Management Accountant July 2018

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in July 2018 l The Management Accountant 1

2 The Management Accountant l July 2018 www.icmai.in
www.icmai.in July 2018 l The Management Accountant 3
4
The Management Accountant
l
July 2018
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ICAI-CMA SNAPSHOTS
GLIMPSES OF SOUTH ASIAN FEDERATION OF ACCOUNTANTS (SAFA) INTERNATIONAL
CONFERENCE 2018 ON ‘PROFESSIONALS OF THE FUTURE: THOUGHTS ON 2018 &
BEYOND’, JUNE 29, 2018, NEW DELHI


ICAI-CMA SNAPSHOTS

ICAI-CMA SNAPSHOTS
 
  Shri Bhupender Yadav, Member of Parliament (BJP), 

Rajya Sabha and National General Secretary of Bharatiya Janata
Party being felicitated by CMA Sanjay Gupta, President and CMA
Niranjan Mishra, Council Member of the Institute during his visit at
CMA Bhawan, New Delhi during “Sampark Abhiyan”

 Glimpses of National Seminar on the theme “New
Eras in CMA Profession: Goods & Services Tax and Insolvency &
Bankruptcy Code, 2016” organized by Bilaspur Chapter of the
Institute on 10th June 2018 at Bilaspur

 Glimpses of Programme on 'Company Law & NCLT' and
Members’ meet with President organized by the Hyderabad Chapter
of the Institute on 08th & 9th June, 2018 in Hyderabad
 

ICAI-CMA SNAPSHOTS
 
  CMA Sanjay Gupta, President of the Institute, presenting

Momento to Dr. Mamata Suri, Executive Director, Insolvency and
Bankruptcy Board of India during the Programme on 'Company Law
& NCLT' organized by the Hyderabad Chapter of the Institute on
08th & 9th June, 2018 in Hyderabad
 Heartiest Congratulations to Team CMA for winning "CMA

Challenger Cricket Cup 2018" by beating Hewlett Packard -HP Team
in Finale held in Delhi on 2nd June, 2018
 CMA Niranjan Mishra, Chairman, Taxation Committee

of the Institute inaugurating the second batch of GST Course
 at Chennai, SIRC
CMA H Padmanabhan, Vice President of the Institute and
Chairman SIRC, CMA Dr A Mayil Murugan are also seen
 CMA H Padmanabhan, Vice President of the Institute

addressing during inauguration of second batch of GST
Course in Chennai SIRC
From Left: CMA Dr A Mayil Murugan, Chairman SIRC,
CMA Niranjan Mishra, Chairman Taxation Committee, CMA
K Suryanarayanan, RCM SIRC and CMA S Subhashini ,
Resource Person are also seen on the dais
 CMA H Padmanabhan, Vice President addressing at

 ICAI Members Meet at SIRC Chennai
CMA Niranjan Mishra, Chairman Taxation Committee,
CMA Dr A Mayil Murugan Chairman SIRC and CMA K
Suryanarayanan RCM SIRC were also present
  Release of Research Bulletin, Vol 43 No IV, January

2018 at the seminar on ‘GST-Concept & Applied Aspects’
on 9th June, 2018 jointly organized by Directorate of
Advanced Studies of the Institute and Institute of Business
Management, Jadavpur University at Jadavpur University
Campus, Kolkata
 

COVER STORY
ROLE OF COST ACCOUNTANTS
IN INDIAN RAILWAYS

COVER STORY
CMA Aruna Mohan

Sr. Cost Accountant
Indian Railways
Chennai
T
he role of Cost Accountants in Indian Railways has Table 1: Year-wise implementation of Costing in Indian
gained phenomenal prominence over the years. Railways until 1992
There has been emphasis for Costing analysis and
COSTING SYSTEM YEAR PURPOSE
control of activities by maintaining Cost records
from early days. The process of change from mere cost Production activities in
Job Costing 1962 the workshop
accounting to aiding the Management in crucial decision
Wagon production at
making has been narrated stage-wise in this article. This Batch Costing 1965
Golden rock workshop
article is intended to high light the ever-increasing role
Costing of Foundry &
and potential of CMAs in Cost and Management Account
Sawmill shop activities-
practices. Process Costing 1992 Now dispensed with
consequent to closure of
Some Railway Terminologies for Quick shops.
Reference:
Scope of the Article
RS: ROLLING STOCK The core activity of Railways is transportation. However,
POH: PERIODICAL OVERHAUL the scope of this article covers the Cost and Management
LOC: LABOUR ON COST practices practiced in Workshops, the domain I am familiar
MOC: MATERIAL ON COST with for the past two decades. To keep the Rolling Stock
DEMU: DIESEL ELECTRICAL MULTIPLE UNIT track worthy, day to day maintenance at running sheds,
RSP: ROLLING STOCK PROGRAMME Intermediate Overhaul at Depots (Open line) and Periodical
M&P: MACHINERY AND PLANT Overhaul (POH) at Workshops are being carried out at
URC: UNIT REPAIR COST stipulated intervals.
IMMS: INTEGRATED MATERIAL MANAGEMENT SYSTEM
AIMS: ACCOUNTING INFORMATION MANAGEMENT System of Costing for Rolling Stock Maintenance
SYSTEM in Indian Railways
PER: PERAMBUR Figure 1: Costing system for arriving at URC of Coaches
KRCL: KONKAN RAILWAY CORPORATION LTD. and Wagons
Inception of Costing:
Until 1996, the scope of Costing in Indian Railways was
restricted to production units and production activities
carried out in workshops. Most workshops in Railways,
engaged in carrying out Rolling stock maintenance activities,
were manufacturing spares used for POH. Table 1 explains
below, the year-wise implementation of various types of
costing in Workshop Accounts of Railways.

Figure 2: Costing system for arriving at URC of AC Locos
Table 2: Extension of Costing to Repair Activities cost in respect of major repair activity whereas the rest of
the systems were only for ascertaining production cost. The
COSTING SYSTEM YEAR PURPOSE salient features are:
Contemplated by
Revised Costing RITES for Electric The cost incurred is divided into three categories viz.
1996-97
System Loco wise costing in Group ‘A’, Group ‘B’ & Group ‘C’:
Fox pro
Developed “in-house” I. Group ‘A’ cost is usually the scheduled repair to be
Uniform Costing 2010-11 software application attended to in respect of all locos and hence the total
in Oracle D-2k cost incurred under this group is averaged among the
locos turned out during that month
DEMU wise costing
for POH/ special re-
II. Each sub-activity is identified as a cost center and the
DEMU Costing 2013-14 pairs in Oracle D-2k
software application cost will be collected cost center wise.
forms.
III. Group ‘B’ cost is the cost incurred on each loco based
Coach wise type wise on the condition of the individual loco.
costing for POH and
Coachwise Costing 2017-18
other repairs in Ora-
IV.Additional expenditure on account of re-cabling and
cle - similar module.
modifications carried out are collected and accounted
Revised Costing System: under different cost centers.
This system of costing contemplated by RITES in Fox Pro
was used for arriving at the POH cost incurred per loco. This V. Group ‘C’ cost reflects the high-value items replaced in
has been implemented in respect of Electric Loco at Loco respect of individual loco turned out during the month.
Workshop/PER and Diesel Loco at Golden rock workshop.
This is the first system introduced to arrive at unit repair VI.All expenditure booked cost center wise are

COVER STORY
apportioned to the locos turned out during the month Benefits of Rolling Stock Wise Costing (Poh Repair
based on standard Pre Determined ratio (based on Activity)
equated output).  Controls Overcharging of Revenue Head to reflect
realistic Operating Ratio.
VII. The greatest advantage of this system is that the
material cost is related to consumption per Loco.  Eliminates undercharging other railways ensure
effective clearance of WMS (Workshop Manufacture
VIII. The Inter Railway POH bills for Electric Locos are Suspense) balance.
generated based on this RCS system.
 Meaningful comparison of inter Railway cost of POH
IX. This enables comparison of the unit activity cost of (URC).
Electric locos repaired every month.
 Actual consumption of material and labour booking for
X. For comparison purpose, Group ‘A’ cost alone is taken each coach is billed.
as standard POH cost
 Modification works undertaken during the course of
However, this was not linked to financial Accounts POH- booked to respective RSP or other relevant Head.
and could not be continued in the outdated software.
 Arrive at cost of Coach POH type wise
Uniform Costing System:  Stores and labour data can be imported to this module
The shortcomings noticed in the Revised Costing System from IMMS/AIMS.
were addressed and on the similar lines Uniform Costing
System, a software application was developed in Oracle and  Each section is considered as a cost center for the
D-2k forms “In-House” and implemented from June 2010 for collection of expenditure.
POH of Electric Locomotives done at Perambur Locomotive
Workshops. In this system, averaging Group A cost among Periodical Special Studies
all Locos turned out during the month has been dispensed The following studies were made and reported in the last
with and specific consumption of materials to each Loco is few years:
billed. This system is linked to Financial Accounts.
 The Rolling Stock of Railways viz. Coaches; Wagons and
Evolution of Demu Wise Costing: Locomotives are due for POH at Scheduled period of 18
Workshops in Railways are more keen on achieving their months, 54 months and 72 months respectively. POH
targeted outturn than the cost associated with it. A study given before the prescribed due dates are termed as
on POH of one rake of DEMU owned by KRCL -(Diesel Power premature POH.
Car & 3 Trailer Coaches) was done. Outcome of the study
revealed more than 50% under absorption of cost based  The impact of premature POH of wagons and other
on the average Costing system. This Financial implication Rolling stock were studied and reported to Mechanical
was explained to the staff concerned at Loco workshop/ Department. This has now resulted in drastic reduction
PER and immediately costing on real-time basis was agreed in the arising of premature POH.
to be implemented for DEMU activity. Workshop Accounts/
PER Computer section developed an in-house software  A detailed report on under-utilization of High-Value
application for DEMU wise costing in Oracle and D-2k forms Machines was submitted highlighting the probable loss
and is fully operational from 2013-14. to railways. This data will be useful for planning M&P
procurement in ensuing years.
Coach Wise Costing System  An outsourcing proposal to rebuild Wagons was

Similar module for Coach Wise Costing at Loco averted. The surplus manpower availability executing
Workshop/PER has been implemented from January 2018. the work in the workshop was proved and has resulted
All diversified activities of Loco Workshop/PER have been in enormous savings to Railways.
brought under the network of Costing system.

 Benefits on the introduction of new group incentive  Ensure correct allocation and apportionment of
scheme by replacing the old scheme introduced in 1962 expenditure to various activities.
highlighted probable recurring savings and benefits to
the organization.  Suggest ways and means in pruning down overhead
expenditure
 Life Cycle Cost of few high-value machines was worked
out and submitted to Board at Board’s instance under  Assess the actual cost of each activity carried out.
thematic study.
 Aid in effective inventory control to avoid locking up
 Individual study on Manpower requirement Vs of funds.
availability for each activity/ shop done at various
stages.  Suggestions to augment railway earnings from traffic
and other avenues.
 A detailed study was conducted on wide variation
in URC of common POH activities among various  Assist in implementation of ERP in future.
workshops of Southern Railway.
Conclusion
 This lead to some standardization of man-hours for
scheduled POH in 3 Mechanical workshops of Southern Every one will appreciate that Indian Railways is a huge
Railway. Capital Intensive Organisation involving large amounts of
Operational Outlay. The need for achieving Excellence in
 Coordinated for bringing out revised Code (Operational Managing Costs in such an Organisation will be apparent.
guidelines) for Mechanical Department. The Scope for Contribution by Cost Management
Professionals here is immense in areas like Capacity
Of late, fresh outsourcing proposals are also routed Planning, Resoure allocation and utilisation, Investment
through CMA to assess the exact manpower requirement Decisions, Measurement of Operational efficiency,
Vs availability in pre and Post outsourcing periods. Outsourcing decisions, Waste elimination, Cost Conscious
Shop Floor Practices, Cost control iniatives etc.,
The above studies imply the switchover of the role of I venture to make this presentation as a member
Cost Accountant in Railways from mere Cost accounting of the Cost Management Profession Employed
to Management Accounting in line with the change of in the Railways.
name of our Institute.
The role of CMA in Railways is to highlight and guide the

top Management to take right decisions at right time on the
following issues.
 Identify the areas requiring better utilization of available

resources. laruna1965@gmail.com
 Whether to continue “in-house” or outsource old or new

activities.
 If outsourcing is preferred, what quantum and when to

outsource.
 Alternate use of spare available resources.
 Identify areas of avoidable expenditure and monitor

their non recurrence.

COVER STORY
COST AND MANAGEMENT

ACCOUNTANT
A SILVER BULLET FOR
INDIAN RAILWAYS

CMA Kalyani Karna
Cost Accountant
Kalyani & Co
New Delhi
“Desh ko Gati bhi Rail se milegi aur pragati bhi”- Level 1:

Hon. Prime Minister Shri Narendra Modi. The vision has been segregated into nine themes. Eight
C
themes have been derived from Rail Vikas Shivir and one
ost and management accountant can act as theme is additional for developing sustainability.
a catalyst in “Gati” and “Pragati” of India with
the implementation of cost reduction and cost Level 2:
controlling techniques and strategic management. Nine themes have been divided into sub themes.
Railway envisages being an engine for India’s growth and
development by building robust infrastructure to support Level 3:
40% modal freight. It aims to be near “Zero fatality” The strategic initiatives have been identified for each sub
performance leveraging latest technology and taking theme.
proactive approaches to ensure sustainability. Indian
Railway is a crown jewel of India and makes Indian feel Level 4:
proud at global arena as Indian rail network is the fourth Action plan has been prepared for each initiative.
longest network in the world with operating route length
more than 68,525 km. The United States has the world’s Figure 1: Four levels of theme cost focus
longest railway network (over 250,000 km), followed by
China (124,000 km) Russia (86,000 km) and India (68,525
km) [Source: erail.in]. Cost reduction and cost control stand
imperative for all industries irrespective of the nature of
market like monopoly or perfect competition. Reduction and
controlling of cost will enable Railways to pass the benefit
to the society at large. Cost and management accountant
can be the best resource person to make researches and
suggest measures for cost control and other strategic
management methods for enhancing operational efficiency
thereby acting as a game changer for the pride of India.
Theme COST FOCUS in Vision 2017-19 of Indian

Railways:
Vision and plans 2017-19 of Indian Railways aim to provide
safe mode of transport and to be key driver for the growth Cost focus is one of the nine themes of Indian Railways
and development of our country with financial viability and Vision 2017-2019. The cost focus targets to reduce
sustainability. The strategic roadmap to achieve the vision operational cost by 10% in five years. The cost focus has
of 2017-2019 has been divided at four levels. been divided into three sub themes.

COVER STORY
Figure 2: Sub-themes of Cost focus Asset utilization Implementation of

programs to enhance
asset utilisation like
wagon utilisation and
coach utilisation.
Regulatory Setting up regulator
to recommend pas-
senger and freight
fares.
The COST FOCUS aims to reduce the operating expenses

These three sub-themes have been identified with several with several initiatives and action plans.
strategic initiatives. These initiatives and their action plans
of Vision 2017-19 are as follows: Operating ratio of Indian Railways:
Operating ratio is the ratio of operating expenses divided
Figure 3: Theme Cost focus of Vision 2017-19 of Indian by operating revenues. It helps to determine the amount
Railways spent in order to earn one rupee. Lower operating ratio is
desirable for better financial health. The operating ratio for
COST FOCUS
financial year 2018-19 has been estimated to be 92.8% as
against 96% in year 2017-18. But operating ratio for the
Sub-theme Initiatives Description financial year 2017-18 dipped to 98.5% and marked as
worst operating ratio since the year 2000-2001 (98.3%).
Variable cost Reduction of Reduction of fuel cost
reduction fuel cost by 20% with the elec- Ministry of Railways blamed to 7th pay commission for
trification of wagon increase in operating expenses due to increase in payment
and out sourcing of for salaries (increased payment by Rs. 20,000 crore). And,
power to reduce per Railways could raise only Rs. 10,000 crore out of Rs. 20,000
unit cost. crore set as the revenue target from the land monetisation.
Saving fuel costs Application of Ad- The best operating ratio for Railways remained 74.7% for
in diesel locomo- vanced Fuel Efficiency the year 1963-64. The operating ratio is computed in the
tives Kit (AFEK) and Guid- following manner:
ance for Optimised
Loco driving (GOLD) Gross working expense
module will be issued Operating ratio = x100
Gross earnings
with targeted fuel sav-
ings of 8-10%. Gross working expenses and gross earnings are computed
Procurement Target to achieve pro- in the following manner:
efficiency curement efficiency
for top 10 spend items Gross earning=Coaching earning + Goods earning + Other
other than fuel. earning (less refund)
Fixed cost Adoption of Installation of End
reduction EOTT of Train Telemetry to Gross woking expenses=Ordinary working expenses
replace Goods Train + Appropriation to Depreciatation reserve fund +
Guard. Appropriation to pension fund
Right sizing Optimisation of man-
power by multi-skill- The pattern of operating ratio for Indian Railways can be
ing, deployment and viewed as follows:
intake reduction.
Skills can be bundled
Figure 4: Operating ratio of Railways
for roles.
Year Operating ratio
Operational Accounting Implementation of
efficiency reforms accounting reforms 2012-13 90.19%
will ensure correla-
tion between inputs
and outputs. 2013-14 93.5%

Year Operating ratio Figure 5: Graph of operating ratio
2014-15 91.3%
2015-16 90.48%
96.5% (however, CAG said it

2016-17 to be 99.54% after including
payment for pension)
2017-18 98.5%
2018-19 92.8% (targeted)
The operating ratio has been declining and it was worse off in the year 2016-17. Comptroller and Auditor General of
India (CAG) said that the fixation of passenger fares and freight charges should be based on the cost involved. CMA can
help to improve the operating ratio which is most desirable for Indian Railways. The operating expenses can be reduced
and operating ratio can be lowered with the help of certain cost control techniques.
Analysis of revenue of Railway:

The revenue earned by Railways has recorded the increase in 0.6% in the year 2016-17 than 2015-16. The revenues earned
by Indian Railways from different segments can be seen as follows:
Figure 6: Gross Tariff receipts of Railways (Source: Indian Railways website)

REVENUE (Rs. In millions)
Year Passenger Parcel and other Freight Misc. Suspense (Bills Gross tariff receipts
coaching receivable)
1980-81 8,274.7 1,157.1 16,175.2 820.8 -187.6 26,240.2
1990-91 31,475.0 3,363.8 84,078.7 2,417.6 -370.2 120,964.9
2000-01 105,150.7 7,641.6 233,051.0 7,032.5 -4,071.0 348,804.8
2010-11 257,056.4 24,698 628,447.2 34,182.7 101.7 945,356.3
2015-16 442,832.6 43,714.9 1,092,076.5 59,258.5 5,425.6 1,643,335.1
2016-17 462,804.6 43,120.0 1,043,385.4 103,680.4 -68.4 1,652,922.0
The share of revenue earned by Railways from different segment can be viewed as follows for the year 2016-17:
Figure 7: Pie chart for revenue earned

for 2016-17 from different sources

COVER STORY
The percentage of revenue from different segments during the year 2015-16 and 2016-17 has registered the following
record:
Figure 8: Comparative analysis of Revenue earned from different segments for 2015-16 and 2016-17
Passenger Parcel Freight Misc. Suspense Gross tariff receipt
2015-16 Revenue 442,832.6 43,714.9 1,092,076.5 59,258.5 5,425.6 1,643,335.1

(Rs. In millions)
Percentage of gross 26.95 2.60 66.45 3.61 0.33
tariff receipt
2016-17 Revenue 462,804.6 43,120.0 1,043,385.4 103,680.4 -68.4 1,652,922.0
(Rs. In millions)
Percentage of gross 28.00 2.60 63.12 6.27 -0.004
tariff receipt
Figure 9: Graph comparing percentage of revenue

Year Revenue per tonne km (in Paisa)
earned by different segments
2000-01 73.78
2010-11 96.99
2012-13 128.50
2015-16 163.40
2016-17 164.51
The share of Railways constitutes 31% in inter-regional

freight flow while its share is included among 3% in intra-
regional freight flows. The freight flow market share by
rail transport is nearly half of road transport. The share of
different modes of transport can be seen as follows:
Inter-regional freight flow

Freight revenue constitutes major share in total receipt Figure 11: Share Inter regional freight flows of Railways
of Railways. The revenue earned from freight constitutes
66.45% of total revenue earned by Railways for the year
2015-16 while it declined and constituted 63.12% of gross
tariff receipt for the year 2016-17. The earnings from freight
should be more focussed. However, the freight traffic
revenue showed consistent increase over the past years.
The increase in freight traffic revenue per tonne kilometre
showed the following trend:
Figure 10: Revenue per tonne km (Source: Indian

Railways website)
Year Revenue per tonne km (in Paisa)
1980-81 10.50
97% of intra-regional freight flows has been captured by
1990-91 35.0 road transport and rest 3% is covered by rail, water and air
mode of transport.

