Turnaround of Indian Railways under Mr. Lalu Prasad Yadav - a CounterView

VijayCN
VijayCN / 6 yrs ago /
  2

My Grand father used to tell me

“The nobler sort of man emphasizes the good qualities in others, and does not accentuate the bad. The inferior does” – meaning we need to consider the good qualities in others and leave the bad ones for themselves to handle.

In India, when we think about people with bad qualities/values, what we see is all our politicians lined up. And among them, one stands up and tall. He is the one and only Mr. Lalu Prasad Yadav.

Most of India perceives Lalu as a village bumpkin, an ILL-Literate politician, a person who has ruled and ruined Bihar and a corrupt individual involved in the Fodder scam and a politician facing a lot of corruption charges.

However one of the most prestigious management institutes in India tried to take an unbiased stand and looked at the Great Turnaround of the Indian Railways, all they could see were the achievements of the current Railway Minister – Mr. Lalu Prasad Yadav.

I remembered my grand father’s words and said to my self that I need to learn from Mr. Lalu Prasad Yadav, his leadership qualities.

But after a thorough research I was convinced that Lalu is what most of India perceives him as.

 

Let me tell you what happened to the Indian Railways in the last 3-4 years. To put in short, the Government recognized the reason for change and drove the process of change in a spirited and passionate manner with conviction. So, the big question is how did a lethargic government suddenly woke up and turned the Indian Railways, which was declared to be heading towards bankruptcy , into today’s  second largest profit making Public Sector Undertaking after ONGC.

The Expert-Group report submitted in July 2001 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 61,000 crores… On a pure operating level, IR is in a terminal debt trap.”

 

The essence of the ‘turnaround’ was in the fact that

(i)                   Total revenues increased by a significant percentage in the last three years, and

(ii)                 The net revenues continued a robust upward trend.

 

This is not only due to the rising trend of performance, but also due to the significant growth in the past two years. These two years coincided with Mr. Lalu Prasad being at the helm of affairs of the Indian Railway, having moved into his position on 23rd May, 2004. Railway officials later called this as the ‘turnaround’ of Indian Railways.

Initially, when I researched over the internet about the IR (Indian Railway) turnaround, I found a lot of leadership qualities of Mr. Lalu. But, as I mentioned earlier, as the research went on and on Mr, Lalu for me became same old Lalu of Bihar.

This is how it goes… from positive to negative…

One could always argue that this performance of the Indian Railways is a function of the general buoyancy in the Indian economy and also most of the reforms were initiated by the former Railway Minister Mr. Nitish Kumar. Let me take them one by one.

Even if the economy is good, it needed leadership at all levels to bring Indian Railways to what it is today. I think the transformation of leadership across all levels was the key to the success of the Railways and this transformation should have started right at the top in the office of the Railway Minister – Mr. Lalu Prasad Yadav.

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. Infact, 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.

 

Lalu’s leadership style was different. The way he executed the strategies was different. Initiatives that directly benefited the passenger segment have been a mainstay of most of the Railway ministers. Amongst the most significant were the passenger reservation system and Shatabdi class of trains initiated by Mr. Madhav Rao Scindia.

But, Lalu’s style was different.

Initiatives of market oriented tariffs; asset utilization and competition in container movement are attributable to Mr. Lalu Prasad.

 

The operationalisation of the various strategies over the past two years 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 and empowerment and delegation. With whatever has been achieved in the ‘turnaround,’ Mr Lalu Prasad has demonstrated that good economics is good politicsMr. Lalu Prasad is a non-interfering, yet an aware Railway Minister, who sets the goals and expects results.” was stated by most of the ex-Members and the current Members of the Board. “This has given him a position of strength to build organizational alignment to see through fundamental initiatives.” It appears that the current Members of the Board function as a cohesive entity, due to the force of expectation on legitimate initiatives.

 

I personally do not agree with the above view point. I have reasons for that. I agree that the enterprise leadership is often ascribed to managerial leadership, but I also feel that a lot of environmental factors (I collectively call it “Good Luck”) contributed in a substantial way in the success of the Indian Railway.

 

Some of the key strategies the Indian Railways adopted were

  • Downsizing

The number of employees, which peaked at 1.652 million in 1991, was brought down progressively to 1.472 million by 2003, and to 1.412 million by 2006. One of the elements of retrenchment strategy is to trim off excess staff. The approach that the IR adopted was not to fill in vacancies created due to retirement or other reasons.

 

  • Outsourcing

Besides the catering and parcel service activity, the IR also outsourced advertising activity. In the other business areas of parcel, catering and advertising, the strategy of outsourcing through public private partnership and wholesaling rather than retailing was adopted

 

  • Product Innovation

The IR introduced double stack container trains on some diesel routes. These containers increased the carrying capacity of each train to 2,500 tonnes against 1,500 tonnes, and also reduced line capacity constraint by nearly half and ‘led to saving of about seven percent on capital cost and 25 percent in operating expense’

Further, it introduced new design of wagons with higher pay load (carrying capacity) but lower tare weight (weight of the empty wagon) that improved safety

features. The effect of these measures can be seen in higher freight revenue.

