,are funded from state budget, thus non-users/lowusers subsidizing other users and vice versa. Inpublic commercial enterprises even the cross-subsidyfrom one product/service to another product/service has revenue maximization and capacityoptimization angle keeping in view the payingcapacity of customers.

    The Political Management

    People elect their representatives to the state orcentral legislative bodies, directly or indirectly, ingeneral elections held periodically. Members of LokSabha and Legislative Assemblies of the states areelected directly by the electorate. However thedirectly elected representatives elect the membersof Rajya Sabha and state legislative councils. Theselegislative bodies make policies & Acts to beexecuted by the Govt. of the day. They censureits works from time to time through informeddebates and questions. Political party (orcombination) having simple majority in the houseforms the government.



    The political executive consists of council ofministers headed by Prime Minister in the centerand Chief Ministers in States.

    The political executive of public commercialenterprise consists of the minister in charge ofthe concerned ministry, who is an electedrepresentative of people (direct or indirect) andmay be assisted by deputy ministers or ministerof states. It directs civil servants/professionalmanagers in day-to-day management of publicenterprise. Civil servants are protected from arbitraryaction under article 311 of the Indian constitutionto enable them to act without fear in public interest.Therefore apparently there is no reason for themto come under pressure of political bosses exceptfor getting choice postings/out of turn promotions,self enrichment, empire building for self grandeurand desire to have trouble/tension free career.

    Agency Cost

    The separation of ownership and management leadsto possible conflicts of interests between managers/civil servants (agents) and the owners (share holdersin case of private or joint sector enterprises andgeneral public in case of public sector). An agentis one who acts on behalf of someone else, whohas appointed him in full trust to take care ofhis interests for a consideration.

    Though managers/civil servants are agents ofshareholders/general public, they are likely to actin ways that may not maximize the welfare of theshareholders/general public. In other words, theymay break the trust reposed in them like dominantshareholders of public limited companies and bothcould even team up with each other to enrich eachother.

    It is a fact that in practice managers/civil servantsenjoy substantial autonomy under delegation ofpowers to sanction expenditure and therefore thereis natural human inclination (greed) to pursue theirpersonal goals in violation of trust reposed in them.While they may, to prevent from being dislodged

    from their current positions, try to achieve a certainacceptable level of performance as far as the welfareof shareholders/general public is concerned, butbeyond that their personal goals like presiding overa big empire and pursuing their pet projects/proposals even if not viable or in sinc with corporateobjectives can override owners' interests. Empirebuilding tendency, self-enrichment or undueenrichment of others at the cost of the organization(corruption) and enjoying generous compensations& lavish perquisites/amenities not commensuratewith results, tend to acquire priority over the welfareof shareholders/general public. It may also be arguedthat professional managers/civil servants being partof human resource, are required to be looked afterwell in terms of remuneration & facilities, tomotivate them for optimal output but there hasto be direct link between expenses incurred onhuman resource in general and management inparticular and its contribution in furthering corporateobjectives in tune with owners' interests.

    While shareholders as investor, expect gooddividend along with maximum capital appreciation,general public expects cost-effective but goodquality services being extended by publiccommercial enterprises of the state for the usercharges paid by them. Civil servants/professionalmanagers are paid remuneration and given otherperks to fulfill these objectives of owners and arenot expected to do anything, which impairs theinterests of owners/customers.

    Lack of perfect alignment between the interestsof managers/civil servants and the shareholders/general public, or conflicts in personal &organizational goals or hijacking the organizationalgoals towards their personal or departmental goalscreate agency problem and resultant cost. Agencycost may be theoretically defined as the differencebetween the value of an actual firm with goalconflicts and value of an ideal firm in which thegoals of management and shareholders/generalpublic are perfectly aligned.

    Economic value of a firm may be defined as present



    value of all future benefits expected from its operations.Similarly Net Present Value (profitability) of a projectdepends upon the amount & pattern of cash flowsand rate of discount (weighted average cost of capitaladjusted to risk). While weighted average cost ofcapital depends upon financing decisions in thebeginning of the project, cash flows (mostly cashoutflows /negative cash flows) during constructionperiod depend upon the quality of project managementand availability of funds and much can not be doneonce the project is commissioned. However the actualnet cash flows during operation period (usually negativein the beginning and positive after some time) actuallydetermine the profitability of the project. Net cashflow during a particular operating period correspondto the operating profit which in turn depends uponthe unit variable cost, price and units produced andsold. However in operational term we have to focuson basic cost elements, unit price and asset utilizationto give push to NPV.