However, the greenhouse gas emissions are highest for road transport which increases the risk of global warming. Rail
transport will help to reduce the emission of green house gases. The data of greenhouse gas emissions can be viewed as
follows:
Figure 12: Green house gas emissions by different mode of transport
2010 2011 2012 2013 2014
Navigation 4.18 3.25 2.38 2.17 2.17
Aviation 14.84 16.19 16.15 16.87 17.32
Rail 8.39 8.64 8.98 9.33 9.57
Road 163.08 186.37 203.10 209.60 217.44
Figure 13: Comparative analysis of green

house gas emissions
(Source: Report of WRI India)
It can be observed that carbon dioxide emissions from road transport are number of times higher than rail transport.
Passenger revenue of Railways:

The passenger revenue earned by Railways comprised of 26.95% of gross tariff receipt and it reached to 28% for the
year 2016-17. The passenger earnings can be viewed under sub-urban earnings and non-suburban earnings.
Figure 14: Passenger Revenue from different sections (Source: Indian Railways website)
PASSENGER REVENUE (Rs. In millions)
Year Suburban Non-suburban Total
1980-81 905.2 7,369.5 8,274.7
1990-91 3,569.8 27,877.4 31,447.2
2000-01 10,911.4 93,920.2 104,831.6
2010-11 17,862.8 239,193.6 257,056.4
2015-16 25,752.2 417,080.4 442,832.6
2016-17 26,894.4 435,910.2 462,804.6
The revenue earned by Indian Railways from passenger scored highest for the year 2017-18 and clocked a 4.2 per cent
increase to Rs 490 billion from nearly Rs 463 billion during the financial year 2016-17. The percentage of revenue earned
from suburban and non-suburban areas can be viewed as follows:

COVER STORY
Figure 15: Graph comparing revenue earned from From the above graph it can be observed that the
suburban and non-urban areas majority share of passenger revenue earned by Indian
Railways is constituted by non-suburban area and it has
been consistently increasing. The facilities given to the
customers in non-suburban areas should be enhanced to
make the rail transport more lucrative for the passengers
over other modes of transport.
Analysis of operating expenses:

The operating expense has been increasing over the past
years however the percentage of operating expense in total
expense has been decreasing:
Figure 16: Chart showing working expenses incurred by Railways (Source: Indian Railways)
EXPENSES (Rs. In millions)
2013-14 2014-15 2015-16 2016-17
General superintendence 55,854.3 60,225.6 61,162.9 70,930.8
Repairs and maintenance 289,594.3 317,625.5 336,777.0 384,590.5
Operating expense 540,234.7 574,451.5 562,132.8 603,331.1
Staff welfare 52,420.8 59,609.1 52,960.7 57,722.6
Misc. Working expense 43,246.3 51,399.4 56,119.8 59,029.8
Suspense -2,795.2 -3,610.4 5,425.6 -68.4
Total working ordinary expense 975,707.6 1,059,958.8 1,077,359.3 1,188,296.1
Contribution to funds 327,500.0 370,000.0 401,000.0 402,000.0
Total working expense 1,303,207.1 1,429,958.8 1,478,359.3 1,590,296.1
Other misc. Expense 11,440.9 11,828.8 13,152.0 14,398.7
Gross working expense 1,314,648.0 1,441,787.6 1,491,511.3 1,604,694.8
Figure 17: Comparative analysis of % of operating expense in gross working expense
Year 2013-14 2014-15 2015-16 2016-17
Operating expense (Rs in millions) 540,234.7 574,451.5 562,132.8 603,331.1
Gross working expense (Rs in millions) 1,314,648.0 1,441,787.6 1,491,511.3 1,604,694.8
Percentage of operating expense in gross 41.09% 39.84% 37.68% 37.59%

working expense

Methods for increasing operational efficiency: setting up of machinery causes delays in the production
CMA is well versed with the tools and techniques used for and increases idle time.
enhancing the operational efficiency and controlling of cost.
CMA can help Railways to apply different tools like standard 5. Over-Processing: Over-processing is excessive work
costing, performance budgeting, lean manufacturing, TQM, on one part than required. It increases labour cost and
JIT purchasing, and other methods. wastage of time.
Lean manufacturing: 6. Excess-production: Excess production is production

According to Womack and Jones, “lean” connotes of goods in excess of estimated demand or production
the utilization of all inputs in lesser quantities. Lean before time.
manufacturing refers to the reduction or elimination of
waste (known as muda in Japan) or any activity which 7. Defects: Quality control is an important regime in the
is supposed to be waste or not adding any value to the production process. The rework process increase labour
process with the help of lean manufacturing tools and cost and time.
techniques. The process of lean manufacturing will be in
this way: Lean manufacturing is applicable in different stages of
Figure 18: Process of lean manufacturing Railways:
Figure 20: Applicability of lean manufacturing at

different stages
Figure 19: Seven wastes of lean manufacturing
Advantages of applying Lean Manufacturing in

Railways:
Lean manufacturing can be helpful for Railways. The
reduction in the cost of manufacturing wagons will
reduce the fixed cost of Railways. Cost and Management
Accountant is well equipped with the managerial skills
1. Transport: The transport expenses incurred to bring and application of cost controlling techniques at different
the material from the point of storage to shop floor or cost stages of manufacturing and providing services.
incurred for the movement of materials from one location
to another.  Reduction in cost.
2. Inventory: The unnecessary inventory will increase the  Improvement in quality and Reduction in rejections and
storage, and handling charges. It will increase the working rework.
capital requirement.
 Lesser space requirement for storage due to reduction
3. Motion: Motions are unnecessary movements of man in level of inventory.
or machine from start point to work point.
Total Productive Maintenance (TPM)
4. Delays: Waiting of workers for raw materials, or TPM is the system devised for the maintenance of plant

COVER STORY
and equipment to improve its efficiency. It targets to improve the industry vibrant. Without innovation and product
the efficiency and effectiveness of plant and equipment to development an organization seems to be lifeless and
achieve zero defects, zero accident, and zero breakdowns. torpid. The innovations help to fight the fierce competition
The introduction of TPM follows four main phases: with road freight transport faced by Indian Railways.
The focus should be made on the employment of skilled
1. Initialization: Conducting awareness programme and manpower and identifying the latent talent. Some of the
informing about the introduction of TPM. Quality circle of roles played by Cost and Management Accountant in
employees can be made to carry out this programme. innovations can be summed up as:
2. Introduction: Initialization of TPM, Information to  Acts as a part of value-added team or innovation team.
suppliers, sister concerns, and customers.
A ctive participation in the formulation and

3. Implementation: This is done with the help of eight implementation of innovative strategies.
activities referred as eight pillars of TPM.
 Helps to translate strategic intent into operation.
4. Review and Control
 Provides feedback on quality improvement efforts.
TPM strategy focuses on eight pillars of success with 5S
strategy as foundation.  Helps to set priorities for investment and improvement
activities.
Figure 21: Eight pillars of TPM with 5S as foundation
 Helps in evaluation of innovative project and suggests
measures for cost reduction.
 Guides for product mix decisions, helps to choose raw

material supplier, and structuring the target market.
Performance budgeting:
The accounting reform project of Indian Railways has
been divided into three modules. Module II is related to
the development of performance costing framework that
could help to assess costs of various activities undertaken
by Railways. It will facilitate online availability of costing
data. The appropriate costs of different profit centres
will be identified and costs will be allocated to different
Activity Based Costing: profit centres. It will bring transparency, and will help
ABC is a costing model that identifies the cost pools management to take decisions on pricing. The Institute of
and activity centres in an organization. It assigns costs to Cost Accountants of India is likely to submit deliverables on
products and services (cost drivers) based on the number of Performance costing by October or November 2018.
events or transactions involved in the process of providing a
product or a service. Hence, the shareholders value can be Performance or outcome budgeting along with
maximised and performance can be improved with the help performance costing will prove as an important management
of ABC model. In order to set up ABC costing, the resource tool that will enable Indian Railways to be the market leader
cost should be identified and classified in direct and indirect and to gain maximum market share in transport sector.
costs. Direct costs can be allocated directly to the services Performance budgeting is the preparation of budget based
provided by the particular rail. However, the indirect costs on performance, and activities of project. It identifies,
are used by multiple rail services and it can be allocated by analyses and simplify the objectives to be achieved over
specific cost distribution procedure. the given time period. The resources are allocated according
to the performances and objectives. Cost and Management
Innovations: Accountant can help in the deployment of performance
Innovation is a backbone for any industry and keeps budgeting in railways. The different stages will be identified

by CMA while making performance budgeting: other tools will help to leapfrog the operating expenses
thereby improving operating ratio. Freight revenue
Figure 22: Stages of performance budgeting constitutes major share in gross receipts of Railways. The
revenue earned from freight constituted 63.12% of gross
revenue earned by Railways for the year 2016-17. But the
market share captured by Railways in inter-regional freight
is only 31% of total inter-regional freight flows (2,555.35
million tonnes). CMA can help to suggest measures for
increasing market share of freight transport by Railways.
The innovations in the different facets will enable Indian
Railways to be cost competitive and the benefits will be
surpassed to the customers. Cost and Management
Accountant plays an important role in the innovations and
can act as a marshal. He or she can actively take part in
formulation and implementation of innovative strategies.
CMA can analyse the operating expenses and revenues
and can suggest the measures to improve the operating
ratio and operational efficiency. Above all, “Behind every
successful business, there is a CMA”.
References
1. www.leanmanufacturingtools.org
2. www.iiste.org
3. www.kpmg.com
4. www.proceedings.informingscience.org
5. www.juse.or.jp
Conclusion 6. www.indianrailways.gov.in
The major challenges before Indian Railways is to 7. www.plant-maintenace.com
achieve economies of scale, reduction in cost to improve 8. www.thehindubusinessline.com
operating ratio, remove bottlenecks, automation of work,
and proper deployment of resources. The application of
lean manufacturing, total quality management, six sigma,
digitalisation, captive power generation and none the less cwakalyani@gmail.com
Letter to Editor
Congratulations for reintroduction of issue of printed copies of Journal to Members.
This has restored the link between Members and the Institute once again.
The topics chosen are very appropriate, specially the one on Block Chain
Technology.
Thanks to you and CMA Biswarup Basu, CCM for this.
D N Banerjea FCMA

COVER STORY
A LONGITUDINAL STUDY
OF TARGET COSTING AT
INDIAN RAILWAYS
A CASE STUDY

Dr. N.Narsaiah
Associate Professor, Department of Business Management
Vijay Rural Engineering College
Nizamabad, Telangana
I
ndian Railways is merely government enterprise; it manufacturing industry in the early 1970’s, since a reply to
is operating and functioning through the Ministry the challenges faced by consumer demand for more diversity
of Indian Railways. It is a world largest network and and shorter product life cycles. The Target Costing execution
play monopoly role in rail transport services. Currently, helps the Japanese companies to supervise their strategies
Indian railways looking for endlessly develop new and operate rapidly at a cost-effective margin. Target
services while meeting customer demand for better cost costing consider a practical cost management technique
management, delivery of services, quality and flexibility. The and that is price-driven, customer-focused, design-
quality and cost advantage of the services emanates from centered, and cross-functional. Sakurai (1989) define target
the intensity of technological innovation, and the use of costing as a cost management technique for reducing the
advanced strategies and tools of costing techniques. More overall cost of a product or services over its entire life cycle
or less every organization is to be required to propose the with the help of the concern department of production or
right products or services with the right prices at the right services, engineering, Research & Development, marketing,
time, as well as must administer their cost and profit to and accounting’. However, another American definition for
remain profitable. target costing is value engineering. The value engineering
technique, at first developed by General Electric, is a model
In compare to the extremely regulated techniques of that tends to maximize product attributes while minimizing
financial accounting, cost and management accounting their costs (Feil et al., 2004).
provides a collection of non-directive techniques that can be
adopted, implemented and redundant at the organization Target costing distinguish method according to the
determination. As far as those techniques are retained expansion stage and corporate business nature, this system
by managers merely as they are considered to be result primary objective is to examine all cost saving potential
useful. Besides, one of the most important techniques of from the sources in order to achieve the target cost as
cost management effective in this regard is target costing made planned. Besides, it is the procedure of making
system. Target costing is a strategic technique in cost particular plans for a product or services that enable to
management which largely focuses on cost management meets customer needs, deducting the target cost from the
and on the potential profit planning. Target Costing (TC) target profit of the new product or services, and estimating
model has establishing in the direction of costs and the actual cost of product or services to verify whether
revenue analysis in Indian railways because it can adopt in the target cost has been achieved in the value engineering
ensuring services competitiveness with the supplementary aspect. Target costing refers as value engineering and it is
than railways transport in terms of price, services design different from the traditional cost method, consequently,
and structure development. These three elements are the based on standard costing method follows that present
main concern of TC in ensuring the targets of high quality imaginative strategy for reducing the standard of the
services in Indian railways. production or services cost.
Target Costing (TC) The employ of target costing extend as increased

Target costing (TC) technique is a Strategic Management competition, and shorter life cycles of the products
Accounting (SMA), which originated in the Japanese or services, in comprehensive markets intended that

COVER STORY
companies needed to manage costs from the inception a profit management tool (Feil et al., 2004). Target Costing
stage design forward, and launch products/services at model is based on the price decide approach or toward
prices to attract customers and anticipate reproduction. the support approach where the target selling price of the
The managerial decisions which require resource allocations product is lay down by the market before the product is
may depend on the management accounting techniques being designed (Ansari et al., 2007). In the finally, target
adopted by the organizations, even though the extent to costing is a cost management technique that strategic
which specific techniques are used to support resource decision maker use during product design to make efforts
allocation decisions is an organization specific alternative. for progress intended at reducing the product/services
Consequently, target costing employ to achieve these aims future manufacturing costs (Kaplan and Atkinson, 1998).
and expand to all over countries of manufacturing, services
and transport facilities providing industries because their Need for Target Costing at Indian Railways
competitive cost accounting technique. As results of The most important aim of target costing is to facilitate
introducing target costing to the Indian railways to cost management to utilize proactive cost forecast, cost
and revenue analyses and investigates, utility and purposes, management and cost reduction practices where costs are
its difference with the traditional approach of cost planned and designed early in the design and development
management. As well target costing as a multidisciplinary stage, moderately than during the later stages of production/
approach to managing Indian Railway costs from the initial manufacturing or services developed stage. As far as
stages and this method complemented by techniques such target costing successfully employed in such industries are
as process re-engineering and Total Quality Management Automotive manufacturing industry, Fast Moving Consumer
(TQM). Target costing is a method of determining the Goods (FMCG), construction and real estate, healthcare,
necessary cost of product or services based on its market and power as competition is so severe, therefore, prices
selling price and a required gross margin. The target cost is of products and services are determined through supply
obtained through the target price minus the target margin. and demand in the market, and hence, producers cannot
Ascertaining the target cost is a quite simple calculation. supervise selling prices. They can only control the costs of
Generally, Target costing is ascertained as follows: production/services, so management’s focus is to influence
every component of the costs. However, Indian Railway
Target cost = Selling price – Gross margin doesn’t not constitute any competition but, require able to
meet customer satisfaction in terms of delivering services.
Review of Literature Target Costing enables Indian railways to manage their
Most of the studies explain that several established services costs and ultimately expectation profit target by
Japanese companies utilized Target Costing method and determining the products or services features at which
implementation was helped the Japanese companies to Indian railways is to provide the products or services to
administer their strategies and function promptly at a potential customers.
profitable margin. Therefore, TC ensures products and
services are adequately profitable when launched by Objectives of the Study
managing the cost during the design stage while ensuring The primary objective of Target costing implementation
the products meet the quality and reliability standards, predominantly for Indian railways is critically important.
and other customers’ needs (Kato, 1993). In the same line By implementing TC, their services would be differentiate
Target Costing is a procedure and it would ensuring with as being of higher quality, acceptable price, and shorter
the aim of a product launched with precise functionality, services time hence, creating their customers value and
quality and sales price can be produced at a life-cycle cost sustain their competitiveness with other than railways. In
that generates a adequate level of profitability(Cooper additionally the study consists secondary objectives are as
and Slagmulder .,1997). Besides, Target costing system is follows:
a dynamic capability gives a plan through which to see
how management accounting techniques can be used 1. To explore the Target Costing implementation process in
to leverage organizational resources. The application of Indian Railways through hypothetical model.
specific management accounting techniques to improve 2. Performance analysis of Indian Railways through Target
substantive capabilities in the use of resources can be seen Costing during the study period.
as a dynamic managerial capability (Adner & Helfat, 2003). 3. To analyses the volume of traffic and earnings from
In additionally, Target costing system has developed, the services of Indian Railways during the study period.
perspective of TC also shifted from a cost reduction tool to

Test of Hypothesis Step 6: Apply cost reductions strategy once production or
In order to prove the study objectives formulated the service has started
following hypothesis and this process is enable to examine
the target costing can determine the services pricing About Indian Railway
strategy of Indian railways. Indian Railways is the largest rail network in Asian
continent along with second largest in entire world. Indian
Ho: There is no significant impact of Target costing over national Railways system operates by the Ministry of Indian
determine the prices of Indian Railways services. Railways. The first train services started in India on 16th April
1853 between Bombay and Thane. Currently Indian Railways
Data Sources and Research Methodology transports approximately 2.5 Crore passengers daily in the
The present research is a longitudinal case study approach course of the various services. In terms of services Indian
is selected to execute the current study. In addition, it is Railway consist of freight, passengers, tourist, suburban rail
an exploratory study of Target Costing implementation in systems, toy train and luxury trains. Indian Railways has
Indian Railways. Present case study is most suitable in the 1,15,000 km of track length and operating 12,617 trains to
Target Costing practice especially use full in the case of carry over 23 million passengers daily which is equal the
come to a decision over service prices and this practice is entire population of Australia. Indian Railways concerning
not widely being implemented. This study merely depends more than 7,172 stations in the entire country. Besides,
on secondary data of Indian Railways. Study focal point among the stations Indian capital of New Delhi Railway
on quantitative or statistical data of Indian railways to Station has held a place in the Guinness Book of records for
formative the services prices and this process is difficult to maintain the world’s largest route communicate Interlocking
analyze. Process data is predominantly complex because System. On the other hand, Indian Railways is separated
it often involves various levels and involves several level into 17 zones and Locomotives trains are electric and diesel
of analysis. In this connection the present study analyses locomotives. Which are operates services by way of multi-
data and it is utilizes annual reports, statistical reports, gauge network, broad gauge, and narrow gauges.
corporate and social responsibility reports and Indian
railway website. Indian Railways data would be analyses Indian Railways governed by seven members of
though the simple averages and growth ratios. On the other Railway Board whose chairman represent to the Ministry
hand present study employed t- Test to test the significance of Indian Railways. Each and every zone managed by
of Target costing over determines the prices of Indian general manager who report respect zone information to
Railways services. The study is conducted for a period of 5 the Railway Board. Railway zones are further subdivided
years i.e., 2012-13 to 2016-17. into 68 operating divisions and which are governed by
divisional railway managers (DRM).The divisional officers
Target Costing Steps are further divided as engineering, mechanical, electrical,
In order to obtain accurate results over competitive signal and telecommunication, stores, accounts, personnel,
environment through the implementation of target costing operating, commercial, security and safety. Each and every
in any organization which are relevant six steps procedure branch report to their respective DRMs and maintain
and recommend by Sani and Allahverdizadeh (2012). Thus, with the operation and assets of Railway division. Station
the following six steps are as follows: masters control individual stations and train movements
through their particular stations’ territory. In addition,
Step 1: Set up the target market price for products or there are a number of various production units, training and
services establishments, public sector enterprises and other Offices
functioning under the control of Railway Board. Indian
Step 2: Ascertain the target profit margin and cost to attain Railways is one of the world’s eighth largest employees
strength around 1.4 million people.
Step 3: Determine the possible cost of existing and new
products or services. A separate budget proposed to the Indian Railways and
which was recommended by the 10 members of British
Step 4: Ascertain the target cost for specific product or railway economist William Acworth Committee during the
services 1920-21. Consequent his report, the India railways budget
were separated from the Indian general government budget
Step 5: Achieve the target cost of product or services during 1924. As a reform in Indian Railways, the Railway

