Turnaround skills set for a new test

Turnaround skills set for a new test
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First Published: Mon, Feb 26 2007. 12 56 AM IST
Updated: Mon, Feb 26 2007. 12 56 AM IST
New Delhi: Three years ago, at a high-level meeting presided over by railway minister Lalu Prasad, officials were deadlocked over a plan to quickly boost revenues. One group was pushing hard to increase the freight load carried by coaches, somewhat similar to the Indian Railways’ habit of overloading its passenger coaches. The other group was opposing the move, fearful that overloaded freight coaches would take a toll on tracks and potentially cause safety problems.
In the thick of the back-and-forth, Prasad, who had just taken over as minister, suddenly realized that the tracks were already bearing an extra load because of the weight of the new-age locomotives, and were apparently none the worse for it. In an early display of what has come to be a signature style of functioning, and eschewing the side of those pushing safety concerns, Prasad ended the debate with an earthy Hindi one-liner: “Patri ko kya maaloom ki train mein aadmi hai ya saamaan? (How does the track know whether the train is carrying passengers or freight?)
The rest is history.
With each coach carrying a higher amount of lucrative freight—nearly 14% more on average—and an economy that has surged during his tenure as head of the railways—India’s largest single employer—revenues have soared dramatically, netting Prasad and his team nearly Rs5,000 crore in additional revenue, or one in every seven rupees it earns from the freight alone.
The success of the railways has given Prasad, who had been in the eye of a political storm for alleged malpractices during his tenure as chief minister of Bihar, a major image makeover, making him an unlikely hero of a turnaround story that has been globally feted, including becoming a case study for MBA students at places such as the Indian Institute of Management and the Harvard Business School.
It wasn’t just loading up on freight. In another gutsy move—one that his predecessor and current political rival Nitish Kumar contemplated but couldn’t bring himself to pull the trigger—Prasad threw open the railways to private-sector participation in the container business, again leading to a surge in revenue.
Later today, as the minister lists the achievements of the railways in the budget, number-crunchers will be sure to notice the railways’ operating ratio, which is projected to drop from an estimated 84% in 2005-06 to less than 80% in the current fiscal. That means for every Rs100 in revenue, there is now Rs20 left over after expenses for capital projects and improvements. The railways are also likely to report a projected massive cash surplus of Rs20,000 crore.
Not all of the turnaround has come from big, bold moves. In budget after budget presented to Parliament, Prasad didn’t announce any changes in the freight rates, typically the place where the Railways would propose once-a-year hikes. Instead, the Railways have quietly raised freight rates in the middle of the year, a radical departure from tradition. These hikes, according to data analysed and first reported byMint on 22 February, boosted freight collections for some commodities by as much as Rs700 crore. Meanwhile, Prasad, who cultivates a very strong man of the people image, is careful not to touch passenger fares, especially the second-class fares, and has introduced a slew of low-cost trains dubbed garib raths.
Today, his stature outside and clout within the government, ensures that Prasad’s decisions often get implemented much faster than most of his predecessors. While his immediate predecessor Kumar was methodically correct, Prasad is theatrically spontaneous. While other Railways ministers were often seen focused on passenger amenities, Prasad scores big with media when he swoops in on midnight raids—willing camera crews on hand—at remote loading yards, where he dramatically hands out fines to illegal wagonloaders.
“Laluji pursued and accelerated initiatives taken by Nitish Kumar,” says R.K. Singh, former chairman of Railway Board, who served under both ministers. “Under Nitishji’s tenure (August 2001–May 2004), arrears of the past 13 years were cleared and the track was laid for development. Laluji came up with further proposals, like increasing permissible load limits for freight wagons, tariff rationalisation, reducing turnaround time for wagons and allowing round-the-clock loading and unloading of wagons.”
Prasad has also been a savvy politician making sure his needs are coupled with other political largesse, for instance, announcing a new rail coach factory in Congress chief Sonia Gandhi’s constituency Rae Bareilly to coincide plans for a wagon factory in Bihar’s Saran district, which happens to include his own constituency, Chhapra. Since then, the railways have announced another factory in one more of his constituencies, Madhepura.
Ahead of the budget, some observers are beginning to point out that the railways may have almost reached the limit of revenue maximization through freight rate hikes, especially since inflation has become the key political issue and fingers are already being pointed to the railways for boosting the costs of some commodities. Just one day before the budget, Prasad himself appears to be backtracking on the issue, indicating a possible cut in freight rates.
Despite its surging cash surplus, the next five years are likely to be a major financial stretch for the railways. Consider this: while for 50 years, the Plan outlay for the railways totalled Rs1,53,855 crore, its wish list just for the 11th Plan (2007-12) totals a whopping Rs2,44,129 crore. With government unlikely to fund much of this, Prasad will have to turn to the private sector, including those who have teamed up in the container business and those who have taken a hit with freight rates, to help sustain his turnaround legacy for the long haul.
Ashish.S@livemint.com
Pragya Singh also contributed to this story.
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First Published: Mon, Feb 26 2007. 12 56 AM IST
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