    If the managers/civil servants of public commercialenterprise incur additional/avoidable expenditure topursue their personal goals as indicated above andif they are not able to increase the price/user chargesof the products/services due to competitive pressures,the future benefits (cash inflows minus cash outflows)would decrease, thereby also impairing the presentvalue of these benefits and hence economic valueof the firm. Similarly if they invest in a pet projecthaving negative net present value, the value of thefirm will decrease. A public commercial enterpriseworking as a monopoly may try to increase its usercharges to accommodate extra expenditure involvedin perusing personal goal of managers/civil servantsand if it succeeds, the welfare of general publicwill suffer, as it does not get proper value for moneyspent. It is also quite possible that customers mayreduce consumption of such products/services dueto limited disposable income, leading to reductionin sales, capacity utilization and consequent increasein unit cost of production/operations due to existenceof higher fixed operating cost in such monopolypublic enterprise. Thus such enterprise falls into vicious

    circle of value destruction for the customers whoare also its owners.

    Mitigation Strategies

    To mitigate the agency problem, effective monitoringhas to be done and appropriate incentives haveto be offered. Monitoring may be done throughin-depth audit of the financial transactions,statements & end results and by limiting managerialdiscretion in certain areas, by reviewing the actionsand performances periodically. Incentives may beoffered in the form of cash bonus and perquisitesthat are directly linked to certain financialperformance targets including performance stockoptions for the employees of the PSUs.

    Following strategic interventions, in general, canminimize agency cost in public commercialenterprises.

    (i) Develop sound financial plans (Investment andFinancing decisions) including financial targetsrelated to reduction of unit cost of products/services, improvement in revenue/profitability,actual productivity of new projects in referenceto that estimated for investment decision andother financial indicators as deemed fit withprovisions for mid-term (monthly/quarterly/sixmonthly) reviews and corrections.

    (ii) Install effective management control system,which is capable of reporting actual physical/financial results of various activities againstthe pre-determined and self-correcting targets.

    (iii) Determine schedule of taking remedial actionson negative/ positive variations (penalty/reward) and its strict implementation.

    (iv) Have a remuneration system, which has lowerfixed portion and substantial variable portionlinked to positive variations.

    (v) Public pressure on civil servants/professionalmanagers for optimal use of money collectedthrough user charges, so as to render costeffective service.



    (vi) Regular and effective check/audit of financialtransactions and audit of annual financialstatements to point out undesirable actionsof civil servants/managers and prompt actionagainst the civil servants/managersresponsible.

    The Current Status of Public CommercialEnterprises

    If we examine the current state of affairs of publiccommercial enterprises regarding actions to mitigateagency cost, it is seen that

    (i) Financial targets like reduction in unit costof products/ services, improvement inrevenue/ profit are rarely fixed. Most of thetime, physical targets are fixed without anyclear linkage to financial outcome.

    (ii) In absence of financial performance targets,the management control system either doesnot exist in most of the public enterprisesor even if it exists, it does not serve the purposeof controlling agency cost.

    (iii) There is no emphasis on timely correctiveactions and efforts are made to dilute the impactof penal action if any, on one pretext or another.

    (iv) The ACR system is predominantly subjective.It has no linkage with financial results andas such does not serve the purpose.

    (v) The present remuneration system consists ofonly fixed portion and there is no variableposition linked to financial performance. Atpresent, in govt., there is a system ofPerformance Linked Bonus (PLB) but it is basedon quantity produced on macro level. Also thereis across the board uniformity in payment ofbonus depending upon only the rate of payof the concerned employee. There is no linkof PLB with financial performance of theenterprise on one hand and contribution ofan individual on the other hand. Also, it isan irony that officers (civil servants) are totally

    excluded from PLB. In other words theircontribution in performance of the enterprisesis denied. This cuts at the very root of incentiveplan. The present incentive system (PLB) istherefore counter-productive in reference toagency cost.