COVER STORY
Indian Railways endeavor to strive for high quality services to the passengers with optimum
utilization of resources and ensure timely redress of their grievances or problems. Accordingly,
Target Costing maximizes utilization of the Indian Railways resources that control over operational
costs. Moreover, Target Costing attempts to escalate the trend of profits and minimizes costs
of the Indian Railways services over life cycle and lead to make clear the purpose of cost
reduction practically, rationally and objectively. Railways services and their related prices are
determined by the customer’s needs. In order to convince the customer requirements in terms
of tolerable pricing of services, target costing system require to moving toward into account in
the early stages of services development. On the other hand, the present study focuses on the
Target Costing implementation process as well as its relationship with the customer-orientation,
teamwork, its method of implementation in Indian Railway. Therefore, this case study approach
is suitable to pursue the study objectives and, in particular, to explore and answerable Why
Target Costing technique is essential and how to be successfully implement in Indian Railways
Budget has taken merged with the Union Budget 2017- Cooper and Slagmulder (1997) defined that products
18 as against the convention of presenting it separately or services may not be produced until the Target Cost
since 1924 on the basis of recommendations of the is attained. However, it is most suitable stage in Target
Acworth Committee. In support of financial year 2017-18 Costing practices because with the passage of time, the
comprehensive budget as regards ` 1,31,000 Crores which railways operations improve drastically as well it considers
include total capital and development expenditure for the customers’ requirements and their preference towards
Indian Railways. In which Indian government contributed Indian Railways services (See figure 1).
` 55,000 Crores. The main intention of railway budget of
2017-18 proposes for several measures to improve services, Figure 1: Implementation process of Target Costing in
infrastructure and amenities in Indian railways. Indian Railways
Target Costing Implimentation Process for Indian Estimated Resource
Railways Budgets Allocation
Target costing implementation process should be

determined based on the quantity of resources utilization
and strong attempts necessary to make a product or services Define
Customer
successful at Indian railways, whereas if all the exploitation Niche
were removed from the process. Moreover, price setting is

an iterative process in Indian railways product and services
because this process depends on the time consume and Understand
types of services. For instance, in the case of manufacturing Customer

Requirement
concern many companies decide target selling prices based
on the potential customers needs and what they accept
as true the market price will tolerate. Therefore, to decide Facilities to
the target selling price requires the strong effort backwards, Passengers
to determine tolerable costs to ensure an adequate profit

margin for any new product or services. So that results
indicate with the intention of once the product or services
targeted cost has been determined, it would be allocated Determine Required
to various parts and components of the Indian Railways. services

Prices
Profit
Thus, implementation process is important for Indian

Railways services once the Target Cost has been attain.
This stage involves continuous improvement efforts for Target
Cost
monitoring Target Cost to be maintained. It shows top
level administrator commitment to process improvements
and services innovation to attain target profit advantage. Source: Research Work

Performance Analysis of Indian Railways through the uncertain global financial environment and moderation
Target Costing in the growth of Indian economy led the target costing
Table 1 represents the performance analysis of Indian increased by 0.17 per cent. Consequently, target costing
Railways through Target Costing from financial years 2012- had increased by 0.0967 per cent during the financial year
13 to 2016-17. First and foremost component is Revenue 2014-15 because Indian Railways continued to perform
from operation in the financial year 2012-13 reported well in both freight and passenger earnings continued to
as ` 1,26,180.43 Crores to constantly increased to grow year after year. Subsequently, Target costing during
` 1,68,379.60 Crores in the financial year 2015-16 due to the financial year 2016-17 increased by 0.0758 per cent
railways administration efforts are steadily being made to over the financial year 2015-16 due to employees costs
make railway operations. In the same line of revenue from component has continuously increased from 2005-06 to
operations during the financial year 2016-17 decreased 2014-15 at a an average rate of 13.3 per cent per annum.
to `1,65,382.48 Crores because passenger earning trend Therefore, expenditure on employees is extremely high and
decreased by 4.96 per cent over the financial year 2015-16. uncontrollable.
In terms of Margin from operations in the financial year
2013-14 decreased by 0.1370 per cent over the financial Target costing occupied significant proportionate entirely
year 2012-13 due to the impact of asset financing by Indian over the study period in generating revenue from operation
railways was achieved when its cumulative funding to the reported during the financial year 2012-13 by 89.2097
Rail Sector crossed the magical figure `1,00,000 Crore mark per cent and subsequent year 2013-14 it was increased by
during the financial year 2012-13. Margin from operation 91.80 percent over the financial year 2012-13. As results
in the subsequent financial years 2014-15 and 2015-16 during the financial years 2014-15 and 2015-16 decreased by
increased by 0.4331 and 0.1419 per cent respectively 90.2097 and 88.58 per cents respectively but in the same
because increased earnings from freight operation. On the line it is increased by 91.2097 per cent during the financial
other hand margin from operation drastically declined by year 2016-17. Besides, Target costing generated margin from
0.7444 per cent over the financial year 2015-16 because operations during the financial year 2013-14 decreased by
total freight earnings in the first eight months from April 8.9370 per cent over the financial year 2012-13. Similarly,
to December during the financial year 2016-17 stood at subsequent financial years 2014-15 and 2015-16 increased
` 66,004.34 Crore which shows a decrease of ` 5,182.01 by 11.6788 and 12.8919 per cents respectively, but target
Crore (-7.28%) over the earnings of the previous year. costing generated margin from operation in the financial
year 2016-17 declined by 3.0616 per cent. However, overall
Indian Railways target costing reported in the financial all result shows from Target costing of Indian railways steep
year 2012-13 ` 1,12,565.24 Crores, which is increased by growth during the study period (See table 1).
` 1,31,464.80 Crores in the financial year 2013-14 due to
Table 1: Target Costing of Indian Railway during the study period from 2012-13 to 2016-17
Particulars Financial Years (` in Crores)
2012-13 2013-14 2014-15 2015-16 2016-17
Revenue from operations 1,26,180.43 1,43,213.87 1,61,017.25 1,68,379.60 1,65,382.48
(0.1349) (0.1247) (0.05) (-0.18)
Less: Margin from operations 13,615.19 11,749.07 16,838.49 19,228.48 4,913.00
(Profit /Loss) (-0.1370) (0.4331) (0.1419) (-0.7444)
Target Costing 1,12,565.24 1,31,464.80 1,44,178.76 1,49,151.13 1,60,469.48
(0.17) (0.0967) (0.0344) (0.0758)
Target Costing Per cent in Revenue 89.2097 91.80 90.2097 88.58 91.2097
from Operation (1)
Target Costing Per cent in 12.0953 8.9370 11.6788 12.8919 3.0616
Margin from operations (2)
Target Costing Percentage differences 77.1143 82.8590 78.5308 75.6883 88.1481
(3=1-2) (3)
Source: Statistical and Financial reports of Indian railways

COVER STORY
Table 2 represents Volume of traffic and Earnings freight, the bulk comprising revenue-earning traffic of
from services of Indian Railways during the study period 1,106.15 million tonnes in which excluded Konkan Railway.
from 2012-13 to 2016-17, Target costing analysis concern It had reported the transport output in terms of Net Tonne
passenger traffic reported declined by 0.0028, 0.0206 Kilometres (NTKms.) was 621 billion.
and 0.0142 per cent in the financial year 2013-14, 2014-15
and 2015-16 respectively over the financial years 2012-13. Besides, Revenue earning traffic of Net tones’ Kms (in
But, passenger traffic increased by 0.00111 per cent in the millons) registered during the financial years 2013-14
financial year 2016-17 due to the Indian railways introduced and 2014-15 increased by 0.0248 and 0.0238 per cents
differential pricing in select premium trains, added 1.01 over the financial year 2012-13 due to maximize loaded in
Crore berths and introduced various categories of trains. every train, the loading density on all major freight bearing
Despite that a year-on-year passenger increases and the routes of Indian Railways will be upgraded to 22.82 tonnes
number of passengers Kms (in millions) increases, it is in axle loads. On the other hand, during the financial years
the financial year 2012-13 reported 1,098,103 million Kms 2015-16 and 2016-17 resisted negative growth by 0.0399
to increased by 1,149,835 million Kms in the financial year and 0.0524 per cents respectively over the financial year
2016-17. 2014-15 due to the Indian economy reported freight loaded
had seen a dramatic decreased since last two corresponding
On the other hand, passenger earnings from traffic has financial year’s almost consistent negative year-on-year
been reported increased trend, which is in the financial year growth over the financial year 2014-15. It is the evidence
2012-13 was ` 31,322.84 Crores and which is increased by of Indian railways robust data approach on the heels of
` 46,280.46 Crores during the financial year 2016-17. But, a 0.4 per cent drop in industrial production and 8.7 per
Indian Railways unable to achieved its target in the financial cent reduction in cement output reflecting the impact of
year 2016-17 due to decline its revenue target in the same demonetization. Moreover, Total traffic Earnings from
year and Gross traffic receipts (GTR) stood at ` 1,63,718 freight carrier of Wharfage & Demurrage charges reported
Crores and it is down by 3.28 per cent from the revised in the financial year 2012-13 was ` 83,478.83 Crores and it
estimate announced in the recent Budget. According to was tremendously increased by ` 1,06,940.55 Crores in the
analysis Average rate per passenger per Kms (in paise) was financial year 2015-16 due to overcoming several probability
in the financial year 2012-13 by 28.5 paise per Kms which in its ways, the Indian Railways have registered a rise in
is increase by 40.3 paise per Kms because that the national its freight revenue. However, total traffic earnings from
transporter needs to increase its passenger fares across the freight carrier of Wharfage & Demurrage charges declined
board to improve its revenue to meet at least its operational during the financial year 2016-17 because even though
costs. continuously increase in the number of passengers ferried
but goods transported in the financial year 2016-17 Indian
Indian Railways second category sources of earning is Railways missed its revenue target in the year.
freight Traffic, Tonnes originating (in millions) Increased
during the financial year 2013-14 by 0.8952 per cent over Average lead-Total traffic (in Kms) registered in the
the financial year 2012-13 due to 2013-14 Indian Railways financial year 2012-13 was 642 Kms and it was declined
loaded 1,058.81 million tonnes of freight traffic of which to 559 Kms in the financial years 2016-17 caused by the
1,051.64 million tonnes was revenue-earning and 7.17 railways decreased average lead distance goods travel and
million tonnes of non-revenue earning, and achieved total despite the transporter offering 7% discount in charges for
net tonnes kilometers (NTKMs) of 667 billion as against long leads. The share of freight carried by the railways has
651 billion over the financial year 2012-13.Subsequent fallen from around 90% in 1950 to around 30% now, and
financial year 2014-15 it is increased by 0.3678 per cent most of the lost traffic has moved on the roads, which offer
because Indian Railways carried 1097.57 million tonnes of competitive rates. In additionally, Average rate per tones
commodity-wise freight traffic included non earning freight Kms (in paise) had reported in the financial year 2012-13
during fiscal 2014-15 as compared to 1053.56 million tonnes by ` 128.5 paise per Kms and it is increased constantly by
carried included non earning freight during the financial ` 164.51 paise per Kms in the financial year 2016-17 due
year 2013-14, it was registered an increase of 4.18 per cent. to make the rail transportation attractive to its customers,
Similarly, freight Traffic, Tonnes originating (in millions) various initiatives were taken from the financial year 2012-13
reported increased trend during the financial year 2016- to financial year 2016-17 which includes tariff rationalization,
17 by 0.0042 per cent over the financial year 2015-16 due classification of new commodities, expansion of freight
to Indian Railways carried 1,110.95 million tonnes of total basket through containerization, new delivery models like

RORO services, rationalization and simplification of rate ` 100 continues to remain high at around by 95 per cent
policies such as weighment policy, etc. Total Earnings from send-off for safety and maintenance of the projects. Thus,
Services which includes Passenger earnings and earnings Total Earnings from Services in the financial year 2016-17
from freight was registered in the financial year 2012-13 by declined by 0.0192 per cent due to the Indian economy
` 1,14,801.67 Crores and it is constantly increased by ` growth has declined along with that the Indian Railways
1,51,223.81 Crores in the financial year 2015-16 caused by the may have earned more in passenger revenues in 2016-17
signs of recovery in financial health of the Indian Railways, its when compared to the previous year, but it has fallen short
operating ratio indicated the amount it spends to earn each of its own budgeted estimates (See table 2).
Table 2: Volume of traffic and Earnings from services of Indian Railways during the study period from 2012-13
to 2016-17
Particulars Financial Years (` in Crores)
2012-13 2013-14 2014-15 2015-16 2016-17
Passenger traffic 8,421 8,397 8,224 8,107 8,116

No. of passengers originating (-0.0028) (-0.0206) (-0.0142) (0.00111)
(in millions)
Passenger Kms. (in millions) 1,098,103 1,140,412 1,147,190 1,143,039 1,149,835
(0.0385) (0.0059) (-0.0036) (0.0059)
Passenger Earnings(ìn Crore) 31,322.84 36,532.25 42,189.61 44,283.26 46,280.46

(1) (0.1663) (0.1548) (0.0496) (0.0451)
Average lead (in Kms.) 130.4 135.8 139.5 141 141.7

(0.0414) (0.0272) (0.0107) (0.0049)
Average rate per passenger per Km. 28.5 32 36.8 38.7 40.3
(in paise) (0.1228) (0.15) (0.0516) (0.0413)
Freight Traffic
Tonnes originating (in millions): 1,008.09 1,051.64 1,095.26 1,101.51 1,106.15
Revenue earning traffic (0.8952) (0.3678) (0.0057) (0.0042)
Total traffic 1,014.15 1,058.81 1,101.09 1,108.62 1,110.95

(0.0440) (0.0399) (0.0068) (0.0021)
Net tones’ Kms. (in millons): 6,49,645 6,65,810 6,81,696 6,54,481 6,20,175
Revenue earning traffic (0.0248) (0.0238) (-0.0399) (-0.0524)
Total traffic Earnings from freight 83,478.83 91,570.85 1,03,100.15 1,06,940.55 1,02,027.82
carrier of Wharfage & Demurrage (0.0969) (0.1259) (0.0372) (-0.0459)
charges ( ` in Crore) (2)
Average lead-Total traffic (in Kms.) 642 630 620 591 559
(-0.0186) (-0.0158) (-0.0467) (-0.0541)
Average rate per tones’ Km. 128.5 137.53 151.24 163.4 164.51
(in paise) (0.0702) (0.0996) (0.0804) (0.0067)
Total Earnings from Services 1,14,801.67 1,28,103.10 1,45,289.76 1,51,223.81 1,48,308.28

(1+2) (0.1158) (0.1341) (0.0408) (-0.0192)
(Passenger Earnings + Earnings from
freight) (` in Crore)
Source: Statistical and Financial reports of Indian railways

COVER STORY
Hypothesis Testing The results of t-Test revealed at 8 degree of freedom

The present case study often followed several methods at 5% significance level that the calculated value with
and combines many steps were conducted to achieve one tail is 0.427838757 and two tail value is 0.855677514
the research objectives. Thus, Target costing impact over whereas, Critical values of one tail 1.859548033 and two
determine the prices of Indian Railways services is examined tail 2.306004133. Hence, null Hypothesis is accepted
through t-Test. In order to prove hypothesis results the because the calculated value is less than the critical value.
present study established the relationship between the Therefore, it can be concluded that there is no significant
target costing and earnings from services of Indian Railways impact of Target costing over determine the prices of Indian
during the study period. The results of Target Costing and Railways services. Hence, it is the evidence exhibit that the
Earnings from services of Indian Railways can be presented Target Costing may not determine services prices of Indian
through the following table (See table 3). Railways.
Table 3: Target Costing and Total Earnings from Conclusion

services of Indian Railways during the study period from The main intention of the present study is to compare
2012-13 to 2016-17 the existing theoretical approach on the subject of
Target Costing with the practice of Indian Railways
Financial Target Costing Total Earnings and the major factors influencing the design of Target
Years ( ` in Crores ) from services Costing implementation process. Target costing system
( ` in Crores ) is to be effective in supporting decision making process
2012-13 1,12,565.24 1,14,801.67 in Indian Railways, and the departmental heads come
together in order to strike their creativity and achieve
2013-14 1,31,464.80 1,28,103.10 goals of organization. In order to reduce cost of services
2014-15 1,44,178.76 1,45,289.76 should set target cost, how the Indian Railways allocate
resources to each department, and external cost report
2015-16 1,49,151.13 1,51,223.81
grounding to obtain information it require collaboration
2016-17 1,60,469.48 1,48,308.28 of procurement and supplier of concern department to
Source: Compiled Data exchange necessary information. As a matter of fact, target
costing is a procedure that determines the best services
price designed for Indian Railways according to the needs
Hypothesis Testing Results of customers, status of road and air transport competitors
t-Test: Two-Sample Assuming Equal and profitability. It is also maintain a great role in not only
Variances reducing costs and creating value of Indian Railways and
increasing shareholders’ wealth.
Variable 1 Variable 2 It is found though the research that the target costing
Mean 139565.882 137545.324 is not able to determine the prices of Indian railways
Variance 336194557.5 242336970.4 services because it is influence with the other factors such
as population size, geographical factors and government
Observations 5 5
subsidy policies to the customers. Obviously, conducting
Pooled Variance 289265763.9 the current case study paves the way for practical insight to
Hypothesized Mean 0 the potential implementers of various departments in Indian
Difference Railways environment context to understand the major
df 8 factors that may influence the design of Target Costing
t Stat 0.187842045 implementation process with more successful. This modus
operandi useful technique for Indian Railways and conclude
P(T<=t) one-tail 0.427838757
that adapt the method to their specific requirements.
t Critical one-tail 1.859548033
P(T<=t) two-tail 0.855677514 References
t Critical two-tail 2.306004133 1. Hamood, H.H., Omar, N., Sulaiman, S., (2011). Target
Costing Practices: A Review of Literature. Asia-Pacific
Source: MS-Excel v 2007 Management Accounting Journal Vol 6(1), pp 1–24.

