Performance Assessment Study of Indian Railways – Case of Low Efficiencies in Large Government Monopoly

Abstract

Indian Railways is the world’s largest government-owned monopoly, annually carrying passenger numbers that surpass the global population. It is world’s fourth largest rail network after the U.S.A., China, and Russia, and is managed by a separate Ministry of Railways. The operating ratios have consistently been around 90% in the past several years, indicating that that the capability to generate operational surplus is low. Further, its expenditure on staff and their pensions has been increasing. Consequently, capacity growth is increasingly being funded through borrowings, which threatens to further worsen the financial situation. Thus, railway services in India are often perceived as being inefficient and unsatisfactory. However, this perception of inefficient services has no scientific basis as mid- and micro-level efficiency analyses of Indian Railways have never been carried out. This paper adopts a data envelopment analysis (DEA)-based approach to evaluate the performance efficiencies of the 69 divisions of Indian Railways. Six models that deploy a range of performance indicators like operating expenditures, numbers of staff employed or passengers carried, freight carried, rail network length, and revenues generated have been employed to assess efficiencies. The results demonstrate the existence of significant inefficiencies that may possibly be attributed to lack of proper management, planning policies, and mis-governance, resulting in significant financial losses. The paper discusses these issues and the policy reforms needed in the developing country context, while suggesting some reforms that may lead to improved sector performances.