    (vi) So far, general public was helpless spectatorof the activities of the civil servants exceptfiling public interest litigations in courts andvoting every five years in general election.However Right to Information Act 2005,enacted at the intervention of Supreme Courtto protect the fundamental right of freedomof speech (Art 19 the Indian Constitution)of citizens has now changed the scenario. Nowany citizen can demand information frompublic organizations being run substantiallyfrom public funds, about their activities,decision-making process and actions of civilservants in public interests except the excludedinformation. Desired information has to begiven to the applicant within 30 days of dateof receipt of his application. Although thereis provision of retired civil servants to beappointed to head the information tribunalswho may try to protect the hegemony of civilservants over general public, there may bea flood of public interest litigations againstthe public enterprises/servants for actingagainst public interests based on informationsupplied to applicants. Likely legal interventionsare expected to control the deviant behaviorof public servants to a large extent.

    (vii) Internal Financial Advisors (IFAs) andControllers of Accounts posted to variousMinistries and public commercial enterprisesare expected to examine and concur variousproposals (expenditure, establishment &commercial), conduct internal checks of bills/claims and inspect executives offices to ensurethat financial irregularities do not take place.In other words it is their duty to ensure thatinterests of owners (general public) are taken



    care of. However in practice, accounts & financeofficers being part of civil service sometimescome under pressure and agree to proposals,which are not in tune with corporate objectives.In many case even the corporate objectivesframed by civil servants do not protect theinterests of owners. Even when few accountsofficers try to block undesirable proposals, theyare termed negative & obstructive. Thus peerpressure discourages accounts officers to playtheir role correctly. Normally majority of thecivil servants give only lip service to theobjections raised by accounts/finance. Suchobjections linger for years together and accountsdepartment is forced to find a compromiseformula to drop the objections due to pressureof the ministry on accounts department toliquidate these objections in a time boundschedule. Also concerned executive office isnever evaluated on this count. It is rare thatany civil servant has ever been punished forfailure to dispose accounts objections in time.

    (viii) Controller and Auditor General of India (CAG)is constitutional watchdog as per theConstitution of India and is required to auditall receipt and expenditure transactions of thepublic enterprises and report importantirregularities to parliament periodically. ThePublic Accounts Committee (PAC) headed bya Member of Parliament from the oppositeparty, examines its report and recommendssuitable remedial action to protect publicinterests, including penal action againstconcerned officials. However civil servantsknow from past experience that in real practice,this dog can only bark but not bite likevigilance. Therefore, they treat audit objectionsincluding important objections appearing inthe report of the CAG to parliament exactlyin fashion similar to those raised by accounts,thereby compromising public interests. Thisindicates general weakening of the institutionsenvisaged under the constitution to protect

    public interests and take care of agency costat national level.

    Strategic Interventions for Public CommercialEnterprises

    It is therefore recommended that following stepsshould be taken to control agency cost in publiccommercial enterprises.

    (a) Long-term financial plan should be drawnincluding clear financial performance targets.

    (b) Clear financial targets should be establishedat unit levels (micro level) having linkage withindividual civil servants.

    (c) Effective management control system beestablished and implemented.

    (d) Corrective action taken in case of negativevariances in a time bound manner.

    (e) ACRs be based on actual financial results.

    (f) All civil servants should be given financialincentives for positive variations.

    (g) The concerned executive officer should be maderesponsible for time bound disposal byaccounts/audit objections. He should berewarded for prompt disposal and penal actiontaken in case of default including adverse entryin the ACR.

    (h) Right to Information Act be implemented intrue spirit. This, in my opinion, is the mosteffective tool to control deviant behavior ofnot only the bureaucracy but also the politicalclass.

    The case of Indian Railways

    Indian railways are a departmental commercialenterprise of central government engaged in thetransportation of passengers, parcels and goods.IR being commercial enterprise, we have to ensureoverall financial viability while extending benefitsof cost effective service to our customers through

  • Article

    rational/competitive pricing, optimizing unit costof service for agreed upon quality standards byoptimizing basic elements of cost and operating& financial leverages. Current structure of unit costincludes an element of agency cost generated dueto undesirable/unprofessional actions of railwaymanagers. The cost structure primarily depends uponinvestment & financing strategies, which may becompromised (suboptimzed) due to agency problem.Therefore best way to control agency cost is totarget the unit cost, which is dependant uponcapacity utilization/asset turnover, which in turndepends upon pricing, marketing and investmentstrategy. Thereby the agency cost can be squeezedout of the system. It would naturally call for capacitydebottlenecking investments, which will control theempire-building tendency in favor of rational assetreplacement/creation decisions.