2. Jalali Naini Gh., Jafari Eskandari M., Haji Aghabozorgi Shiraz University, No. 2.
A & Khaleghi GH. (2010). Target Costing and Cost
Management Strategy in the Automotive Industry. 10. Feil, P., Yook, K.H., & Kim, I.W. (2004). Japanese Target
Costing: A Historical Perspective. International Journal of
3. Filomena, T. P., Jose, F., Neto, K., Duffey, M. R., Strategies Cost Management, Spring, 10-19.
(2009). Target Costing Operationalization during Product
Development: Model and Application. Int. J. Production 11. Hibbets, A.R., Albright, T., & Funk, W., (2003). The
Economics 118, pp 398–409. Competitive Environment and Strategy of Target Costing
Implementers: Evidence From The Field.Journal of
4. Afonso, P., Nunes, M., Paisana, A., Braga, A., (2008). Managerial Issues 1, pp 65–81.
The Influence of Time-to-Market and Target Costing in
the New Product Development Success. Int. J. Production 12. Ron Adner ., & Constance E. Helfat.(2003). Corporate
Economics 115, pp 559–568. effects and dynamic managerial capabilities, Strategic
Management Journal, October 2003, Volume24, Issue10,
5. Kocsoy, M., Gurdal, K., & Karabayir, M. E., (2008). pages 1011-1025.
Target Costing in Turkish Manufacturing Enterprises.
European Journal of Social Sciences Vol 7(2),pp 92–105. 13. Joshi, P., (2001). The International Diffusion of New
Management Accounting Practices: The Case of India.
6. Ansari, S., Bell, J., & Okano, H. (2007). Target Costing: Journal of International Accounting, Auditing and Taxation,
Uncharted Research Territory. In C. S. Chapman, A. G. Vol No 10, pp 85–109.
Hopwood & M. D. Shields (Eds.), Handbook of Management
Accounting Research : Elsevier Ltd.,pp 507-530. 14. Cooper, R., Slagmulder, R. (1997). “Target Costing and
Value Engineering”, Portland, Oregon, Taylor & Francis,
7. Gopalakrishnan, B., Kokatnur, A., & Gupta, D.P., 1997, 359 pages.
(2007). Design and development of a target-costing system
for turning operation. Journal of Manufacturing Technology 15. Kaplan R. and A.A. Atkinson, (1998). Advanced
Management Vol 18(2), pp 217–238. Management Accounting, Upper saddle River, NJ: Prentice
Hall.
8. Ellram, L. M. (2006). The implementation of target
costing in the United States: Theory versus practices. 16. Yutaka Kato., (1993). “Target costing support systems:
Journal of Supply Chain Management, Vol No 42(1), pp13- lessons from leading Japanese companies” Management
26. Accounting Research,Volume 4, Issue 1, March 1993, Pages
33-47.
9. Etemadi H & Zarei Gh. (2005).Factors Influencing the
Use of Target Costing Method and Value Engineers in the
Automotive Industry, Journal of Social Sciences Humanities. nnarsagoud@gmail.com
Articles invited
We invite quality articles and case studies from members in the industry
with relevance to Cost and Management Accountancy, Finance,
Management, and Taxation for publication in the journal. Articles
accompanied by color photographs of the author can be
sent to : editor@icmai.in

COVER STORY
TRANSITION OF
INDIAN RAILWAYS
IN THE ERA OF
GLOBALIZATION

Dr.Tarun Mandal
Associate Professor of Commerce
Rabin Mukherjee College
Kolkata
R
ailway was a product of the Industrial Revolution
and afterwards became a predominant mode of
inland transport in all countries and India is no
exception. Initially railway solved two problems (i)
transportation of bulky materials and bulk material (ii) it
provides people with access to workplaces and education
facilities, recreational, community and medical facilities.
Founded on 16th April, 1853 the Indian Railways (IR)
commenced their journey with a 53 kms distance between
Mumbai and Thane. The British Raj railways were an
overwhelmingly private network with 52 companiesrunning
a bunch of trains on their own respective with their own
rules, exclusively for profit. The Acworth Committee (formed
in 1920) recommended the consolidation and nationalization
of the Indian Railways. Based upon the recommendations
of Acworth Committee, the Finances of Railways were
separated in 1924 and thus from 1924 onwards, the Railway
Budget is separated from the General Budget. During 1924
the Railway Budget was about 84 per cent of the general
budget as Railway revenue was the only major contributor
for the nation’s GDP. After independence of India, all
companies had to be nationalized, integrated and merged
and a central authority had to be created which would
run the Railways. While the first two Five Year Plans were
meant to rehabilitative the railway system from the ravages
of Second World War and the effects of the partition of
the country, the next three Five Year Plans were meant to
consolidate the railway system. It is only in the Sixth and
Seventh Five Year Plans that some efforts could be made by
the Central Government to bring some semblances of growth
in the railway system. To sum up, in the last 165 years, the
Indian Railways have grown into a vast network of lines
linkages between the economically forward and backward
areas of the country.
Generally speaking an efficient railway system should

strive towards attainment of the following major objectives:

COVER STORY
(i) to provide a fast, reliable, punctual, reasonably priced ratio i.e. ratio between working expenses and gross revenue
and satisfactory transport services to the people. receipts.
(ii) to earn adequate financial returns by increasedrevenues
through expansion of business. Present Status
(iii) to control expenditure i.e. the capital cost and The network spans 121,407 km of track length, while the
working expenses of the railway system, so as to reduce route length is 67,368 kmas on 31.3.2017. As a consequence
the operating ratio to the minimum and India has the fortune to possess the world’sfourth longest
(iv) to foster economic and social progress at the national railway network after those of the United States257,722km,
and regional level. China 127,000km and Russia 85,513km respectively.
Indian Railways has 7,349 stations and 69332 coaches.
This paper is intended to analyse the attainment of Indian railways provided affordable transport services
the above objectives by the Indian Railway system form almost 12 million passengers during 2016-17.The financial
the year 1950-51 onwards, as the year coincides with the value of assets was `5,376.70 billion during 2016-17.
launching of the national Five Year Plans.The assessment The revenue earned from freight traffic has registered
of the satisfactory transport services to the people is to be a sustained increase from `15,509 million in 1980-81 to
measured by the expansion in the running track, growth in `1,020,278 million in 2016-17. Passenger revenue was
the number of stations, growth in the number of wagons `462,804.6million, though it formed only about 28% of the
and passenger coaches etc. As against this, the assessment total earnings of the Railways in 2016-17.
of the financial returns is to be measured by the operating
Table 1: Indian Railways at a Glance

Items 1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11 2016-17
(As on (As on (As on (As on (As on (As on (As on March (As on March
March March March March March 31) March 31) 31) 31)
31) 31) 31) 31)
Total Investment 855.2 1,868.6 4,099.4 7,448.4 22,200.5 63,341.01 2,31,615.25 4,71,776.39
(` in cr.)
Gross revenue 263.30 460.42 1,006.95 2,703.48 12,451.55 36,010.95 96,681.02 1,65,382.48
receipts
(` in cr.)
Working expenses 215.74 372.55 862.22 2,575.99 11,337.77 34,939.72 90,334.88 1,60,469.48
incl. depreciation,
etc. and miscella-
neous expenses
Net revenue 47.56 87.87 144.73 127.49 1,113.78 1,071.23 6,346.14 4,913.00
receipts
(ìn cr.)
Excess (+)/Short- (+)15.05 (+) (-) 19.84 (-) (+) 175.67 (+) 763.59 (+)1,404.89 (+)4,913.00
fall(-) 32.01 197.87
(` in cr.)
Passenger earn- 98.2 131.6 295.5 827.5 3,144.7 10,483.2 25,705.64 46,280.46
ings
(` in crore)
Route kilometres 53,596 56,247 59,790 61,240 62,367 63,028 64,460 67,368
(Broad Gauge, Me-
tre Gauge, Narrow 388 748 3,706 5,345 9,968 14,856 19,607 25,367
Gauge)
- Of which Elec-
trified

Items 1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11 2016-17
(As on (As on (As on (As on (As on (As on (As on March (As on March
March March March March March 31) March 31) 31) 31)
31) 31) 31) 31)
Running Track 59,315 63,602 71,669 75,860 78,607 81,865 87,114 93,902
KMs
(Broad Gauge, Me-
tre Gauge, Narrow
Gauge)
- Of which Elec-
5,976 6,523 7,066 7,035 7,100 6,843 7,133 48,239
trified
Number of sta- 5,976 6,523 7,066 7,035 7,100 6,843 7,133 7,349
tions
Passenger Origi- 1,284 1594 2435 3613 3858 4833 7651.1 8116.1
nating
(in Millions)
Passenger KMs 66,517 77700 118100 208600 295600 457000 978500 1149830
(in Millions)
Average lead 51.8 48.7 48.6 57.7 76.6 94.6 127.9 141.7
Passenger traffic
(Kms.)
Average lead 470.0 561.0 648.0 720.0 711.0 626.0 676.0 559.0
all goods traffic
(Kms.)
Operating ratio 81.00 78.75 84.13 96.07 91.97 98.34 94.59 96.5
(per cent)
Source: Indian Railways.
Andhra Pradesh (includes Telangana) has the highest retail commodities, which is a major cause for worry. The
per capita rail route km (0.1 meters/person)and thestate share of IR in freight traffic has fallen from 88 per cent in
with lowest per capita rail route km is Kerala (0.03 metre/ 1950-51 to approximately 36 per cent in 2013-14.
person). State with highest rail density is West Bengal (0.11  The high density networks of the Indian Railways are
metres of rail track/sq km)and state with lowest rail density facing acute capacity constraints coupled with a low
isChattisgarh (0.01 metres of rail track/sq km). passenger fares thereby leading to increases in freight
tariffs to cross subsidize passenger revenues. However,
Major Challengesfacing Indian Railway (IR) that only enables recovery of costs and does not leave
Railways being the largest public sector undertaking has enough resources for investment in network expansion
varied and complex problems. Some of them are - and replacement of assets. Low speed of train e.g.
Maximum speed of a passenger train in India is about
 The main challenge facing Indian Railways nowadays half of the Chinese Railways at 160kms/ hr and Chinese
is its inability to meet the demands of its customers, has express trains with speeds of 300kms/hr.
both freight and passenger. Presently Indian Railways
suffers from a severe and chronic under-investment. Recent Developments
Despite the quantum of investment, quality of delivery The 92-year old tradition of holding a separate Railway
is also an issue. Cleanliness, network expansion and Budget was eliminated by Modi government on 21st
modernization, punctuality of services, safety, quality September, 2016 and the finance minister presented
of terminals, capacity of trains, quality of food, security the combined Union Budget 2017. In 2018-19, the gross
of passengers and ease of booking tickets are issues budgetary support from central government is proposed
that appeal urgent attention.There are unmanned level at `55,088 crore. This is a 38% increase from the revised
crossings 7,701 in number still exist,about 28% as on estimates of 2017-18 (`41,813 crore).
01.04.2017.
 The earnings from freight traffic has increased but the The Japan International Cooperation Agency (JICA) has
IR has been losing out on market share, particularly in inked a formal development assistance loan agreement

COVER STORY
with the Government of India (GoI), for providing the first like Physically Challenged persons, Patients, Senior
tranche of `4, 553 crore (US$ 739 million) for the Mumbai Citizens, Izzat Monthly season tickets, students, press
Metro III Cuffe Parade-Bandra-SEEPZ project. The scope correspondents, sports persons, war widows (53 such
of the agreement includes construction of Mumbai Metro concessions) etc. Accordingly, Railways are making large
Line - 3 (32.5 km long underground line) including tunnels, revenue losses in passenger traffic both in suburban as
stations, allied facilities, rolling stock, system component well as non-suburban segments. Railways incurred losses
and consulting services. The project, to be executed by of `33,491 crore on passenger operations in 2014-15 while
Mumbai Metro Rail Corporation, is expected to be complete in 2015-16 the figure was `35,918 crore. Indian Railways
in 2020. The State Government is planning to implement spends nearly `77,000 crore on passenger operations while
the project under engineering procurement construction it receives only `46,280crore from passenger fares during
(EPC) model and not through build operate transfer (BOT) 2016-17. The losses `39,608 croreduring 2016-17accruing
mechanism. from such operations, which are justified for meeting wider
socio-economic objectives, are termed as ‘Social Service
Social Obligation Obligation’.
Indian Railways directly provides jobs to over 13.08
lakh employees and also offers means of living to many
more lakhs of people in India. To the latter group belong
innumerable licensed and unlicensed hawkers earning
their livelihood from Indian Railways platform zone and
inside the trains throughout the year.Indian Railways play
a pivotal role for the entire lower and upper middle class
sectoral travel segment. It serves as the most economical
mode of transport among the prevailing travel modes in
India.
Rail transportation has a number of favourable The number of coaches and their capacity has grown over
characteristics as compared to road transportation. It is the years keeping in view the increasing passenger demand.
six times more energy-efficient than road and four times
more economical. The social costs in terms of environment Table 2:Number of Coaches and their Capacity
damage or degradation are significantly lower in rail. Rail Year Conventional Other
EMUCoaches
construction costs are approximately six times lower than Coaches
road for comparable levels of traffic. It is the only major No. Capacity No. Capacity Coaching
Vehicles
transport mode capable of using any form of primary  

energy.
1980-81 2,625 5,00,607 27,478 16,95,127 8,230
1990-91 3,142 6,09,042 28,701 18,64,136 6,668
2000-01 4,526 8,59,701 33,258 23,72,729 4,731
2010-11 7,292 13,64,948 45,082 32,54,555 6,500
2015-16 8,805 15,78,868 53,171 37,94,954 6,704

(revised)
2016-17 9,125 16,46,880 53,483 39,37,039 6,714
Indian passenger tariffs are one-fourth of China and

are one-ninth of Russia and they are nearly one-twentieth  Includes standing accommodation, @ Includes rail cars,
of Japan (12th Five year Plan). Indian Railways bears Includes luggage vans, mail vans etc., Includesnumber
social service obligation every year by carrying passenger of DEMU/DHMU coaches and their capacity,
and goods services below operation costs. The IR are Source: Indian Railways (IR).
providing Concessions to various categories of passengers

Table 3: Losses for Social Service Obligation The share of IR in overall GDP has been stagnant at 1%
(ìn millions) only and has, actually, gone down to 0.9% in 2012-13.With
an Operating Ratio, which has remained above 90 per cent,
Item 2016-17
the amount of funds available with the IR for investment
Loss on essential commodities 421 purpose is insufficient. To come across these investment
carried
requirements, governments are utilizing the capabilities of
below cost of operation the private sector in a big way.
Loss on coaching services 341,766
(a) Non-suburban Private Participation in Building Rail Connectivity
53,888
From 1853 to 1924, the Indian Railways consisted of a
(take account of loss of `18,553
number of privatelyoperated railway lines all of which
millions on uneconomic branch
lines) were, taken over by the British Indian Government in 1924.
Foreign Direct Investment (FDI) inflows into Railways
(b) Suburban related components from April 2000 to December 2017
Total loss 3,96,075 were US$ 897.09 million. For successful implementation
Net social service obligation 296,397 of PPP projects; appropriate risk allocation between public
and private needs to be done. Experience indicates that
(excluding staff welfare and
private sector is averse to taking all construction, financing
law & order costs of `99,678 and traffic risk in rail infrastructure projects. The report
million) of Expert Committee on Modernization of Indian railways
Source: Railway Board, Ministry of Railways. formed through a notification dated 21-09-2011 under the
chairmanship of Dr. Sam Pitrodia released February 2012
A study headed by BibekDebroy of NITI Aayog points out had laid heavy emphasis on involvement of private in sector
that exclusive focus on social service obligations fails to in modernization activities. The report had identified key
acknowledge issues such as “inefficiencies incost structures, areas which would need to be taken up under as part of PPP
impact of competition”. “In a competitive market where initiative. The list of the key areas are Elevate rail corridors,
demand for transport is elastic, Indian Railways will have a Captive power generation, High speed rail corridors,
limitation increasing fares.” Leasing wagons, Loco and coach manufacturing units,
Merchandizing, Private freight terminals, Railway hospitals
Table 4: Share of Transport Sector in Overall GDP (%) and schools, Renewable energy projects (solar, wind etc.),
Items 2008- 2009- 2010- 2011- 2012-13 Stations and terminals. Private sector investment in railways
09 10 11 12 (1st RE) infrastructure is expected to be approximately `0.92 lakh
crore (around 20% of the total investment) during the plan
Overall 6.6 6.6 6.5 6.6 6.7 period of 2028-32 up from 7% for the plan period 2013-17.
Transport
of which As metro rail projects are extremely capital intensive, it
Railways 1.0 1.0 1.0 1.0 0.9 is challenging to fund metro rail projects from Government
exchequer only. In this context, in order to create an
Road 4.7 4.7 4.6 4.8 4.9 ecosystem for proliferation of metro rail in country, the
Transport Government of India has notified Metro Rail Policy, 2017.
The policy imbibes on the learnings from international
Water 0.2 0.2 0.2 0.2 0.2
examples and bridges the much needed gap for enhancing
Transport the feasibility of metro rail projects from economic, social
and environmental perspective (Economic Survey 2017-
Air 0.2 0.2 0.3 0.3 0.3 18). The policy opens a big window for private investments
Transport across a range of metro operations making PPP component
Services 0.4 0.4 0.4 0. 4 0.4 mandatory for availing central assistance for new metro
incidental to projects. Private investment and other innovative forms of
transport financing of metro projects have been made compulsory to
meet the huge resource demand for capital intensive high
Source: Railway Board, Ministry of Railways. capacity metro projects.

COVER STORY
Conclusion References
Indian Railways is labelled as the lifeline of India. It not 1. Government of India, Ministry of Railways (December,
only transports passengers and goods but it also connects 2009), Indian Railways Vision 2020.
the entire nation with a common thread. Almost all Indians
are directly or indirectly connected to the Indian Railways. 2. Government of India, Ministry of Railways (February
The Indian Railways will swim or sink down depending 2015), Indian Railways-Lifeline of the nation(A White
on how well they can control costs and survive in a Paper), New Delhi.
competitive market. Indian Railways has to determine to
get the related infrastructure and ancillary services at par 3. Government of India, Ministry of Finance, Economic
with international standards. As Indian Railways promotes Survey 2017-18.
clean and compact way to move millions of passengers and
millions of tons of goods across, greater investment for 4. Railway Convention Committee (all reports), (Sixteenth
new and modern techniques, technological up-gradations LokSabha), Ministry of Railways (Railway Board).
in time and regular monitoring of the operations will
augment capacity and quality of service delivery which will
have to generate own resources for its future development.
After decades of under-investment, the railway sector is
finally going through a much-needed course of corrections.
NDA-II led Governmentin their first Rail Budget 2015-16
has been proposedto invest of `8,56,020 crorefor the next
5 Years (2015-19) to enable expansion, restructuring and
up-gradation of the magic wheels was a noble decision for
balanced socioeconomic growth in India. tarunmandalnss@gmail.com
At the Helm
Our heartiest congratulations to CMA Suraj Prakash,
a fellow member of the Institute for taking charge as
the Director (Finance) of M/s. BEML Limited from
May 10, 2018. Prior to this, he was the General
Manager (Finance) of M/s. BHEL Limited. He has
rich and varied experience in Indirect Taxation,
Tax Management, Tax optimization, System
improvement, formation of consortiums, technology
collaborations, merger & acquisition, evaluation/
appraisal of investment in JVs and capex investment
etc. He was also the Chairman of Noida Chapter of
the Institute.
We wish CMA Suraj Prakash the very best for all his
future endeavours.

COVER STORY
FUTURE OF
INDIAN
RAILWAYS

COVER STORY
CMA Sethuraman V
General Manager Finance
Rane NSK Steering Systems Private Ltd
Chennai
Finances of Indian Railways means the railways has been spending 94 paise on every
rupee that it earns
Internal revenue generation has been declining
The railways’ internal revenue for 2018-19 is estimated Revenue Generation and prevention of leakages in Rev-
at Rs2.01 trillion, 7% higher than the revised estimates enue.
for 2017-18. The majority of this comes from freight and Indian Railways though it has its own social cause , it has
passenger traffic, estimated at around Rs2 trillion. However, to be run on profitable basis to sustain itself. The fear that
over the last few years, railways’ internal revenue has been it might get extinct in near future of next 20-30 years is
falling due to a drop in the growth of both freight and always there if it is run in similar manner.
passenger traffic.
Usage of technology should be improved further, with
Expenditure on salaries and pension has been increasing India being the IT capital of the world it should be leveraged
Railways’ operating expenditure for 2018-19 is estimated further, with shut down of ticket issuing counters and
to be Rs1.88 trillion, up 4% from 2017-18. About 66% of encourage of more mobile based. As being given now the
this goes towards the payment of salaries and pensions. IR should encourage by giving discounts to bring in more
This component has been gradually increasing, with a jump number of passengers.
of about 15% in the last two years due to implementation
of the Seventh Pay Commission recommendations. The Following are the Suggestions for improvement in
pension bill is expected to increase further in the years to Railways Finances and Services.
come, as about 40% of the railways’ staff was above 50
years in 2016-17.  Pricing of fares should be done in a systemic manner
and transparently
Rs500 crore has been allocated towards the Depreciation
Reserve Fund, which provides for the cost of new assets  Pricing of AC fares should be done that it is tempting for
replacing the old ones. This is significantly lower than last the passengers not to fly, rather go in for train journey
year’s allocation of Rs5,000 crore.
 Discourage passengers from going to Railway stations
Consequently, operating ratio has been on the higher side similar to Airports, to increase the platform tickets
Operating ratio is the ratio of working expenditure
(expenses arising from day-to-day operations) to revenue  IR should encourage Companies to use the Freight
earned from traffic. A higher ratio indicates a poorer ability wagons on their terms and importance of Freight
to generate surplus that can be used for capital investments wagons should be increased in running.
such as laying new lines and deploying more coaches.
 Doubling and electrification should be accorded
The operating ratio for 2018-19 is projected at 92.8%. In the highest priority, as this would IR the capacity to
2017-18 (revised estimates), it was 96%. In the last 10 years, increase its revenue generation.
the operating ratio has been around 94% on average, which

