Financial Turnaround of the Indian Railways: A case study

We analyse the factors that led to the turnaround of the Indian Railways from a low performing organisation to a high performing one. Literature on public sector turnaround provides the theoretical underpinnings. Enterprise turnaround is often ascribed to managerial leadership; we found that environmental factors (good luck) also contribute to the success. The implication of our study is that an organisation’s turnaround success needs to be put in a wider context. Email: [email protected] T: 612 6201 5489 F: 612 6201 5238 *Corresponding author On 15 April 2006, the Washington Times carried a lead story on the turnaround of the Indian Railways (IR) — a departmental organisation run by the Government of India (GOI). It stated ‘... few now doubt that Mr Yadav (Minister for Railways) has presided over an impressive business turnaround ... more importantly, he’s taken the world’s largest employer — a government giant of 1.5 million employees — and boosted revenues by 15.5 percent without raising fares’ (Nelson, 2006:1). Pai Panandiker states ‘Indian Railways has turned around and made an estimated profit of $2.5 billion in 2005–2006. What is important, however, is that, unlike previous ministers, Mr. Yadav has looked upon Railways as a commercial enterprise and not a social welfare institution. [He] is a hard taskmaster and will ensure his subordinates carry out the projects’ (Pai Panandikar, 2006:1). The former Railway Minister (Mr Nitish Kumar), however, claimed that the foundation for the turnaround was laid down by him, the results of which are being realized now. In the media interviews, he charged that Mr Yadav (who became the Railway Minister in May 2004) is usurping the credit for the IR success. It is important to note at this stage, that since 2004 the growth rate of the Indian economy has nearly doubled as compared to the three years prior to that. Did the favorable economic environment help the IR turnaround or was it only due to the managerial leadership provided by Mr Yadav — the current Railway Minister? What caused the IR turnaround — good management, good luck or both — this is the question that we explore in this paper within the framework of public sector turnaround literature. The study is important for several reasons. First, there is a growing interest worldwide in strategies for turnaround of public services because of the growing awareness that public resources need to be efficiently deployed. Beeri (2006), states ‘the wide interest in New Public Management (in UK) created a different reality that has less tolerance toward failures’. Studies by Boyne (2002); Glynn and Murphy (1996) also underscore this changed reality. The case of the IR is particularly important given the large investment of the GOI in the IR and the need to get adequate return on investment. Second, the research on turnaround has largely focussed on the impact of managerial strategies. Boyne and Meier (2005), however, argue that ‘turnaround is also attributable to good luck, defined as a favourable shift in external conditions that are beyond the control of a failing organisation’. We examine the IR turnaround from both these perspectives — good luck and good management. ASARC Working Paper 2008/06 1 ASARC Working Paper 2008/06 Last, public sector turnaround studies so far have focussed on local councils, utilities, housing authority, police department etc. Railways are one of the largest public services organisations and interestingly haven’t been subjected to research in the public sector turnaround literature. Our study fills this gap. As already stated, the central question we attempt to answer is: What factors have led to the turnaround of the IR: Good luck, good management or both? To achieve the aim of the study we use the case study method. This method is suitable for the objectives of the study given the uniqueness of the IR in particular, which will be evident from the description given in paragraphs that follow. The theory of public sector turnaround underpins this case study. Publicly available data about the IR has been analysed. We found that both managerial leadership and good luck contributed to the success of the IR. We suggest that turnaround successes need to be put in a wider context. Besides managerial actions, favourable environment also contributes to the success — an aspect that has hardly received attention in organisational turnaround studies. The paper is organised as follows. Section 2 provides an overview of the financial performance of the IR. Section 3 reviews the literature on strategies for public sector turnaround Section 4 is about data and method, section 5 is about analysis and results and Section 6 concludes. OVERVIEW OF THE FINANCIAL PERFORMANCE OF THE INDIAN RAILWAYS The IR is a departmental activity of the GOI. It is the largest organization in India, with a capital investment of about of ‘Rs 55,000 crores ... [and] has also been pivotal to the developing economy of the country as a whole’ (SCOR, 2005:6). The IR accounts for nearly one percent of the GDP and with a staff of 1.5 million is the largest employer in the organized sector. The IR is the principal public transport in the country. It has a total length of 63,322 km (second largest in the world), carries 14 million passengers per day and has a separate budget — distinct from the GOI budget. According to the World Bank, the IR is one of the top five national railway systems in the world; others being the United States, former Soviet Union, Canada and China 1 Rs 550 billion. Rs 40 is equal to one USD approximately.