    At practical level operating ratio (OR) is one simplefinancial indicator which most of railway menunderstand. Therefore we can target reasonablereduction in OR every year. Operational, pricing,marketing, investment & financing strategies could

    be oriented to achieve the said reduction target.It is also essential to have Group Incentive Schemeencompassing all railway men irrespective of theirrank without any ceiling to replace the existingPLB scheme.

    But the moot question is - what should be ourtarget? There are officers in railway who objectto any scheme to cut costs under the pretext thatwe should not cut the bone in place of flesh inthe trimming exercise. Therefore is there any furtherpotential to reduce cost? The bare fact that wehave been able to reduce operating ratio from 98.3%in 2000-2001 to 90.5% in the year 2004-05 i.e.about 8% even after suitable enhancement inprovision for DRF and pension, indicates thepotential. The target for 2005-06 was fixed at 85%and have achieved 84.3%

    How do we compare with international standards?Let us compare our performance with that of ChineseRailways. The data of Chinese Railways whencompared with IR are presented in table below.

    It may be seen from the above that with almost


    S.No. Indicator Chinese Indian Index of CRRailways Railways over IR

    (2003) (2003-04)

    1. Basic Infrastructure (Route Kms) 73000 63221 115.46

    2. Output Indicesa. PKms (Billions) 479 541.21 88.54

    b. Freight Tons Kms (Billions) 1724 381.24 452.21

    c. Total revenue ($billions)2002 17.1 8.2 208.54

    3 Input Indices

    a. Operating Ratio (%) 74 96 77.08b. Average cost per equated unit

    (in US c) 2002 0.65 0.75 86.67

    4. Freight Prices performance

    a. Average freight tariff (in US c) 0.96 1.60 0.60

    5. Human Resource productivity

    a. Average output per employee CR 2.1 times that of IR

    b. Staff cost as % of total cost 25% 53% 0.47




    comparable basic infrastructure (+15%), outputindices {S.N. 2(a), 2(b) and 2(c)} of ChineseRailways indicate more than double output evenin financial terms and input (cost) indices {3(a),3(b)} indicate corresponding reduction in cost perunit. The employee cost in CR is 47% of the IRper employee productivity being more than double.On pricing front also CR is doing much better thanksto better asset utilization and is able to chargefreight per unit, which is 60% of that of pricebeing charged by IR. Even after such competitivepricing their operating ratio was only 74% in theyear 2003, which is 77% that of IR. This indicatesthe real cost advantage achieved through leveragingthe assets.

    The example of Chinese railway indicates potentialof further cost reduction on IR through competitivepricing and better asset utilization. Agency problemis major reason for current distortion in the coststructure and it can be controlled if we target tocut our unit cost at least by 25% by 2008. Thisis possible through capacity optimization & utilizationby prudent investment and pricing strategy. Thereforeit is possible to fix targets for cost reduction throughoperating ratio, which can be aimed at 75% by March2008.

    Since OR can also be improved by upward revisionof prices in the short run, there may be a tendencyto take short cut. However it must be understoodthat uncompetitive pricing would harm theorganization in the long run by driving awaycustomers to competitors, thereby impairing assetutilization and consequent increase in unit cost andtherefore the operating ratio. Therefore any targetsetting exercise for incentive bonus has to keepthis in mind.

    Since each and every unit of railways irrespectiveof its nature (cost, revenue, profit and investmentcenter) contributes to operating ratio, we can fixtargets related to ratio of expenditure to outputor revenue or profit or rate of return improvementsdepending upon the nature of the responsibilitycenter. Group incentive bonus can be paid depending

    upon the actual results for said unit, payments toindividuals being proportionate to their total pay& allowances in the total salary & wage bill ofthat unit. While focus in case of cost centerswould be on the reduction in units cost, for revenueunits it would be on improvement in revenue.

    However all railway managers especially the seniorones, must understand the real dynamics ofcorporate business economics to appreciate thecorrelation between investment strategy, coststructure, pricing policy, demand, capacity utilizationand the operating ratio. It will require intensivetraining in this area through a short capsule courseof one week especially designed for executiveofficers. Similarly advance inputs will be alsorequired for senior IRAS officers.

    It is therefore recommended that following stepsshould be taken to control agency cost in IR.

    (i) Long-term financial plan should be drawnincluding clear financial performance targets asindicated above in respect of operating ratioand other indicators at the corporate level.

    (j) Clear financial targets should be establishedat unit levels (micro level) with linkage withindividual civil servants as indicated above.