Indian Railways ( IR) is the fourth largest railway network in
the world by size with 121, 407 kilometers of total track over
a 67,368 kilometer route track. Forty nine percent of the routes
are electrified with 25KV AC electric traction while over one
third of them double or multi tracked.
IR runs more than 13,000 passenger trains daily on both long

distance and suburban routes, from 7,439 stations across India.
The trains have five-digit numbering system . Mail or express
trains , run on average speed of 56 KM per hour . As of March
2017 IR’s rolling stock consisted of 277.987 freight wagons
70,937 passenger coaches and 11,452 locomotives. It employs
approximately 1.3 Million employee as of March 31, 2017.
 Ticket fares for Second Class, Sleepers should be  Increase more staff in Safely, mechanical and
increased in line with inflation especially suburban Commercial Departments as these are core areas of the
fares, which has not been hiked for more than a decade, IR. The staff increase should be encouraged/assessed
with lowest fare being at Rs 5, which is very low and it based on the revenue generated by them, or prevention
would not be sustainable in the long term of revenue leakage. This way the staff would look
innovative ways of prevention of revenue leakage.
 Capital expenditure should be shared between the
IR and relevant State Government to increase rate of  IR should look ways in having close monitoring with
completion of projects. Projects should be undertaken State Government to improve the capital expenditure
only after the land acquisition is being made proposals and should encourage the partnership from
State Government to improve the speed at which the
 IR should concentrate only on running its core values, proposal can be completed.
and should exit from running hospitals, schools,
etc. even though these are of social causes, these  Cleanliness , Safety, Punctuality should be the MANTRA
should be run by the respective Ministries and State for IR for the next decade to improve its patronage.
Governments.
IR should encourage on its finances not depend on
 Tickets issued at the counters should also be subsidies, Government Support to run, as always the
encouraged to cancelled on line. It should also be seen sustainability of IR will always come into picture with
that even after Chart has been prepared the passenger competing with several modes such as UDAN where air
should be allowed to cancel tickets. connectivity to small towns have been stared with fare of
just Rs 2500 and increasing volumes in sales of automobiles.
 Current booking after the chart prepared should be
such that it should be done through online, instead of Above all indicates that share of IR in Indian Economy is
the current practice of booking at specified Stations falling and in near future would very difficult to sustain in
only. future. It should not happen such that IR pictures are seen
only in books and exhibitions instead of reality. All the best
 Supervision of ticket less travel should be increased to for the future!
discourage ticket less travel and heavy penalty/fines
should be levied. v.sethuraman@ranegroup.com

www.icmai.in
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BANKING
‘JAN DHAN’ TO ‘JAN GAN’-
LOOKING BACK AND BEYOND

BANKING
Dr. Arindam Gupta

Professor of Commerce
Vidyasagar University, Midnapore
[presently at Financial Research and Trading Laboratory,
Indian Institute of Management, Calcutta]
Is the ‘Jan Dhan’ bank account capable of holding to family or friends to provide them with informal savings
savings of the poor people? or credit facilities, rising to over half of respondents in India
How meagre an amount of `2500 may be as one’s only (54%). Thus, many people are found not even aware of the
bank balance! But, this is the story in India that after need of being a part of the formal financial system. The
much hype of black money having injected in the Jan Dhan target group of financial inclusion is in a further worse state
accounts, which however may be true, the average balance to understand the need of getting financially included and
in such accounts is `2544 as calculated very recently on falls prey quite easily under the money lenders when they
May 30, 2018. This fuels the question how far a bank need fund and to the chit funds when they invest fund.
account under Pradhan Mantri Jan Dhan Yojana (PMJDY)
has been capable of holding savings of the poor people. How far these Jan Dhan accounts are capable of holding
poor people’s deposit could also be linked with the earnings
But, if we travel towards past in the history, when the of these people. Many of them are daily earners, thus
PMJDY was announced in August, 2014, it was seen that having little amount to deposit too. The all India annual
the knowledge of common people was orchestrated with a average wage rate for the unskilled manual workers or
rumour that the government was planning to deposit a lump MGNREGA2workers is `172.20/day w.e.f. April 01, 2014
sum into such accounts immediately after opening of the (Source: Website of Ministry of Agriculture & Farmers
same. This led to long queues for opening such accounts, Welfare, Govt. of India). In present situation, there is not
even in some cases buying of the account opening form much scope to save money by these people to be kept
from outside in absence of the requisite availability of the in a bank account out of this earning as depicted above,
same in a bank. As it is commonly argued by the proponents considering the irregularity of such income and that too
of financial inclusion in its favour that the bank account is so small, family size of the earners, and unforeseen
the primary step for an individual towards financial stability contingencies over and above the normal livelihood
and prosperity. It is also highlighted by them as a kind of expenses. Further, they may consider of the time needed
fundamental right. and expense involved, direct or indirect, in visiting a bank
branch and get them involved in the banking transactions
India, like any other developing country with a low level to deposit the minimum amount of surplus if any.
of financial literacy, suffers from the problem of the basic
lack of understanding of banks and banking activities even The progress of Jan Dhan under scanner
among many of her better-off section of people. The G20/ As of now (May 30, 2018), about 317 million accounts
OECD INFE Report (2017)1 on adult financial literacy has have been opened with `807.17 billion balance in Jan
awarded a score of 11.9 to a lowly ranked India against a Dhan accounts and 1,26,000 Bank Mitras (Customer
maximum possible score of 21 in a survey among the G20 Service Providers or Banking Correspondents) delivering
countries, the average score having been found 12.7. The branchless banking services in sub-service areas (Source:
various indicators of financial inclusion considered in this PMJDY website). In some cases, even a person has opened
Report show wide variation in terms of formal product a bank account for the second time, either concealing
awareness and use, and the reliance on family and friends. the earlier opened account or on an advice even from the
Across the G20 countries, 19% of respondents had turned bank official to conceal the earlier account for showing a

better statistics of PMJDY accounts being opened in the death of the primary accountholder, which should have
particular bank or not knowing the ineligibility for opening been 1.1 million instead if the death rate of 3.4 for the age
a PMJDY account in case s/he has an already existing bank group of 15-59 was applied on 1230 million accountholders
account. The earlier bank account could also remain non- (taking such figure as on January-end, 2015).
operational to an individual due to a variety of reasons like
distance, lack of understanding and easiness with banking The government’s dream of developing a trinity in the
transactions or not having a minimum financial capacity form of JAM that would link Jan Dhan accounts with
for running a bank account with a requirement of minimum Aadhaar and Mobile phone so as to bring the people “into
deposit in most of the cases. The MicroSave assessment a common financial, economic and digital space” is thus
surveys show that duplication of customer accounts has yet far away because of the primary reasons of so many
been increasing over time in the Jan Dhan scheme and that accounts remaining inactive. Further, the government’s
in 2015-end only 67% accounts have been found to be the inability to convince the apex court about the need of
first accounts of the accountholders3. the Aadhaar linkage which resulted in extension of the
deadlines a number of times keeps it further back-footed7.
The hidden reasons behind the popularity of the PMJDY
scheme as narrated by a few initial surveys are publicity The dubious distinction of Jan Dhan accounts:
of the scheme, in some cases even the wrong publicity in sheltering black money during demonetization
form of rumour as said earlier, along with the target being Now, it is an interesting fact to note that during
set for the bank officials. It is also reported in studies that demonetization (November-December, 2016), PMJDY
public sector banks have been exerted with the pressure of accounts became a shelter in many places for siphoning
the PMJDY programme by setting high targets of opening black money. Several media reports came one after another
such accounts. Chopra, Prabhala and Tantri (2017) have in this regard (India Today, 2016 8, Business Standard,
tracked activity in 3000 PMJDY accounts from August 2014 20179). The apparently dry accounts in terms of deposits
to October 2016 to reach similar conclusion4. started to obtain huge deposits. Cash deposits in PMJDY
accounts reach around `870 billion in the first 45 days post
World Bank’s Global Findex Report, 20175 has shown demonetization. In the first week after demonetization
that adults holding bank accounts in India as 80% in deposit was `202.24 billion. After the first two weeks the
2017 vis-à-vis 35% in 2011 and 53% in 2014. Such a high inflow was below `50 billion per week and thereafter it got
rate of financial inclusion for India has not been reflected reduced to about `10 billion per week. It is estimated that
ever in any survey with in the country or outside till now. almost 20% of the estimated black money to be wiped
The arithmetic success of financial inclusion could have out was siphoned to the PMJDY accounts. The finance
undoubtedly been engineered by the PMJDY success. But, ministry’s statement says, “As on 16 August 2017, the
at the same time, the Report has stated 48% of the PMJDY number of PMJDY accounts stands at 29.52 crore with rural
accounts remaining inactive. The Report also shows that accounts comprising 60% of it. Thanks to demonetization
only 7% of the accountholders use the PMJDY accounts led efforts, zero balance accounts under PMJDY declined
for savings. from 76.81% in September 2014 to 21.41% in August 2017”10,
11
. PMJDY website based progress report if analyzed reveals
Apart from providing the bank account ownership, an average deposit balance per such account rising from
Jan Dhan account was supposed to provide an overdraft `1780 on November 02, 2016 as last obtainable just
of `5000 after successfully the account being run for before the announcement of demonetization decision
six months from the date of opening. Providing such an on November 08, 2016 to `2643 on January 04, 2017
overdraft without any collateral remains its uniqueness. Also, as immediately available after the expiry of the window
it had another uniqueness of covering life risk, although of period on December 30, 2016. Hence, the rise in average
a very moderate amount of `30000 automatically with the balance on the expiry of the window period seems to be
accounts to be opened till January 26, 2015. A RTI response quite abnormal. The government was not ready for this
as published by Sinha and Azad (2018)6 reveals that only boomerang and was rather rightfully busy with supplying
3.139 million beneficiaries could avail the overdraft facility new currency notes to the monetary system.
till December 27, 2017, which was about 1% of the total such
accountholders. Further, they also report that only 4500 The government finally cautioned Jan Dhan account
beneficiaries, which was a dismal 0.5% of the estimated holders that they would be prosecuted under the Income
eligible population, could avail the life insurance cover on Tax Act for allowing misuse of their bank accounts through

BANKING
the deposit of black money in scrapped currencies during Pension System account if opened before December, 2015.
the 50-day window till December 30, 201612. However, it There is a recent proposal of raising the upper monthly limit
remains a doubt how many among the target group of of pension in Atal Pension Yojana from `5000 to `10000
population could be reached through these circulars in the and of the maximum age level from 40 to 50 to join14.
printed format in the newspapers. The government had
already set a basic limit in deposit of `50,000 in the Jan Paying small insurance premium or contributing towards
Dhan accounts. Bank officials were rather in a dilemma to the pension scheme from the bank accounts of the target
redesignate the Jan Dhan accounts into basic savings bank population creates a culture of saving. Time has come now
deposit (BSBD) accounts as balance in many such accounts that the underlying philosophy of Jan Dhan scheme is
exceeding the upper limit. being reformed from wealth distribution to wealth creation.
The critics may argue why not earlier and why now when
The role reversal in Jan Dhan account: from wealth the scheme is nearing completion. The government may
distribution to wealth creation? counter-argue that its principal aim through the scheme
PMJDY had aimed to send a feeler publicly through was to promote financial inclusion first. But, undoubtedly,
the overdraft facility that assistance was being provided an extension of the scheme would match the government’s
to the poor with the purpose of wealth creation and that recent change of stand from wealth distribution to wealth
the scheme was not just about fulfilling the government’s creation.
commitment to wealth distribution like direct benefit
transfer. The Union Budget, 2018 announces that that the PMJDY – whither?
government “will expand the coverage under PMJDY by As per the government declaration in the PMJDY
bringing all sixty crore basic accounts within its fold and booklet, the financial inclusion scheme is supposed to be
undertake measures to provide services of micro insurance implemented in two phases: Phase I, from 15th August,
and unorganized sector pension schemes through these 2014 to 14th August, 2015, and Phase II, from 15th August,
accounts”. Ordinarily, the BSBD accounts may act as good 2015 to 14th August, 2018. Hence, PMJDY, if not extended
as Jan Dhan accounts if could be opened with zero balance by the government through any fresh notification is going
and if issued with a Rupay card13. RBI has also started to to be withdrawn. But, recently, the government and the
send text messages to the mobile phones of the citizens banking sector are plagued with the problems of cheating
irrespective of any target group of population to open such by economic offenders (some of them turning into fugitive)
accounts if s/he may stick to an withdrawal policy of not in the banking sector and worsening performance of the
more than four times a month from such accounts. Thus, banking sector to make good of such losses. Hence, financial
the use of PMJDY as a vehicle for micro-insurance policies inclusion is no more in the priority list of the government
as well as pensions will be “an opportunity as well as a and the banks as a broader policy. Even if at the branch
challenge” to the banks. level, it is strange to notice that the banks have no option
of opening account under the PMJDY scheme at present
The IRDA Micro-Insurance Regulations, 2005 exists although the scheme is not officially closed. Rather, some
for the economically vulnerable sections of society, with of the banks are offering zero balance BSBD account for the
a sum of up to `50,000 assured as life (covering term poorer people with no overdraft facility attached to these
insurance, endowment insurance or health insurance) or accounts. In general, a Rupay card is being issued like that
general (covering hut, livestock, instrument, personal of the Jan Dhan accounts to support these accounts with
accident or health) insurance. The micro insurance scheme, ATM facility and more importantly an accidental insurance
so far prominently run by LIC, did not, however, have much coverage of `100000.
response to it. Further, the Pradhan Mantri Jeevan Jyoti Bima
Yojana and Suraksha Bima Yojana, with provisions of auto- The government’s larger aim to make the poor people self
debit from the beneficiary accounts, respectively of `330 dependent with the help of micro enterprise supported by
and `12 annually for separate life and accidental coverage credit facility offered by the bank could not be achieved
of `200,000, could augment the insurance coverage of the through the PMJDY scheme as it offers loan upto a paltry
target population. Also in Swavalamban (now, upgraded `5000 and that too could be availed by so few people.
to Atal Pension Yojana from June 2015), a co-contributory Contrary to expectations, the government did not double
pension scheme for the unorganised sector, launched in the overdraft limit in the scheme in the Union Budget,201815.
September 2010, the government would contribute up Meanwhile, the government had announced a new scheme
to `1,000 up to March 2020 annually in each National in the name of Pradhan Mantri Mudra Loan Yojana by

which much bigger amount of credit could be given for files/pdf/PMDY_WaveIII_ Assessment_ Microsave.pdf
starting new enterprises upto a maximum amount of `1 4
Chopra, Y., Prabhala, N. and Tantri, P. L., 2017, “Bank
million16. At present, banks appear to be very interested Accounts for the Unbanked: Evidence from a Big Bang
in providing such loans which have a business prospect, Experiment” retrievable from https://papers.ssrn.com/sol3/
although understanding huge risk in view of the mounting papers.cfm?abstract_id=2919091
NPAs already existing with them. 5
https://globalfindex.worldbank.org/
6
Sinha, Dipa and Azad, Rohit, 2018, March 31, “Can Jan Dhan
Here, however, a question remains. Has the Jan Dhan Yojana achieve financial inclusion?”, Economic and Political
scheme as meant for fulfilling the overall vision of the Weekly, Vol. LIII, No. 13, pp. 165-171
government to protect Jan Gan17 with a safe place to 7
Supreme Court of India has opined on the issue of deadline
keep their hard-earned money, coupled with the facilities on March 31, 2018 as last set by the government in respect
of receiving credit support and covered with an accident of Aadhaar linkage that without any transfer of benefit the
insurance against any such risk, been able to achieve the government cannot force such linkage upon the people
vision of the scheme nearing the proposed time of its 8
India Today, 2016, November 17, “Exposed: Crooks Turning
conclusion? For a long time, the government has been Kala Dhan into Jan Dhan”
finding an effective way of direct benefit transfer (DBT) 9
Business Standard, 2017, Jan. 03, “Jan Dhan account
or providing subsidies to the right persons and not in any deposits swell to Rs 2400 cr in Odisha post note ban”
fictitious name or not to any person who is not eligible to 10
Bose, Prosenjit, 2017, Sept. 02, “Demonetisation Post-Truths”,
receive the same. Presently, there are as many as thirty six EPW Engage, Vol. 52, Issue 35, retrievable from https://www.
schemes linked under the DBT through which government epw.in/engage/article/-demonetisation-post-truths
is transferring various benefits directly to beneficiaries. 11
Yadav, Shyamlal and Mazoomdar, Jay (2016) quoted in a
Reportedly, due to plugging through bank account leakage newspaper report that in a game of improving statistics,
has been reduced generating savings to the government18. the banks themselves had transferred ₹ 1-10 in the Jan Dhan
The government had even once declared about all the DBT accounts maintaining a zero balance, just to turn those into
accounts for conversion into Jan Dhan accounts19. It may accounts having a non-zero balance (Source: Indian Express,
be concluded therefore that PMJDY when introspected Sept. 13, 2017)
appears to be largely successful in increasing bank 12
PTI, 2016, November 18
account ownership, thus creating a suitable place for the 13
The Rupay card was devised as India’s attempt to counter
government for DBT but not being successful in respect of that of the global giants such as Mastercard and Visa. While
more vital needs of deposit and credit of the target group the scheme was sanctioned in 2012, it picked up pace with
of people even within the ambit of the scheme’s initial plan, Jan Dhan Yojana’s rollout, as Rupay cards were to be given to
leave apart the idea of wealth creation emanated later. Still, each account holder.
it is not advisable for the government to discontinue the 14
Hindu Business Line, 2018, June 12, “Atal Pension Yojana:
scheme after an announcement having made only in the Govt mulls hiking pension limit to up to Rs.10,000/month”
last budget to link micro insurance and pension; rather 15
Business Standard, 2018, Jan. 23, “Budget 2018: Govt to
it should look into as to why the banks presumably took extend Modi's flagship PMJDY scheme, double overdraft”
a decision for premature burial of the scheme before its 16
MUDRA stands for Micro Units Development and Refinance
scheduled closure. Agency which speaks for itself and the MUDRA Bank was
formally launched in April, 2015.
FootNote 17
India’s national anthem has the first two words Jan Gan
1
http://www.oecd.org/daf/fin/financial-education/G20- which mean the people.
OECD-INFE-report-adult-financial-literacy-in-G20-countries. 18
The Economic Times, 2018, March 23, “Savings from direct
pdf benefit transfer pegged at Rs. 83,000 crore”
2
The Mahatma Gandhi National Rural Employment Guarantee 19
FirstPost, 2016, Jan. 20, “Why Modi-government’s move to
Act, 2005 provides direct supplementary wage employment to convert DBT accounts to Jan Dhan is a right step”
the rural poor through public works, thus giving a guarantee
for 100 days of employment at minimum wages to at least
one able bodied person in every rural household.
3
Sharma, Manoj, Giri, Anuradha and Chadha, Sakshi, 2016,
“Pradhan Mantri Jan Dhan Yojana Wave III assessment”, arindamgupta69@gmail.com
MicroSave, retrievable from https://www. MicroSave.net/

IBC
APPROVAL OF
RESOLUTION PLAN

CMA Dr. M. Govindarajan
Retired Accounts Officer
BSNL, Madurai
The Insolvency and Bankruptcy Code, 2016 (‘Code’ for The resolution professional shall provide to the resolution
short) brings revolution in resolution process of corporate applicant access to all relevant information in physical
insolvency. The role of insolvency professional is very and electronic form, provided such resolution applicant
important in this process. The preparation and approval of undertakes-
resolution plan is an essential part in corporate insolvency
resolution process. The Adjudicating Authority is to approve  to comply with provisions of law for the time being in
the resolution plan. The Adjudicating Authority shall force relating to confidentiality and insider trading;
approve if it is satisfied that the resolution plan confirm
to the requirements or otherwise it may reject the plan.  to protect any intellectual property of the corporate
The approved resolution plan shall be binding on corporate debtor it may have access to; and
debtor and its employees, members, creditors, guarantors
and other stakeholders involved in the resolution plan.  not to share relevant information with third parties
unless the above are complied with.
Steps for approval of resolution plan
The following are the steps involved in the approval of The expression “relevant information” means the
resolution plan in a corporate insolvency resolution process- information required by the resolution applicant to make
the resolution plan for the corporate debtor, which shall
 Preparation of an information memorandum by include the financial position of the corporate debtor, all
resolution professional; information related to disputes by or against the corporate
 Preparation and submission of resolution plan by debtor and any other matter pertaining to the corporate
resolution applicant to the resolution professional; debtor as may be specified.
 Scrutiny of resolution plans by resolution professional;
Submission of resolution plans by resolution Eligibility for resolution applicant
professional before Committee of creditors; Section 29A of the Code provides that a person shall not
 Approval of resolution plan by Committee of creditors; be eligible to submit a resolution plan, if such person, or any
 Submission of resolution plan approved by Committee other person acting jointly or in concert with such person-
of creditors before the Adjudicating Authority by the
resolution professional; (a) is an undischarged insolvent;
 Approval of resolution plan by Adjudicating Authority.
(b) is a willful defaulter in accordance with the
Preparation of Information Memorandum guidelines of the Reserve Bank of India issued
Section 29 of the Code provides for preparation of under the Banking Regulation Act, 1949;
Information Memorandum by the resolution professional.
The resolution professional shall prepare an information (c) has an account, or an account of a corporate debtor
memorandum in such form and such manner containing under the management or control of such person
such relevant information as may be specified by the Board or of whom such person is a promoter, classified
for formulating a resolution plan.. as non-performing asset in accordance with the