 

 

  • Rise in demand 

The rise in freight revenue - the main plank of the IR turnaround. IR raised the freight on iron ore by 17%.

 

 

 

 

All the strategies were ascribed to the leadership qualities of Mr. Yadav. But I have a counter view on all these. Let me take them one-by-one and at the end add a couple more which I think were purely environmental (Good Luck)

  • Downsizing

Yes, there was a downsize in the number of employees in the IR. The approach that the IR adopted was not to fill in vacancies created due to retirement or other reasons. This approach commenced substantially during the term of Mr Nitish Kumar as the Railway Minister and has been continued by Mr Yadav but at a slower pace. You can get the evidence for this on the Internet.

 

  • Outsourcing

It is said that the retrenchment strategy for outsourcing helped the IR to contain costs which ultimately helped its turnaround.

Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an organization's operations. Retrenchment is also a reduction of expenditures in order to become financially stable.

Retrenchment is a pullback or a withdrawal from offering some current products or serving some markets.

But, there is no evidence, however, to suggest that sub-strategies like sale of assets, withdrawing from markets where the firm is performing poorly, and reducing scale of operations were used by the IR under the overall retrenchment strategy. In summary, this strategy was used only in a limited form and was most effective during the period of Mr Nitish Kumar as IR minister.

 

  • Product Innovation

The IR introduced double stack container trains on some diesel routes. These containers increased the carrying capacity of each train to 2,500 tonnes against 1,500 tonnes, and also reduced line capacity constraint by nearly half and ‘led to saving of about seven percent on capital cost and 25 percent in operating expense’

 

The increase in axle loading has created increased instances of stress on the rail track. Media reports state that The East Coast Railway reported a 42 per cent increase in rail fractures, increased instances of wheel slipping and stalling, increase in ‘sick detachment’ (wagons needing repairs), and failure of important equipment in electric locos. The South Eastern Railway reported increased en route detachment due to wagon body bulging, stalling and wheel burns, and vulnerability of a large number of bridges. Southern Railway reported increase in spring failures and brake beam defects, and in overall sick marking. South Central Railway pointed out stalling of wagons carrying load above their capacity, and also increased rail and weld fractures. These were the very concerns experts had voiced when the railways decided to increase the axle load without any trials and without the requisite approval of the chief commissioner railway safety.

 

  • Rise in demand          

The rise in freight revenue - the main plank of the IR 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. 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.

 

Having discussed all these points, there is a serious concern about how the turnaround will be sustained. The technical factors like increase in stress on the rail track, increase in the axle loading, welding fracture etc would lead to serious damages in the future and IR might have to spend a lot in repair and upgradation of the rails. This will have adverse affect on the railway surplus in the years to come.

 

The US sub-prime crisis will adversely impact US economic growth and hence on the demand for imports. This may reduce the growth of Indian exports both directly and Indirectly. In addition the Indian Rupees is tending to appreciate against the US dollar and this may also have similar impact on Indian exports. Further, the suspension of iron ore exports would lead to decline in railway revenue as it is one of the major.

Though the impact of these factors is not quantifiable at this stage, nevertheless it is reasonable to conclude that the net operating surplus is likely to decline.

 

Mr. Lalu Prasad Yadav is in the fag end of his current tenure. The current government may or may not be elected back to power again. Mr. Yadav may or may not be the railway minister again. Even if the UPA government comes back to power, he might choose a different port folio. It will be up to the next Railway minister to handle the situation of decline in the operating surplus. Now I understand why Mr. Lalu Prasad Yadav, chose the Railway ministry. He might have been advised by his ‘political advisers’ that the Indian Railway was on the verge of a turn around. It was his mere luck that it all happened during his tenure. I see no reason why he was called in to throw a guest lecture at a prestigious management school in India. He might have thrown in some fodder instead of a lecture. May be that is the reason nothing about that so called “lecture” is published for the public.

 

At this time I remember what my brother used to tell me:

Think not the Cost of living; think at whose cost you are living.





manoj kamra / / 6 yrs ago
manoj kamra

i visalize railway safety to be a thing of past due to extra axle load without conducting detailed study of its effect on track,rolling stock.
no additional arrangement have been made to strenghen the track for extra loading.
regards
manoj k.kamra


maddss123 / / 6 yrs ago
maddss123

my dear vijaycn

i must congratulate you for excellent analysis of the events leading to turn around of railways, i have been a keen watcher for  sectors such as railway.

the reasons sited by you are on dot, it was co -incidental that laloo holds the fort at rail bhawan without actually having any clue how railways function.

it was deliberate attempt by union govt to project laloo as savior as he was unhappy with the portfolio of railway, he dreamt of being home minister.

the team left behind by nitish kumar needs to be complemented for the turn around.

regards



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