    (k) Effective management control system beestablished and implemented based on themacro financial indicators. Corrective actionshould be taken in case of negative variancesin a time bound manner.

    (l) All railway employees including managersirrespective of their rank should be givenfinancial incentives for positive variations inthe fashion indicated above.

    (m) The executive officers should be madepersonally responsible for time bound disposalof accounts/audit objections pertaining to theirunits. They should be rewarded for promptdisposal and penal action should be taken incase of default including adverse entry in theACR.

    (n) ACRs should be made totally transparent and

  • Article

    output based as per the targets suggested abovewith no scope for subjective interventions.

    (o) All executive officers should be made awareabout the concepts of corporate businesseconomics and finance through special short-term courses to be organized by RSC.

    (p) Finance officers must block proposals not inthe financial interests of the public/customers.IRAS officers are also required to be trainedin the concepts of advance financial managementand corporate business economics to enable themto render prudent financial advice and counterthe agency problems head on.

    (q) Right to Information Act should beimplemented in true spirit. This, in my opinion,with all inadequacies, is the most effectivetool to control deviant behavior of not onlythe bureaucracy but also the political class.

    If above steps are taken, I am sure that the agency

    problems in IR can be controlled to great extant.

    Scope for further research

    This article deals with broad conceptual frameworkof controlling agency costing public commercialenterprises and outlines steps for Indian Railways.It may be worthwhile to examine following areasrelated to this problem in greats details.

    (i) Internal conflicts of owners and its solutions.

    (ii) Controlling agency cost in non-commercialinstitutions.

    (iii) Designing comprehensive financial controlsystems encompassing important parametersto protect owners' interests.

    (iv) Expand the concept of agency cost from theexclusive domain of managers versus ownersto other stakeholders such as customers andgovt./society at large.



  • Article

    Operations on MajorDivisions: Selectedstatistics and someobservations

    Uppuluri Krishna Murty The Originating Loading of Indian Railways for theyear 2005- 06 has been 668 Mil l ion Tons(Approximate). The top six divisions originated 45 %(304 Million Tons) of this traffic. For our discussion letus call them major divisions. The remaining 61 divisions(medium and small divisions) contributed 55 % of theOriginating Loading. Table – 1 shows the details.

    The performance of the 6 major divisions:

    Table – 2 (placed at the end of the article) presentssome standard Operations parameters apart fromOriginating Loading of the six divisions for the years2004-5 and 2005-6.

    This exploratory note attempts to analyze the variousparameters of these six divisions and derive someconclusions. Majority of the observations are based onthis author’s personal experience. Prima facie, any studythat bases its findings on a set of isolated statistics is

    Sri Uppuluri Krishna Murty is IRTS officerof 1986 Examination Batch. He is currentlyposted as Senior Divisional OperationsManager at Secunderabad, South CentralRailway. Sri Krishna Murty has to his creditmore than 80 published articles and one bookon financial appraisal of transportationprojects.


  • unscientific and is not very useful. This author,however, hopes that even this limited study couldthrow some light on the constraints faced in thefield and the pattern of operations prevailing,which seem to be quite uniform across the sampleof study.

    A. Operations:

    1. These divisions have very high loco outages.This is probably because these divisions notonly have very high Originating Loading butalso handle an equally high inward traffic.

    2. The loco utilization, which is the mainparameter of rolling stock (Locomotives' andwagons' mobility) on these six divisions isaround 400 KMs for Diesel locomotives,strongly indicating that these divisions aregetting saturated and there are severecapacity constraints. The diesel utilizationon SC division is slightly higher than thatof other divisions.

    3. The loco utilization in case of electricallocomotives is between 400 to 470 KMs.

    SC Division is at the upper end ofthe spectrum along with Waltairdivision of East Coast Railway whilethe other divisions seem to be moreseriously choked.

    4. SW Railway deploys 80 %of the resources used for freightoperations on Hubli Division alone(One of the three divisions on thisrailway). SW Railway won the MR’sOperations Shield during the year2005-6. While the growth inoriginating traffic has been a healthy28 %, loco utilization, at 295 KMs,is one of the lowest among themajor divisions and the same doesnot reflect favorably on the assetutilization on this railway. To befair to them, we have to say that

    most of this is on account of congestionand the system features such as steepgradients that call for the use of triple headsand MUs.