IBC
guidelines of the Reserve Bank of India issued

under the Banking Regulation Act, 1949 and at least
a period of one year has lapsed from the date of
such classification till the date of commencement
of the corporate insolvency resolution process of
the corporate debtor; the person shall be eligible
to submit a resolution plan if such person makes
payment of all overdue amounts with interest We have not single law
thereon and charges relating to non-performing
asset accounts before submission of resolution
dealing with insolvency and
plan; bankruptcy till the Insolvency
and Bankruptcy Code, 2016 has
(d) has been convicted for any offence punishable with
imprisonment for two years or more; been enacted. The object of the
Code is for the maximization of
(e) is disqualified to act as a director under the
Companies Act, 2013;
value of assets of such persons,
to promote entrepreneurship,
(f) is prohibited by the Securities and Exchange Board availability of credit and
of India from trading in securities or accessing the
securities markets; balance in the interests of all
stakeholders including alteration
(g) has been a promoter or in the management or
control of a corporate debtor in which a preferential
in the order of priority of
transaction, undervalued transaction, extortionate payment of Government dues.
credit transaction or fraudulent transaction has The Code provides the process of
taken place and in respect of which an order has
been made by the Adjudicating Authority under this corporate insolvency resolution
Code; process in a time bound manner.
(h) has executed an enforceable guarantee in favor of
The resolution professional plays
a creditor in respect of a corporate debtor against a vital role in this process. The
which an application for insolvency resolution made preparation and approval of
by such creditor has been admitted under this Code;
resolution plan is essential in
(i) has been subject to any disability, corresponding this process. This article deals
to clauses (a) to (h), under any law in a jurisdiction
outside India; or
with the procedure of approval
of resolution plan and also
(j) has a connected person not eligible under (a) to (i). discusses the essential criteria
Section 29A is not applicable to- for the approval of resolution
plan with the decided case law
 a scheduled bank; or
 an asset reconstruction company registered with

the Reserve Bank of India under section 3 of the
Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002; or
 an Alternate Investment Fund registered with the

Securities and Exchange Board of India. the resolution applicant is ineligible under section 29A and
may require the resolution professional to invite a fresh
Submission of resolution plan to resolution resolution plan where no other resolution plan is available
professional with it.
A resolution applicant may submit a resolution plan to
the resolution professional prepared on the basis of the Where the resolution applicant is ineligible, the resolution
information memorandum. applicant shall be allowed by the committee of creditors
such period, not exceeding thirty days, to make payment of
Scrutiny by resolution professional overdue amounts in accordance with the proviso to clause
The resolution professional shall examine each resolution (c) of section 29A.
plan received by him to confirm that each resolution plan-
The resolution applicant may attend the meeting of the
 provides for the payment of insolvency resolution committee of creditors in which the resolution plan of the
process costs in a manner specified by the Board applicant is considered but the resolution applicant shall
in priority to the repayment of other debts of the not have a right to vote at the meeting of the committee of
corporate debtor; creditors unless such resolution applicant is also a financial
creditor.
 provides for the repayment of the debts of operational
creditors in such manner as may be specified by the Submission before Adjudicating Authority
Board which shall not be less than the amount to be The resolution professional shall submit the resolution
paid to the operational creditors in the event of a plan as approved by the committee of creditors to the
liquidation of the corporate debtor under section 53; Adjudicating Authority for its consideration.
 provides for the management of the affairs of the Approval by Adjudicating Authority
Corporate debtor after approval of the resolution plan; If the Adjudicating Authority is satisfied that the resolution
plan as approved by the committee of creditors meets the
 the implementation and supervision of the resolution requirements as referred to the conditions prescribed in
plan; section 30, it shall by order approve the resolution plan. The
approved resolution plan shall be binding on the corporate
 does not contravene any of the provisions of the law for debtor and its employees, members, creditors, guarantors
the time being in force. and other stakeholders involved in the resolution plan.
Where the Adjudicating Authority is satisfied that the
 conforms to such other requirements as may be resolution plan does not confirm to the requirements it may,
specified by the Board. by an order, reject the resolution plan.
Submission of resolution plan to the Committee of After the order of approval-

Creditors
The resolution professional shall present to the committee  the moratorium order passed by the Adjudicating
of creditors for its approval such resolution plans which Authority under section 14 shall cease to have effect;
confirm the conditions as discussed as above. and
Approval by Committee of Creditors  the resolution professional shall forward all records
The committee of creditors may approve a resolution relating to the conduct of the corporate insolvency
plan by a vote of not less than seventy-five per cent. of resolution process and the resolution plan to the Board
voting share of the financial creditors, after considering to be recorded on its database.
its feasibility and viability, and such other requirements as
may be specified by the Board. Appeal
Section 32 of the Code provides that Any appeal from an
The committee of creditors shall not approve a resolution order approving the resolution plan shall be in the manner
plan, submitted before the commencement of the Insolvency and on the grounds laid down in sub-section (3) of section
and Bankruptcy Code (Amendment) Ordinance, 2017 where 61.

IBC
Essential for approval of resolution plan crore respectively, besides this, the corporate debtor
The following are the essential key factors for approval has contributed approximately Rs.70 crore towards
of the resolution plan- taxes for the years ended 2015-16 and 2016 -17.
 The resolution applicant is to submit the resolution plan  The applicant is aggrieved of the wrongful rejection of
which fulfills the conditions as prescribed in the Code; the plan without giving an opportunity to the applicant
to give revised plan after considering the effect of the
 Committee of creditors is to approve the resolution plan circular given by Ministry of Corporate Affairs on
with not less than 75% voting of committee of creditors; 25.10.2017.
 The Adjudicating Authority is to satisfy that the  The salient features of the proposed resolution plan
resolution plan complies with the provisions of the are-
Code.
 There would be compulsory change in the
Approval by not less than 75% voting – mandatory? management of the original respondent.
The approval of resolution plan is to be done by the
Committee of Creditors after analyzing the said plan. The  Immediate cash payment (within 12 months) of
resolution plan should be approved b y not less than 75% Rs.180 crore.
of voting power. This is mandatory. The same has been
upheld by the Adjudicating Authority in ‘ICICI Bank Limited  Conversion of loan into Cumulative Convertible
V. Innoventive Industries Limited’ – (2018) 143CLA 97 Optionally Redeemable Preference Shares,
(NCLT). In this case the applicant, a resolution applicant, redemption of which would be guaranteed by the
in the corporate insolvency resolution process against promoters of the corporate debtor.
M/s Innoventive Industries Limited, submitted a proposed
resolution plan for Rs.284.3 crores. The Committee of  The plan contemplated funds through Rights
Creditors has not been voted in favor of the resolution plan Issue/preferential allotment of shares which
with 75% vote sharing of the Committee of Creditors. Since requires shareholders’ approval under the
66.57% of the Committee of Creditors voted in favor of the provisions of the Companies Act, 2013.
resolution plan the same has been rejected by Committee
of Creditors.  The value of the resolution plan being more
than double to the net liquidation value of
Against this decision, the resolution applicant filed Rs.135.40 crore, it is the only viable alternative
a miscellaneous application before the Adjudicating for liquidation.
Authority. The prayer of the applicant is that the applicant
shall be permitted to submit revised resolution plan The applicant further submits-
after reducing the time earlier envisaged for obtaining
shareholders’ approval for change of period or making cash  The requirement of 75% vote in favor of a resolution
payments, consequently to direct resolution plan to present plan is directory and not mandatory.
the modified resolution plan before Committee of Creditors,
basing which the Committee of Creditor be directed to cast  The rejection of the plan amounts to arm twisting tactics
vote on such modified resolution plan. by the dissenting financial creditors and holding up the
corporate insolvency process of the corporate debtor.
The applicant has given the following justifications for
seeking the above said relief-  The rejection of the plan would result in loss-loss
situation for all stakeholders of the corporate debtor
 The corporate debtor provides employment to 1200 including the workmen and employees of the company.
workmen.
 The dissenting financial creditor shave not given
 The turnover of the corporate debtor for the years any reason for rejection of the proposed resolution
ended 31st March 2015, 31st March 2016 and 31st plan despite the fact that implementation of this
March 2017 is Rs.372 crore, Rs. 368 crore and Rs.337 plan would lead to higher recovery as against to

recovery through liquidation. also of no meaning, then to see the heading of the respective
chapter, after dong all meaning then to see the heading of
 The Code is meant for maximization of value of assets the respective chapter, after doing all these exercises, even
and balance the interest of all stakeholders, that being then also, if one is unable to construct the meaning of the
so, since the object of the Code contemplates ease of section, then go to the statement and objects of the statute
doing business facilitating more investment leading and then to see Committee reports to find out as to what
to higher economic growth and development, if this the intention of the enactment in respect to the section
plan is not approved, all the objects behind enactment that is unable to give right meaning.
would get defeated.
In law ‘right meaning’ means not the meaning the
 The time period of 270 days as contemplated under Adjudicating Authority felt right, it is the meaning
section 12 of the Code is to be conceived as directory contemplated in the statue. Here it is out and out visible
because the insolvency resolution process is a complex that the approval of the resolution by Committee of
process that required assessment of business viability, Creditor means, approval with 75% voting by Committee
preparation of resolution plan, discussions and of Creditors, not otherwise. Therefore, the Adjudicating
negotiations with various stakeholders. Authority cannot put its neck into, to say that the approval
of the Committee of Creditors with less than 75% amounts
 The strict adherence to the period would result in value to approval of resolution by Committee of Creditors.
destruction of the business of the corporate debtor.
It has already been held that there could not be any
 The inherent power conferred upon NCLT under rule occasion to the Bench to look into a resolution plan that has
11 of the NCLT Rules is equally applicable to this not been approved by the Committee of Creditors with 75%
Adjudicating Authority to prevent abuse of process majority as set out in the Code, the Adjudicating Authority
because the ultimate object of the Court is not is given power to examine as to whether the plan approved
liquidation of asset but to save the business of the by the Committee has complied with section 30(2) of the
company. Code or not, if complied with, it has to be approved by the
Adjudicating Authority, if not complied with, to reject the
The Adjudicating Authority held that the Code in clear resolution plan approved by the Committee with not less
terms has stated that any decision that has been taken than 75% voting share of the company.
by Committee of Creditors in the corporate insolvency
resolution period shall be a resolution with 75% voting To invoke the jurisdiction of Adjudicating Authority, there
shares of Committee of Creditors. The Adjudicating must be a resolution plan approved by the Committee with
Authority analyzed various provisions of the Code which 75%. So, there is total prohibition upon the Adjudicating
dealt with the approval of the Committee of Creditors and Authority to go into as to whether approval of 75% is
the resolution plan. required or not and as to whether the resolution plan
approved by the Committee is otherwise correct or not,
In Section 21(8) of the Code, it has been mandated that except as mentioned in section 31 of the Code.
all decisions of the Committee of Creditors shall be taken by
a vote of not less than 75% of voting shares of the financial Since, in this case, the insolvency resolution process
creditors. Neither a proviso nor is there any exception of 270 days is already over by 14.12.2017, and since no
carved out to this section saying this mandate is exempted resolution plan has been received by the Adjudicating
in so and so situations. Authority, the Adjudicating Authority, as contemplated
under section 30(6) of the Code, ordered the corporate
The Adjudicating Authority further held that if anybody debtor to be liquidated in the manner laid down
wants to venture into interpretation of a statute, first it in this Code.
has to be ascertained that reading of a section is not giving
any meaning or meaning that comes out of such section
is absurd and inconsistent with the remaining part of the
legislation. After having come to such conclusion that
section is unable to reflect anhy meaning, then heading of
the meaning is to be seen, if the heading of the section is govind.ayyan@gmail.com

HR
APPRAISAL –
A CURSE
OR
A BOON

Debopam Chell
Assistant Vice President
Reliance Industries Limited
Mumbai
A
nnual appraisal and yearly performance rating you could do to overcome these setbacks. Like, how did I
in professional career brings out different go wrong in my own assessment? How do I bridge the gap
expressions to different employees. Some people between my own assessment and that of the evaluator?
are so well prepared and confident that they To improve my performance ratings hereinafter, what are
really look forward for such moment. To them it is that time the different alternatives that I can think of? In the given
of the year when the results shall be disclosed and they can circumstances, what could be the most appropriate option
draw up plans to celebrate; could be with the rewards that for me? Believe me, if you view assessment situations, in a
are likely to follow the appraisal. On the contrary, to some, process driven approach, you would find it easier to handle,
mere thought of appraisal gives rise to so much of anxiety benefit immensely.
and pain that it often leads to serious health issues.
Let me share one of my personal experiences at work.
Tell me, how does it feel when a person speaks not so Some years back, for no reasons of mine, a senior colleague
well about you? You feel dejected – isn’t it? Now my second lectured me on my so called weakness. He went on to
question. How often do you use this feedback as a tool for comment, “Look, this is not the way how the situation
improvement? Any guess? Let me explain. Research papers should be handled. You need to learn the tricks of the trade,
have pointed out that most of us hardly prepare ourselves buddy.” Honestly speaking, I was very upset and hurt. His
for unpleasant feedbacks. Actually we fail to believe that strong words continuously reverberated in my ears and
we have our own limitations. It could be that we had never created a huge turmoil within me. Had it been my younger
uncovered some of our hidden deficiency before. Thus days, I would have protested vehemently. I would have tried
when expectations and assessment results are not in sync, all my oratory skills to convince (or should I say prove) that
it leads to utter disappointments. Frankly speaking these he was wrong in his judgement. Surprisingly, this time, I kept
stressful conditions are directly linked to our inability - our quiet and controlled my immediate outburst (emotions).
inability to deal with adverse feedbacks. As a result, when I do not know why, but it so happened. I wonder today,
any shortcoming is pointed out, we feel let down. whether such measured response had something to do with
greying of my hairs or not. Whatever might be the reason,
Can you tell me, why do we fail to take advantage of I am happy that good sense had prevailed in me which
unpleasant feedbacks? Actually we tend to look at ‘whys’ prompted me to leave the place quietly. Trust me I was very
in that adverse situation. Like, why is the poor rating given much eager to find out how and why his assessment had
to me? Why did the evaluator fail to acknowledge my good differed from my own judgment. Whole night I could not
work? Why did that colleague get superior rating, which I did sleep. Lying down on the bed, I tossed and turned from one
not get? Why is Almighty always unkind to me? A barrage side to another, but the actual answer eluded me. The said
of self demoralizing questions. Listen, you will never get incident provoked me to think deeper, to introspect.
any right answer to all these whys of yours. Even if, you
somewhat manage to get an answer to that why, you won’t Every one of us would agree that at times, we all are
be satisfied. According to me, the right way to deal with victims of ill judgment, but then, how to get out of this
adverse appraisal situations would be to remain positive sinking feeling and continue to move forward. I wish to
and redirect our thoughts. Instead of focusing on the ‘whys’, present a few assessment scenarios and the ways that you
we need to look at the ‘hows’ in those situations and ‘what’ could try out, for dealing with such events.

HR
The right way to deal with adverse appraisal situations would be to remain positive and
redirect our thoughts. Instead of focusing on the ‘whys’, we need to look at the ‘hows’
in those situations and ‘what’ you could do to overcome these setbacks. Like, how did I
go wrong in my own assessment? How do I bridge the gap between my own assessment
and that of the evaluator? To improve my performance ratings hereinafter, what are
the different alternatives that I can think of? In the given circumstances, what could be
the most appropriate option for me? Believe me, if you view assessment situations, in a
process driven approach, you would find it easier to handle, benefit immensely.
Situation 1 being arrogant, disrespectful and disobedient or any

Assessment is correct. It is very difficult to accept one’s other negative trait, for that matter.
own shortcomings. It pains a lot to deal with such immediate
setback. My take is, one should neither feel dejected nor Thus, it is better to keep calm. No matter how bad you
lose hope. There is no point crying over the spilled milk. One feel, it is most unlikely that he is going to change his
should rather work hard to get rid of the deficiencies that opinion about you immediately. If you are really concerned
are pointed out. I agree, it is easier said than done. But tell about your health and mental peace, you could let go that
me friends, “Is there any short cut to eliminate deficiencies situation. This evaluation cannot be the end of the road.
other than equipping yourself with requisite skills?” We all You continue your good work and I am sure, going forward
need to practice this inner control. I am sure, over time we your efforts shall definitely get recognized. May not be by
can overcome our shortcomings. It’s a matter of choice. him but could be by someone else. Who knows, your efforts
could even catch the eye of his superiors. At that time, his
Situation 2 wrong judgment about you shall not matter.
Assessment is incorrect. It could be a genuine mistake
on the part of the evaluator, which you have no option Let us cheer up. Things will unfold in the way it is
but to accept. After all the evaluator is also a human being destined. Ensure that you make yourself mentally strong to
and is entitled to his share of mistakes. Instead of arguing handle all kinds of unpleasant appraisal ratings gracefully.
with him or trying to prove your point that he made a Go through life’s grind. Keep on improving yourself.
wrong judgment, it is better to leave it there. I am sure, the Channelize your efforts to make a gem out of your own self.
appraiser will definitely realize his mistake and rectify the Enrich yourself, acquire new skills, develop competencies,
same on his own, may be in the next available opportunity. transform knowledge into wisdom and evolve as a superior
So why do we get upset? It is only a passing phase. human being. I agree that from time to time we all need that
appreciation to keep ourselves motivated, but my sincere
Situation 3 advice to you would be, “Do not always look for other’s
Assessment is prejudiced. It could be that he has appreciation. If it comes in the way, it is very good. And if
deliberately made a flawed assessment. Could be his it does not, it hardly matters. Heaven is not going to come
intentions were either to hurt you or to satisfy some of his down crashing.” Remember one thing, “Your value doesn’t
hidden agenda. In such a scenario, if you argue to prove decrease based on someone’s inability to see your worth.”
your point, you can be rest assured that all your efforts I recommend, “Let us prepare our minds and prevent from
will fall in his deaf ears. Your arguments can never have the disappointments, otherwise rest of our life would be spent
desired result. On the contrary, two things could happen. in seeking forgiveness and restoring that lost ground.” If we
intend to be happy and progress in this fiercely competitive
1. Expressing your dissatisfaction could make him happier world, let us deal with assessment results (external stimuli)
and hurt you more, and with self-belief. Don’t react, analyse. Evaluate various pros
and cons and respond judiciously. At no point of time, you
2. By losing your cool, you may be playing in his hand. Any should handover the remote controller of your happiness
such misadventure may empower him further to prove to others.
his point that he has made the right assessment about
you. He can add on to the list of your weaknesses like debopamchell@yahoo.com

MANAGEMENT ACCOUNTING
" MARGIN OF SAFETY (MOS)”

- A BIG MYTH
HOW TO TACKLE WITH
AUTOMATION AND INGENUITY
Safety Factor (SF) or Margin of Safety engineering (MOS) is a term describing the
load carrying capacity of a system beyond the expected or actual requirement.
Essentially, the factor of safety is how much stronger the system is than it
usually needs to be for an intended load. Many systems are purposefully built
much stronger than needed for normal usage. This tendency has become widely
popular and started using in several situations. We have identified that this
MOS syndrome indeed works well in bridges or buildings but in other areas
it is actually causing huge irreparable damages unless properly estimated and
cross verified with ingenuity and automation

MANAGEMENT ACCOUNTING
CMA Ch. Krishna Kishore

General Manager, Finance
Coromandel, Kakinada
I
n the course of business, we take various decisions costs for underutilization etc.
relating to selection of machines, determination of
capacities, planning of head count, contracting of During our 20 years of research on wastages, it has been
utilities like power, gas, and water etc. As per the found that several companies are paying unnecessary huge
requirement we may also enter into joint ventures like money on account of unused charges.
manufacturing or marketing of products. Also explore
into new businesses or undertake mining contracts / gas The study also showed that MOS is more prevalent in
exploration contracts, telecommunication spectrum or manpower planning, utilities contracting or selection
airport development contracts. of machines relating to heating, ventilation, and air
conditioning, Boilers, Water systems and other refrigeration
Before taking the above kinds of decisions, generally the systems.
functional managers compute the basic computations as
per the expected requirement and they try to add some Examples
extra load to the basic quantity as a part of ‘margin of  Capacity Utilization: In Pharma sector alone, around
safety’. When the proposal goes to next level manager for 30% to 35% underutilization in bulk drugs and
review, he may further add some more load as per his MOS 50-55% in Formulations at the global level.
tendency to the proposal. When the is taken to final level
for decision the decision maker further add an additional  Gas Exploration Contract: One of the big contracts in
load. Likewise, people tend to opt for higher loads than the India, it is estimated that the output would be more
real requirement and forget to note the burden of operating than 70 mmscmd of gas from Field-1 and 3 and now
costs or penalties associated with such extra loads at each actually fallen to 10 -20 mmscmd and facing demand
time. Though MOS is good in some circumstances but it notice from govt for minimum commitment charges of
is counterproductive if markets do not support such extra about $1-2 Billion Dollars.
loads and finally may lead to underutilization.
 Utilities: Several companies are paying huge unutilized
Think Big minimum commitment charges since from the ages.
“Think Big” is a buzz word and people are very much
fascinated to use everywhere without critical thought  Machine Operating Costs: If we keenly observe, in
process before opting for additional loads etc. The top every company we may find the wastage of power
management also tends to accept higher loaded capacities because of excess capacities than the real utilization
and willing to take risk because of this phenomenon. The of the system.
practical scenario is not always as per our Thinking big
philosophy and very much volatile w.r.t changes customers’  Manpower Planning: The typical example is that
demands and tastes, substitute technologies. If we critically line manager puts some extra 10% in the manpower
analyze the current ‘Operating Costs’, of different companies planning budget for absenteeism and next level
the ‘MOS’ often seems to be burdensome and turns the manager adds further to be more safer and put
profit businesses in to loss making because of extra fixed additional 10% head count in the planning estimates.

