Financial turnaround of Indian Railways (B)

Abstract

Subject area Financial management, strategic management. Study level/applicability The study can be used by business schools, companies/organizations, individuals, students of business management, in the area of financial and strategic management to study and analyse management strategies by a Government organization that has to balance social objectives and commercial viability. Case overview Indian Railways (IR) has mixed operations – passenger and freight – that generate resources for its development expenditure, as well as fully covering its operational costs. This is in sharp contrast to most world railways that depend on a subsidy for operations and development expenditure. While IR would strive to increase earnings through higher throughput levels and generate more funds through its own resources, the constraints of fixed expenditure, largely comprising staff related expenses and fuel costs make it difficult to achieve the target. Operational and safety considerations dictate the need to ensure adequate provision for working expenses. Global developments significantly influenced the Indian economy after 2008-2009 and resulted in moderation in growth compared with the robust growth in preceding years. IR is presently passing through a difficult phase which began with the slowdown in the economy and implementation of the Sixth Pay Commission's recommendations. While earnings continue to grow both in the passenger and goods segments, the expenditure on account of increases in salaries, allowances and pensions has been much higher than after previous Pay Commissions. This case explores this difficult period for IR when there was a major increase in operating expenditure largely due to the implementation of the recommendations of the Sixth Central Pay Commission and because of the global economic slowdown. Expected learning outcomes These include: being able to analyse whether the turnaround phase of IR is over; and discussing the strategies to return IR to the path of growth. Supplementary materials Teaching notes are available; please consult your librarian for access.