    5. Some of the divisions have sections with steepruling gradients. On such divisions when thetraffic flow in the favorable direction is flowof empty stock, often most of the empty stockarrives with powers that cannot work the sameformations after loading in the loaded direction.Hence shortage of locos is experienced whenit comes to clearance of loaded stock.Intermittent supply of light engines bails outsuch divisions from the congestion createdin this manner. The incharge of operations,however, often faces the flak for this.

    6. Generally the loco requirements of a division(more so in the face of rapidly growing traffic)are not understood completely and the so calledpower plans (used to monitor power holdingof divisions on day to day basis), which areprepared by office staff in haste and typically

    Table – 1

    (Originating Loading - 2005-6 - for the top 6 divisions of IR)

    Originating Growth over Share inLoading during 2004-5 IR’s trafficthe year 2005-6

    Division in Million Tons

    Bilaspur 71.2 5.4 10.7

    Dhanbad 59.8 6.7 9.0

    Chakradharpur 57.6 21.0 8.6

    Secunderabad 40.4 10.8 6.0

    Asansol 37.9 13.9 5.7

    Waltair 36.8 8.8 5.5

    Combined OriginatingLoading of 6 Divisions 304 12.1 45

    Originating Loadingof IR 668 10.7 -




    based on thumb rules, get out dated quickly.

    7. Major Divisions are dotted with loading andunloading stations apart from sidings. Forexample, SC Division is serving 51 PrivateSidings and more than 25 Goods Sheds.Often the Station – Siding interface is ofvintage design and needs a review. Theaverage age of a siding is typically 25 years.These are not designed for the level of trafficcurrently handled by them. Hence sidingsare emerging as the bottlenecks. Onesuggestion is that we should convert Sidingsin to Block Stations and should haveappropriate systems of working. This wouldlead to considerable improvement in speeds.For bigger terminals we should go in forMGR type systems that avoid engine andBV reversals.

    8. A study was conducted on the pattern oftrain movements on KZJ – SC section ofSecunderabad Division. In this study datacollected through Data Loggers available atvarious stations was used. The intersectionalrunning times were studied. It is conclusivelyproved that the station – terminal interfacesrather than the inter-sectional distances limitthe section capacity. It implies that we canincrease the number of trains run on a sectionby redesigning the station – terminalinterfaces. Modifications to Station – Sidinginterfaces cost much less than works involvingdoubling, tripling or quadrupling of track.

    9. While railways recognized the inputs requiredin the sidings the customers seem to be ignoringthe need for strengthening the sidings obviouslybecause of the cost and effort involved. Tardymovement of trains in sidings and betweensidings and stations affects Indian Railwaysmore than the customers. There is nomechanism to compel the customers to investin sidings and improve them. On SC Divisionthere are sidings that are as long as 16 KMs

    but with maximum permissible speeds as lowas 10 KMPH. However in spite of recognizingthe problem and the solutions not much couldbe done at divisional level as the modificationworks cost a lot of money and the modificationproposals had to be sent to the Railway Boardfor sanction.

    10. Recently a drive was launched on the IRfor introducing 24 X 7 working at terminals.As on date only private sidings are, reallyspeaking, working on 24 X 7 basis. Theintroduction of the same at Goods Shedsis a myth so far. It is time we did someserious work in place of mere windowdressing. Demurrage and Wharfage chargesare the only controls that we have now. Therailways, the consignee, and the unloadingworkers are working within a loosely definedstructure. Unloading labor unions aremonopolizing Goods Sheds. With railwaysremaining indifferent anarchical situationsare prevailing in the Goods Sheds. Thesolution lies in privatizing the Goods Shedsor Opening Rail Side Warehouses.

    11. We still find several terminals under restrictionon any given day. This is not a healthysituation. Controls on the flow of wagons arean essential part of operations but that doesnot mean we resort to imposing restrictionsand indirectly throttle the marketing optionsof the customers. Development of theunloading should be the immediate thrust area.

    B. Planning:

    1. There is total lack of professionalism andno two Operating Officers agree as to wherethe bottleneck is and where the investmentshould go.

    2. Even if there is some long term planning,it is based on unscientific data collection,



    rudimentary data and its analyses, and finallyimpressions. When it comes to worksplanning Operations Officers with theirmyopic approach make such a poorimpression that their colleagues do not takethem seriously. Of much more seriousconcern is the fact that works are oftenfinalized without giving adequate weightageto the v iewpoint of the operat ionsdepartment.