Overall around 20% additional head count is hired as 5C’s Concept to combat MOS Syndrome
per the plan. In actual situation this manpower may
become idle and organizations start thinking of lay 1. Critical Thinking: We need to critically review the
off’s basis of margin of safety loaded in the proposals and take
right decisions. We also need to check the fixed operating
Generally, managers are habituated and feels very much costs involved in different capacity utilizations Also need to
comfortable to have more loads and accept the proposals evaluate various financial models before taking appropriate
and overlook the life cycle costs. The following is to decisions.
overcome the syndrome of ‘MOS-Margin of Safety.
2. Creativity and Automation: Need to adopt the latest
Data technologies available in the market which helps to provide
the systems that can able to operate different levels of
1) ABC Company Gas Demand Trend
capacities with appropriate energy consumption instead of
Unutilized Gas Demand Charges wasting of power. Ex: Automation and variable frequency
a) Initial Contracted Demand of NG (Sm3) 155000 systems and DCS automation systems.
b) Peak Demand in the past 24 months (Sm3) 146716
3. Cloud Computing: Adopt the similar technology for
c)Average Consumption per month (Sm3) 105910 different business requirements. Pay for what we use rather
d)Median Consumption (Sm3) 109009 pay for full.
e) Rectified Contract Demand (Sm3)- Post
124000 4. Co-operation: Inter department co-operation
implementation of MOS
Savings per annum (Rs) 1615630 is required to adopt new technologies and we have
to brainstorm innovative ideas that can reduce the
2) XYZ Co Power Demand Charges Trend underutilization.
5. Communication: Need to put a clause in the

contracts such a way that minimum commitment charges
do not become burdensome. Need to maintain constant
communication with the stakeholders about the possibilities
of changing contract demands and calibrating it as per
actual utilization trends rather than paying huge unutilized
charges for long time.
Though they are some pitfalls in Margin of safety thinking

but it is not the sole factor for unutilized losses. It is one of
3) Retrofitted old high capacity with advanced screw the reasons for underutilization. In several times the MOS
chillers with Variable Frequency Drive mechanism – Post helps to withstand any sudden spurts in market demand.
MOS concept. Here the object of the study to change the thinking on
MOS. It’s better to evaluate the proposals critically with the
above mentioned 5 C’s concept rather than suffering from
side effects of MOS Syndrome.
chvsnkrishna@rediffmail.com

TRANSPORTATION
TRANSPORTATION
BOON OR BANE
FOR SUSTAINABLE
DEVELOPMENT

Mohd Younis Sofi
Assistant Professor
Department of Commerce
Amar Singh College, Cluster University, Srinagar
D
evelopment is a dynamic, holisticand choices in terms of a long and healthy life, better education
multidimensional concept whose significance and access to resources needed for decent standard of
varies across the time and space.Although not living (Human Development Report [HDR], 1990).It is
certified, “development” is implicitly intended as the capability to function that really matters for who is
something positive or desirable. Connecting the same with poor and non poor, logically economic growth can’t be
the socio economic system, development generally means treated as an end in itself rather development has to be
betterment or improvement either in the general situation more concerned with enhancing the lives we lead and
of the system, or in any of the part of which system is the freedoms we enjoy (Sen, 1999). Development is a
composed. It is a phenomenon which traverses through multidimensional concept which not only signifiesthe
various sciences and several disciplines.The concept of monetary benefits but also results in poverty alleviation.
development dates back to 19th century and has been used As per MDG’s, development composed of eight goals
in several fields including natural sciences, social sciences with 21 time bound targets. The target based concept of
and physical sciences (Abercrombie, Hill& Turner, 1994; development focuses on eradication of extreme poverty and
Cliché, 2005). However, in the field of social sciences, the hunger, universal primary education for all, gender equality
concept of development emerged during the 1950’s and and women empowerment, reduction in child mortality
1960’s following the end of World War II (Harris, 2000; rates, maternal health improvement, combating with life
Hettne, 2002). Accordingly the concept has been associated threatening diseases like HIV AIDS, malaria etc., care for
with many disciplines such as economic development sustainable environment and developing global partnership
(Schumpeter, 1911; Romer, 1986; Todaro, 2000), social for development. Development is also defined as meeting
development (seers, 1969), human development (UNDP, the needs of present without compromising the ability of
1990, Sustainable development (Brundtland, 1987; future generations to meet their own needs (Brundtland,
Adams, 2006), Territorial development (FAO, 2005)and 1987). In other words economic growth accompanied
development as freedom (Sen, 1999). by social and intergenerational equity characterizes the
process of development.
Since the concept of development is associated with
many fields and disciplines which necessitates us to Thus to conclude the development debate, it is evident
provide the operational definition of concept to be used in from the above different views that development is
this study. In field of social science it has been described a perpetual and holistic phenomenon, dealing with
differently by varioussocial scientists which make it multidimensional issues pertaining to economy, society and
imperative for us to go through these different views in environment. There are different sectors of the economy
order to draw the operational definition of the concept. which act as harbinger to the development and prosperity of
Development is substitutedwith increased rate of economic the nation like real estate, construction, finance, transport,
growth measured in terms of national income which could communication etc. whose share to the Gross Value Added
be amplified through more investments (Rostow, 1960; (GVA)for the fiscal 2013-14 was 13.98, 8.29, 5.82, 4.98 and
Ghatak 2003&Sant’ Ana, 2008). To some, the degree of 1.69 percent respectively (Statistics Times). Transportation
industrialization is regarded as development (Lewis, 1954; being one of thevitalsectors plays an important role in the
Kuznets, 1966; Chenery, 1960). Seers, Myrdal, Streeten economic development of the nation.
& Ul haq accepted the view point of Lewis and Kuznets
but further adds that it is a broad based concept which Transportation and economic development
also incorporates eradication of abject poverty, decrease Transportation, one of the aids to trade, is regarded as
in malnutrition and improvement in employment situation. an engine of growth (Wegner, 1997). It contribution to the
Development is a process which maximizes the people’s economic development can be seen both directly, through

T R A N S P O R TAT I O N
system of human body which makes movement of resources

There is no doubt in the fact that economic possible to the remotest area that too in the quickest possible
prosperity of a nation largely depends on time. Alder(2014), in an empirical analysis on transport
its communication and connectivity. One infrastructure in India concluded that investment project
of the important means of connectivity is launched by union Government in 2001 for connecting
transportation which is a double edged sword. four mega economic hubs of the nation viz, Delhi, Mumbai,
On one side it makes possible for nations Chennai and Kolkata by Golden quadrilateral resulted an
to ascend to the high altitudes of economic increase in aggregate GDP by 2.4 – 3.5 percent in 2009
development through movement of passengers than the counterfactual in addition to the construction
and merchandise while as on the otheraffects cost of investment.For the achievement of broad range
our society and environment by various ways of social, economic and environmental objectives, a good
like consumption of non renewable resources, transportation network is prerequisite (Gwilliam, 2008).
emission, congestion, accidents etc. India Economic output of a nation is significantly determined
being world’s second populous country stands by its transportation investment made in the past which
at third in global emission only after China also have spillover effects that goes on decreasing as we
and USA and this emission largely emanates move away from the investment location (Ozbay, Ertekin,
Berechman; 2007). Sylvie, (2000) conducted an empirical
from the transportation sector. Therefore, the
study to sort out the reasons of regional disparities in
study is primarily aimed at highlighting the
China and concluded that transport facilities are the key
tribulations of Indiantransportation sector
differentiating factor for explaining the regional disparities
in terms of its hazardous emission. This has in twenty four provinces of china. While addressing the
been accomplished by going through various question that whether transport infrastructure investment
academic and non academic publications and promotes economic growth or not, Banister and Berechman,
an integrated view is presented. The findings (2001) came out with findings which indicated positive
exhibit that transportation sector is largely relationship between the two andformer affecting the
driven by road transportation which is later through more employment generation and factor
characterized by motorization. Furthermore, productivity.In totality it can be inferred that improved
road transportation is found to be dominated mobility is associated with development in the economy as
by private vehicles whose emission per has been argued by the researchers across the globe.
capita is comparatively high. Finally various
suggestions are put forth to contain and reduce Indian Scenario
the share of personal and motorized transport India has a privilege of having a large and diverse
from the total pie which will shield the transport sector. Its transport network is one of the largest
economy from the ripple effects of hazardous and densest in the world.The contribution of this sector
emissions and will ultimately pave way to the country’s GDP was about 5.5 percent in 2007 (The
towards sustainable development. World Bank, 2013).Generally it is observed over worldwide
that there exist primarily three modes of transportation viz,
road, air and water. According to India Transport Report
investment in transport infrastructure thus resulting into (2014), transport portfolio in India is dominated by road and
addition to its physical capital, and indirectly by providing rail network which accounted for 87 percent of freight traffic
its services to other sectors to use their inputs efficiently. in the country in 2007-08. For the passenger traffic as well,
It acts as a catalyst to the economic growth of a nation. rail and roads continue to be the dominant modes which
Transportation being fundamental to trade is generally provided mobility to 90 percent of the total passengers in
used to carry passengers as well as merchandise from one 2011-12 leaving negligible share for air and water transport
place to another either through mechanized modes or non- (ITR, 2014).Total contribution from transportation sector
mechanized ones. This sector being an important component was found to be 4.98 percent to the total GVA for the fiscal
of economy determines the location of industries and thus 2013-14 of which road transportation accounted for 65
has a bearing on the country’s employment level.It provides percent (Statistics Times). Road transport is vital for socio
economic and social opportunities and benefits in terms economic development and is being preferred for both
of accessibility to markets, employment,freight movements passenger and freight mobility in India over other modes
and connectivity.Transport network is akin to the neural of transportation due to its easy accessibility, flexibility of

operations, door to door service and reliability. India stands the year 2007-08 was 50.12 percent and that of rail 36.06
at 3rd rank in its road length, next only to China and the percent leaving pea nuts for other modes, thus indicating
United States while in terms of density its roads are akin the lions share occupancy of road transport. One of the
to United States and far denser than those in China or causes behind the dominant share of road transportation in
Brazil (The World Bank, 2014).According to Total Transport both freight and passenger conveyance can be a remarkable
System Study on Traffic Flows and Modal Costs, conducted increase in the total number of registered motor vehicles in
by RITES on behalf of the then Planning Commission, the India during the period 2001-11 as depicted in table 1.
modal share of the road transport in total freight traffic for
Table 1: Number of motor vehicles registered in India as on 31stMarch

Light
Two Goods Miscel- Total No. of
Year Motor Jeeps Cars Taxis Buses
Wheeler vehicles laneous vehicles
Vehicles
(passen-
gers)
2001 38556026 1777130 1126148 5297219 634357 633900 2948300 4017946 54991026
2002 41581058 1878261 1177245 5748036 688204 635006 2973740 4242787 58924337
2003 47519489 2113781 1180057 6594166 825416 720696 3491637 4562042 67007284
2004 51921973 2167324 1282113 7267174 901889 767593 3748484 4661385 72717935
2005 58799702 2337264 1307926 8072650 939738 678521 3877622 5488296 81501719
2006 64743126 2492726 1376744 9109855 1039845 762341 4274984 5818646 89618267
2007 69128762 2697449 1460364 10146468 1042347 1098422 5118880 6014568 96707260
2008 75336026 2903821 1547825 11200142 1201862 1156568 5600938 6405672 105353854
2009 82402105 3146619 1638975 12365806 1307805 1205793 6040924 6843006 114951033
2010 91597791 3615086 1760428 13749406 3615086 176642 6431926 7552876 127745972
2011 101864582 4016888 1974253 15467473 1789417 1238245 7064495 8045441 141865607
Source: Transport Research Wing, Ministry of Road Transport & Highways, Govt. of India
From the figures given in table 1, it has been analyzed expected to grow at about 9 percent per annum and the
that during 2001-2011 CAGR of total number of vehicles passenger traffic at about 17 percent over next 20 years.
has been 9 percent approximately while as during the Taking cue from the burgeoning forecasted rates of freight
same decade CAGR of two vehicles has been 9.25 percent and passenger traffic along with the existing lion’s share
approximately slightly more than that of the total which can of rail and road transportation in the total transportation
be root cause for many problems we face today like emission it is predicted that on the one hand India will budge on its
of green house gases and other toxic pollutants, congestion, path of development swiftly but at the same its impact on
accidents reduced travel speeds etc. Furthermore, the environment and ecology will be unimaginable in terms of
composition of two wheelers in the total number of vehicles energy requirement and emission levels. As (Eberts, 2000)
registered in India as on 31st march 2011 was approximately also puts it right that there is no doubt in the significance of
72 percent which may be either due to the absence of public relation between transportation and economic development
transport facilities or personal satisfaction of the riders. but there is need for further comprehension between them
The trend in transportation demand profile also depicts an for the strategists so that not only public expenditure in
increasing demand of personal transport (two wheelers, terms of transportation investment is justified but also
jeeps andcars) whose share as on 31st march 2011 was other associated aspects like land use, air quality etc. are
approximately 84 percent. investigated.
The story does not end here however; National Transport Increased motorization is not all blessing in itself rather
development Policy Committee (2013) has forecasted it has resulted in a number of associated problems like
the growth estimates in passenger and freight mobility congestion, air pollution, energy consumption, reduced
by road transport. As per these estimates road freight is travel speeds, and accidents. Although all the problems

need to be redressed but given the resource constraints from figure 2 it accounted for 14 percent of global green
this paper will mainly focus only on pollution aspect of house gas emissions slightly different from another study
transportation. which showed its emission contribution pegged at 13
percent. Furthermore the study also unfolds that globally
Transportation and air pollution transportation sector driven by fossil fuel consumption
Climate change is defined as the long term change emits 23 percent of total carbon dioxide (CO2) emission
in earth’s climate due to natural, mechanical and and surprisingly road transportation is held accountable
anthropogenic processes which result in emission of green for 75 percent of the total emission from the overall
house gases like CO2, methane, NO2 , HFC’s, and other transportation sector (Rao et al., 2010). The same is true
pollutants like particulate matter (PM)etc. According to a with the Indian transportation sector also. Comparing
survey conducted by Intergovernmental Panel on climate the sector wise contribution to air pollution in India,
Change (IPCC) on global emission from 2010 the key green transportation sector is the primary and most connected
house gases globally are carbon dioxide (CO2), methane one (Guttikunda, Goel & Pant; 2014). With reference to
(CH4), Nitrous Oxide (N2O) and Fluorinated gases (F-gases) energy related CO2 emission in India, transport sector
like HFCs, PFCs and SFe as depicted in figure 1. contributed14 percent in 2007 (MoEF, 2010) and in future
the pie of CO2e emission from transportation is anticipated
Figure 1:Share of different Green house gases globally to be escalating (Shukla et al., 2015; Dhar & Shukla, 2015).
in 2010 In 2011 United States Environmental Protection Agency
(UNEPA) conducted a study on global green house gas
emissions and ranked India fourth top emitter of CO2 only
after China, USA and EU. A study was conducted in the
recent past by Yale and Columbia University to gauge the
environmental performance of the 132 countries and the
survey ranked India at 126th position indicating its less
concern for the fragile environment. Another study was
conducted in six Indian cities by Central Pollution Control
Board which made transport sector responsible for more
than 30 percent of the ambient air quality in these cities.
It is estimated that the transport sector in India will emit
approximately 15 percent of total CO2 emissions and of 57
For further analysis and policy measures the total global percent of total emission in the country will emanate from
emission has been decomposed into different contributing combustion and burning of oil. It is also reiterated that
sectors which are portrayed in figure 2. among all the oil consuming sectors, CO2 emissions from
transport are increasing at the fastest rate, at more than 6
Figure 2:Sector wise emission of Green house gases percent per annum (CSE, India; 2015). The carbon dioxide
globally in 2010 (CO2) concentration in the atmosphere, one of the main
greenhouse gas (GHG) emissions, has drastically increased
from 280 ppm at the start of the industrial revolution in
the year 1800 to 380 ppm in 2011. The threshold level of
CO2 emission is predicted to be 550 ppm; if it exceeds this
level, it may lead to severe problems such as melting of the
polar ice caps, a sea level rise of up to 1 m by the year
2100, an increased frequency of extreme climate events,
permanent flooding of coastal cities, disruption of the
ecosystem and extinction of species (IPCC). The transport
sector is increasingly becoming a major contributor to
deteriorating air quality in cities (Guttikunda & Jawahar,
2012). The global burden of disease study estimated
Transportation sector being vital for socioeconomic 695,000 premature deaths in 2010 due to continued
development is the fastest growing major contributor exposure to outdoor particulate matter and ozone pollution
to global climate change (Rao et al., 2010). As evident for India (Guttikunda, Goel & Pant; 2014). According to a

global study conducted by WHO in 2014 India was found resources which are shrinking by every day passing.
home to the large number of cities registering high levels of Inefficient energy consumption erodes the value of its
air pollution. Study also reveals that on the basis of PM 2.5 benefits to a large extent. Impact costs associated with the
levels the four most polluted cities were found in India, and transportation has caught the attention of all the countries
among the top 100 polluted cities 33 were also found to worldwide baring few due to their serious payoffs. Green
be Indian.High levels of PM2.5 and NOx lead to increasing house gases and obnoxious pollutant emission, congestion,
morbidity (Guttikunda and Jawahar, 2012). Over time, there reduced travel speed, accidents etc can be grouped among
is an observable trend shift as levels of PM10 and NOx are the impact costs.
increasing in a number of cities (Shukla, Garg, & Dholakia,
2015). In an assessment by the Central Pollution Control Conclusion and recommendations
Board of 164 cities, over 75 per cent were found to have Development being perpetual process, its pace can be
high or critical levels of PM10 (CPCB, 2014), while more accelerated as well as dwindled by the transportation.
than half of the 164 cities had moderate to critical levels In nutshell it can be summarized that growing motorized
of NOx. Emission form road transportation has positioned transport is surmounting a huge threat to the climate
India globally as one of the biggest emitters of atmospheric change through high level emission of various green
pollutants (Baidya & Kleefeld, 2009). house gases which needs to be arrested immediately and
effectively. To this end following recommendations are put
Cost - benefit analysis forth here as under:
Service sector performs an important role in invigorating
the prosperity of the nation. Among all the developed and 1. Awareness programmes on televisions and radios need
developing nations more than half of the economic output to be broadcasted so that general public is made aware
is derived from this sector alone. Transportation, one of the about the externalities of using personaltransport.
principal service industriesabridges the disparity between
developed and underdeveloped nations by promoting 2. Public expenditure in transport infrastructure needs
economic development.Being an antecedent to prosperity to be expedited so that private vehicle owners are
of the nation it becomes imperative to gauge the Indian provided with the choice of using public transport.
transportation on the cost benefits scale so that endeavor
will be made to minimize its costs and maximize the benefits 3. Business houses should be incentivizedto explore and
derived from it. Transportation benefits economy directly carry the business of energy efficient and environment
as well as indirectly. By investing in the transportation friendly transportation vehiclesthrough inclusion of
infrastructure i.e., vehicles, roads, machines, equipments such business in specified business u/s 35AD of the
etc. employment is generated and livelihood to the lakhs Income Tax Act, 1961.
of people associated with this industry is guaranteed.
Although not verified the benefits accruing from the direct 4. While considering the application for private vehicle
channel may be large but in comparison to its indirect loan, banks should, in addition to their routine
benefits they stand low. By indirect benefits we mean to say procedure,ensure that the applicant is not already in
the benefits of transportation as a service industry when possession of any vehicle.
used to conveyinputs to the large number of industrial
establishments which are the forerunnersof the economic 5. Limited number of personal vehicles should be granted
development along with their output delivery to the registrations each year to curb the high growth rate of
markets also. Its indirect benefits can be alsovisualized in personal transport.
terms of providing mobility to the employees to their work
places, thus supporting the functioning of other industries. 6. Public parking rates should be made costly to
It nurtures the social fiber of the country by providing discourage the use of private transport.
platform for social interaction through bringing people of
two distant places closer to each other thus resulting to 7. Private transportation should be banned in all
social dividends also. All this doesn’t come free of cost. institutions; Universities and departments rather
Rather its benefits get override largely by its costs. Like respective organizations should provide public
benefits, costs can also be segregated into two categories transport facilities for its people through the assistance
viz, source and effects. Source costs can be elucidated in of banks.
terms of consumption of different nonrenewable energy