    3. Typically a work could be pushed throughonly after an energy sapping and time-consuming consensus building exercise.

    4. Unfortunately, it is far easier to convincecolleagues from other departments whencompared to officers of OperatingDepartment.

    5. In an environment that is known for personaltouch rather than professionalism. Thefrequently changing senior managers oftenyearn for leaving a mark of their creativityon the plans with, some t imes, notsurprisingly, utter disregard for the worksprograms finalized by the predecessors.Hence we are in a state of constant flux.Nothing gets finalized.

    6. The solution lies in decentralizing powers.Preferably a DRM or at least a COM shouldbe able to decide about a terminal andits requirements and sanction necessaryworks.

    7. There is some thing seriously wrong withour planning. Investments seem to be goinginto areas where there is no traffic flow andbusy corridors seem to be getting severelycongested day by day. These big divisionshad earlier used to have loco utilization inthe range of 500 KMs. They are slowlysettling down to the utilization levels of400 KMs and less.

    8. Unless we reduce the gestation periods (Timerequired from concept to completion) ofprojects and make the DRMs feel that whatever they are planning would materializeduring their tenure, which at 2 years is veryshort, DRMs would not be motivated.

    9. We feel a need for an ADRM (O) positionfor all divisions. A strong ADRM (O) wouldbe able to ensure the necessary interdepartmental coordination so essential forthe timely execution of traffic facility workssuch as the development of terminals(coaching + freight). Some of the key resultareas of a division are such that a Sr. DOMwould not be able to manage alone. In theface of rapidly changing priorities for ropingin the contributions of other Departmentswe need some one senior enough in thehierarchy.

    10. Except for Divisions loading export cargo(Example: Hubli), others tend to be bigunloading Divisions also. This is becauseindustries that use raw materials are typicallylocated nearer to the sources of rawmaterials and hence fall within the boundariesof big Divisions. Unloading terminals needas much attention as loading terminals.

    C. Human Resources:

    11. It is no exaggeration if we say that the entirerank and file of the Operations Departmentseems to be rapidly getting out-dated. Whilethere are some isolated and unconnectedattempts to train the Officers through somelong and short term training programs, thereis no systemat ic at tempt within theOperations Department to add to theprofessional body of knowledge. There ishardly any training for the supervisory staffs.Another interesting phenomenon is that thoseofficers and staff who are found extremely



    competent in the field are not relieved orsponsored for training programs whereastraining hours are logged by time wasters,off icers and staff keen to acquirequalifications to further their own career outside railways, and others not keen to ploughback knowledge in to the system.Nominations for high profile training aregenerally made as a reward for past servicerather than as an investment for the future.Honestly speaking no one, including mostof the candidates planning to under gotraining, in the railways really expectsanything concrete from a training program.Senior managers of Indian railways have toshare part of the blame for the sorry stateof affairs.

    12. There was a time when competent andcommitted supervisory officials weregroomed in to officer positions by themanagement. The confidential reports werewritten to differentiate the chaff from thegrain. Now times have changed. Questionbank culture has set in. Question banks withhardly 100 or 150 questions are served alongwith answers in advance to the staffs.Questions are to be asked from the samequestion bank. Staff who do not even cometo work properly get 80 % and above inthese kind of selections. Those officers whotry to ensure a vigorous selection procedurein order to select the very best and themeritorious are ridiculed and in fact are seenas the villains!

    13. A glance at the jargon used by the Operatingcommunity and the tools and techniques inuse among them reveals the glar inginadequacies of this major Department thatis expected to play a vital role in the futureof Indian railways.

    14. The head of the Operations Department

    in a division is a Sr. DOM or DOM andmost of the time of this functionary isdevoted to day-to-day low-end tasks.

    15. In the face of excessive interference of staffunions in all matters and very adverse staffto officer ratio branch officers are findingit increasingly difficult to control staffs. Thenew entrants in to the Group D and C cadresare coming with higher educat ionalqualifications. There are cases of PhDs andMBAs applying for Group D positions. Someof the senior managers are not realizing thesesubtle changes and instead blaming thebranch officers for being soft and not toughenough.

    16. Big Divisions often suffer from acuteshortages of Crew and Guards. SC Divisionhad a shortage of about 250 persons (50%vacancies) in the Goods Guards cadre duringthe year 2005-6, which prevented thedivision from using the IBSs and the sectioncontrollers had a hell of a difficult timein managing control boards with crewstopping trains every where and demandingguards. Shor