8. Separate corridors need to be built and designated Assessment Report of the Intergovernmental Panel on
for non motorized transporters like bicycle riders and Climate Change. https://www.ipcc.ch/report/ar5/wg3/
pedestriansto lessen congestion faced by motorized 7. JIA, S., PENG, H., LIU, S., & ZHANG, X. (2009). Review
vehicles. of Transportation and Energy Consumption Related
Research. Journal of Transportation Systems Engineering
9. Disallow private transport completely on Sundays. and Information Technology, 9(3), 6–16. http://doi.
org/10.1016/S1570-6672(08)60061-6
10. Macadamize the roads properly and put up speed 8. Lakshmanan, T. R. (2011). The broader economic
limits for different places in order to avoid congestion. consequences of transport infrastructure investments.
Journal of Transport Geography, 19(1), 1–12. http://doi.
11. Make the use of ICT to pool the data of private org/10.1016/j.jtrangeo.2010.01.001
transport passengers to utilize the capacity of private 9. National Transport Development Policy Committee (NTDPC)
vehicles. (2014). India Transport Report, Moving India to 2032, Vol
II, Government of India.
12. Congestion pricing can be used during the peak hours 10. Ozbay, K., Ozmen-Ertekin, D., & Berechman, J. (2007).
for using public roads by private vehicle users which Contribution of transportation investments to county
will ultimately force them to travel by public transport output. Transport Policy, 14(4), 317–329. http://doi.
at least during such rush hours.This requires a highly org/10.1016/j.tranpol.2007.03.004
built public transportation network and the parking 11. Rahul, T. M., & Verma, A. (2013). Economic impact of
lots near the places where the public transport can non-motorized transportation in Indian cities. Research
be accessed. in Transportation Economics, 38(1), 22–34. http://doi.
org/10.1016/j.retrec.2012.05.005
13. The share of road transportation should be reduced 12. Rao, H. S., Hettige, H., Singru, N., Lumain, R., & Roldan,
from the total transportation portfolio by making use C. (2010). Reducing Carbon emissions from Transport
of existing Inland water transport at least for freight Projects. Evaluation knowledge brief”, H. Dalkmann
mobility. To this end, water transport infrastructure (editor), 1.
investment in terms of developing additional national 13. Rites (2007-08). Total Transport System Study on Traffic
water ways for navigation, ports, boats, etc needs to Flows and Modal Costs, Planning Commission, Government
be made on large scale. of India.
14. Sector-wise contribution of GDP of India - StatisticsTimes.
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and the promotion of economic growth. Journal of contribution-of-india.php
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2. Eberts, R.W. (2000). Understanding the impact of edition, Addison-Wesley
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in the New Millennium, TRB, Washington, DC. infrastructure and economic growth in India. Journal of
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Research Part A: Policy and Practice, 74, 73–90. http:// http://doi.org/10.1016/j.retrec.2012.05.001
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5. Gwilliam, K. (2008). A review of issues in transit economics. development. Research in Transportation Economics, 23(1),
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doi.org/10.1016/j.retrec.2008.10.002
6. IPCC (2014). Climate Change 2014: Mitigation of Climate
Change. Contribution ofWorking Group III to the Fifth sofi_younis@yahoo.com

BANKING
DETERMINANTS OF
NON-PERFORMING ASSETS
IN INDIAN BANKING SECTOR
BANK

BANKING
Dr. Jacqueline Symss Dr. V. Raveendra Saradhi Ms. Pooja Nehra

Assistant Professor Associate Professor Research Associate
Indian Institute of Foreign Trade (IIFT) Indian Institute of Foreign Trade (IIFT) Indian Institute of Foreign Trade (IIFT)
New Delhi New Delhi New Delhi
T
he Indian banking sector comprises of one of the analysed the trend in NPAs across public and private sector
largest conglomerates in terms of banking network. banks in India and concluded that NPAs act as an indicator
The sector spans with a total over 6,300 commercial of the financial health of the banking industry and can have
bank branches in the country as of March, 2017. a direct impact on the profitability of the bank. Malepati
The Indian financial system has predominantly been bank and Gowri (2005) undertook the study of NPAs across
dominated. Households as well as corporates have largely priority sector and non-priority sector in public and private
been dependent on the banking sector as a medium of sector banks in India. The findings reveal that priority sector
raising credit to meet various consumption and investment lending in private sector banks was lower as compared to
needs. The outstanding loans and advances in the banking public sector and as a result the NPA position was rather
sector during 2017-18 stood at 81,162 billion rupees and the better in private when compared to public sector banks.
credit to deposit ratio was around 75%. Sharma(2005) was of the view that NPAs not only affect the
performance of banks but also cause irreparable harm to
With this huge dominance as well as dependence on the economy. Therefore, suggested that there should be an
the banking sector comes significant risks. The most efficient legal framework, improvement in credit appraisal
predominant risk associated with lending being credit risk. and a strong political will to control the rise in NPAs.
Since 2013, the central bank of India has initiated several
measures to curb the perilof credit risk and credit risk The following figure no. 1 depicts the trend in Gross NPAs
eventually becoming non-performing assets (NPAs). The as a % of Gross Advances in India during the period 2004-
steps primarily revolved around reviewing and improving the 17.
asset quality which included measures such as corporate
debt restructuring (CDR), formation of joint lenders forum Figure No. 1
(JLF), flexible structuring for long term projects or (5/25), Gross NPA as a % of Gross Advances 2004-17
strategic debt restructuring, sustainable structuring of
stressed assets or (S4A), and the most recent action
being referring delinquent corporate loan accounts to the
National Company Law Tribunal (NCLT).
The present paper attempts to identify the bank specific

and macro specific factors that impact the rise or decline
in NPAs within the Indian banking system and to suggest
the possible steps to control the rapid rise in defaulting of
loans.
Trend Analysis of NPAs (2004-17)

There area number of studies undertaken to understand Source: Reserve Bank of India
the trends in NPAs in the banking system in various
countries including India. Joseph and Prakash (2014), have The gross NPAs as a percentage of gross advances was

5.2% in 2004-05 and from2005 to 2013 hovered around Ghosh (2015), conducted a study to understand the
2.5% to 3%. Yet, post 2013 banks have witnessed an impact of state-level banking industry factors and region
unprecedented rise in NPAs as a % to gross advance from level factors on NPLs within banking and saving institutions
3.8% to 9.3% in 2016-17. This can be attributed to the across 50 US states and DC. The researcher made use of
significant changes with respect to asset quality review and fixed effects and dynamic-GMM (generalised methods of
the enforcing of correct classification of NPAs. moments) estimations and found that within the bank
specific factors greater capitalization, liquidity risks,
Figure No. 2 poor credit quality, greater cost inefficiency and banking
(%) Growth Rate of Gross NPA and Gross Advances industry size significantly increase NPLs, while greater
(2004-17) bank profitability lowers NPLs. While within the region
level factors higher state real gross domestic per capita
(GDP), real personal income growth rates, and changes
in state housing price index reduce NPLs, while inflation,
state unemployment rates, and US public debt significantly
increase NPLs.
Messai and Jouini (2013), tried to analyse the

determinants of non-performing loans for a sampleof 85
banks in three countries (Italy, Greece and Spain) for the
period of 2004-2008. All the three countries faced macro-
economic financial problems in 2008 as a result of the
subprime crisis. The variables used as determinants were
divided into macroeconomic andbank specific variables.
The macroeconomic variables used were the rate of growth
Source: Reserve Bank of India of GDP, unemployment rate and real interest rate and
with respect to bank specific variables the study used the
From figure no. 2 it can be seen that the growth rate of return on assets, the change in loans and the loan loss
NPAs have increased substantially from around 11% in 2007 reserves to total loans ratio (LLR/TL). By means of the
to around 30% by 2017 while compared to the declining application of panel data method, the results showed that
growth rate of advances from around 24% in 2007 to the problem loans vary negatively with the growth rate of
around 4% in 2017. The trend line reveals that with the GDP, the profitability of banks’ assets and positively with
rise in NPAs there is a reduced level of credit growth in the the unemployment rate, the loan loss reserves to total loans
banking sector. and the real interest rate.
Literature Review Khemraj and Pasha (2009), carried out a study to

understand the sensitivities of non-performing loans to
Determinants of NPAs – Country Specific macroeconomic and bank specific factors in Guyana.The
Gezu (2014), examined the determinants of variables employed as macro-economic factors were annual
nonperforming loans (NPLs) of commercial banks in growth in real GDP, real interest rate, annual inflation rate,
Ethiopia based on panel data analysis for the time period real effective exchange rate while bank specific variables
2002 to 2013. Fixed Effect Model was used to analyse the used were bank size, annual growth in loans, and ratio of
data. NPLs showed a downward sloping trend in commercial loans to total assets. The tool used to analyse the variables
banks in Ethiopia during the study period. The results of was panel dataset and a fixed effect model. The results
fixed effect regression model revealed that return on equity revealed that GDP is inversely related to NPL, however
(ROE), return on assets (ROA), capital adequacy ratio appreciation in the local currency, higher interest rates and
(CAR), lending rate, and effective tax rate had statistically excessive lending is directly related to NPLs. The findings of
significant effect on the level of NPLs but loan to deposit the paper were used to develop a framework for measuring
ratio and inflation rate had an insignificant effect on the and assessing credit risk.
level of NPLs of commercial banks in Ethiopia for the period
under consideration. Fofack (2005) tried to explore the causes for non-
performing loans in Sub-Saharan Africa for the period

BANKING
The banking sector in India has been reeling under the pressure
of mounting non-performing assets (NPA) over the past 8 years.
This can be seen in the growth rate of NPAs as a ratio to total
advances which was 3.22% in March, 2013 now stands at 24%
as of March, 2018. The study of NPAs has been extensively
conducted by several researchers across various countries in
the world by analysing the impact of bank specific and macro-
economic factors on NPAs. The current paper endeavours to
analyse the determinants of NPAs in the context of the Indian
banking sector. The period of study is from 2004-05 to 2016-17.
Fixed effect panel data regression was employed to gain insights
about the relationship between bank-specific and macro-specific
factors and NPAs.The results of the study reveal that NPAs
tend to increase with return on banks’ assets. There is also a
positive relation between provisions for bad and doubtful loans
to total advances and NPAs. Meanwhile, banks with high level
of total loans & advances and lending rate are associated with
a reduced level of non-performing assets. On macro front, NPAs
vary negatively with the annual average inflation rateand gross
domestic product and positively with the tax rate.
1993-2002. A total of 16 countries were examined which variables, changes in cost of credit in terms of expectations
were further divided into 7 CFA (Communauté financière of higher interest rate induce rise in NPAs. However, the
d’Afrique)/ (“Financial Community of Africa”)and 9 non CFA horizon of maturity of credit, better credit culture, and
countries. The motivation for the study was due to the fact favourable macro-economic and business conditions can
that NPLs were believed to have fuelled the banking crisis help in lowering NPAs.
which affected many banks and financial institutions in
the sub-Saharan African countries. The data was examined Boudriga, Taktak, and Jellouli (2010), examined the
using correlation and causality analysis across various relationship between bank-specific, business-environment,
macroeconomic variable such as Per Capita GDP, inflation, and institutional environment variables and NPAs in MENA
interest rates, changes in real exchange, interest rate spread countries for the period 2002-2006. The pooled panel
and broad money supply. The micro economic variables regression approach was used to analyse the data. The
consisted of ROA, ROE, net interest margin (NIM), Net results reveal that credit growth rate and ROA are negatively
income and interbank loans. The results reveal a negative related to NPAs. While lagged loan provisions and CAR are
association between real GDP per capita and NPL expressed positively and significantly related to problem loans. With
as a % of loans loss provisions. The variables that are respect to business environment factors, growth in GDP
significant are real exchange rate, interest rates and growth is negatively and significantly related to NPAs. The paper
rate of GDP per capita, while inflation does not appear to be stresses on the importance of institutional environment in
particularly significant in explaining the dynamics on non- arresting banks’ ballooning bad loans.
performing loans.
Ekanayake and Azreez (2015), studied the determinants
Lokare (2014), has tried to understand the relationship of NPLs in the commercial banks of Sri Lanka for the period
and cause behind the rise in commercial banks NPLs 1999-2012. The findings of the paper reveal positive and
in India by means of an empirical analysis using a panel significant relation between loans to assets ratio and NPL,
regression model. The major finding was that terms of credit while negative relation between ROA, loan growth and size

with NPA. With respect to macro-economic variables, GDP Descriptive Statistics
and inflation reveals negative impact while unemployment The table no. 1 shows the descriptive statistics of the
rate shows positive impact on NPL. selected variables used in the study. The mean of NPA to
total loans and advances is 0.039, which means banks
Objectives of the Study could not collect 3.9% of every loan given. The lowest value
1. To understand the impact of macro-economic factors on of NPA to total loans is 0.001 and the highest is 0.249.
NPAs in Indian Banks Similarly, the table describes the mean, minimum and the
maximum value for all bank-specific and macro-specific
2. To understand the impact of bank specific factors on variables taken in the study.
NPAs in Indian Banks
Table No. 1
3. To suggest suitable steps in order to control the rise in Descriptive Statistics of Bank and Macro Specific
NPAs in Indian Banks Variables
Variables Observa- Mean Stan- Mini- Maxi-
Scope of the Study tion dard mum mum
The study is conducted across a total of 39 banks, Devia-
comprising of 20 public sector and 19 private sector. The tion
period of study is during 2004-05 to 2016-17. NPA to Total 505 .039 .034 .001 .249
Loans & Ad-
vances Ratio
Methodology
ROA 470 -.202 .735 -4.605 .757
Data and Sources
Provisions to 498 .011 .009 .000 .055
In this study, we examine how bank-specific factors and Total Loans
macro-specific factors impact the NPAs in India across a & Advances
group of 39 banks, which include 20 public sector and 19 Ratio
private sector banks for the period 2004-05 to 2016-17. The CAR 507 2.57 .198 2.02 4.03
database for the study is from secondary sources. The data
used in this study is taken from three main sources: Total Loans & 507 12.87 1.55 8.19 16.57
Advances
a) Bank-specific variables data are obtained from CMIE Lending Rate 507 2.42 .230 2.07 2.88
ProwessIQ database and Reserve Bank of India
(RBI). The bank specific variable include, total loans GDP 507 7.662 1.342 5.4 9.6
and advances, total lending, provisions for bad and
doubtful loans, return on assets, capital adequacy Inflation rate 507 1.917 .441 .912 2.48
ratioand lending rate. The data related to total loans &
advances, total lending, provisions for bad and doubtful Tax rate 507 3.528 .0289 3.48 3.59
loans &advances, were collected from ProwessIQ. While
data on return onasset, capital adequacy ratio, lending Source: Authors computations
rate are drawn from RBI database.
b) The study considered three macro-specific factors as Model
variables that have an impact on NPAs. They are gross The present paper has used bank specific variables and
domestic product (GDP), inflation rate, and tax rate. macro specific variables to analyse the impact on NPAs in
The data on GDP is collected from RBI database. the Indian banking system by analysing a total of 39 banks.
c) While data on tax rate and inflation rate are taken from Based on the literature examined the bank-specificvariables
Trading Economics, Labour Bureau. used are ROA (Ghosh, 2015; Messai, 2013), loans and
advances (Khemraj, 2009; Messai, 2013) provisions
Based on the set of literature review conducted, the (Boudriga 2010), capital adequacy ratio and lending rate
above mentioned bank-specific and macro-specific factors (Gezu 2014; Sari 2015). The macro factors GDP(Ghosh
were selected and fixed effect panel regression model 2015, Fofack 2005; Lokare 2014; Ekanayahe 2015), inflation
was employed to analyze the impact of bank-specific and rate (Khemraj 2009; Fofack 2005; Messai 2013)and tax
macro-specific factors on NPAs in the Indian banking sector. rate(Gezu 2014) are used as control variables.

BANKING
The model used is given below: Provisions lag of ratio of provisions for bad (+)
& doubtful assets to total loans
NPLit= β0 + β1(Provisions)it + β2(CAR)it + β3(ROA)it + & advances
β4(TLA)it+ β5(INF) it+ β6(GDP)it+ β7(TR)it+ β8(LR)it + εit CAR Log of capital adequacy ratio (+)
Where: ROA Log of return on asset (-)
TLA Log of total loans & advances (-)

NPL= ratio of nonperforming assets to total loan &
advances of bank ‘i’ in year t INF Log of inflation rate (-)
GDP Gross Domestic Product (-)

Provisions= lag of ratio of provisions for bad& doubtful
assets to total loans & advances of bank ‘i’ in year t TR Log of tax rate (+)
CAR= Log of capital adequacy ratio of bank ‘i’ in year t LR Log of lending rate (-)
ROA= Log of return on asset of bank ‘i’ in year t Source: Authors computations
TLA= Log of total loans & advances of bank ‘i’ in year t Provisions and CAR are employed as indicators that serve
as a cushion against risk that banks maintain to meet their
INF= Log of inflation rate of bank ‘i’ in year t future contingencies and are expected to have a positive
relation with NPA (Boudriga 2010). The ROA represents
GDP= Gross Domestic Product of bank ‘i’ in year t efficient utilisation of assets and poor utilisation of banks’
assets results in higher NPA (Messai 2009; Boudriga 2010).
TR = Log of tax rate of bank ‘i’ in year t Lending rate is the cost of borrowed funds which has a
direct bearing on NPAs which leads to a negative impact
LR= Log of lending rate of bank ‘i’ in year t on NPAs (Gezu 2014). The macro factors such as GDP, tax
rate, and inflation rate (Ghosh 2015; Messai 2009; Fofack
β0 =intercept 2005; Lokare 2014; Boudriga 2010) have been consistently
used as macroeconomic indicators in several countries to
Hypothesis have been developed with regard to all the understand its impact on NPAs
above mentioned variables and the expected relationship
between dependent and independent variables are Result and Findings
presented in the table below: The fixed effect regression model has been used to
examine the determinants of NPAs with respect to 39
Table No. 2 banks, comprising of 20 public sector and 19 private sector
Expected Signs of Bank and Macro Specific Variables for the period 2004-05 to 2016-17.The table below presents
the results of fixed effect regression model used to examine
Variable Description Expected
Sign the determinants of NPA, by using NPA as a dependent
variable and eight independent variables. The regression
NPL ratio of nonperforming assets to
results are as follows:
total loan & advances
Table No. 3
Results of Fixed Effect Regression Model
Explanatory Variables Coefficient Robust Standard Error t-statistics Probability
Bank Specific-Factors
ROA -.0170 .0031 -5.43* 0.000
Provisions to Total Loans & Advances ratio .4705 .1577 2.98* 0.005
CAR .0177 .0091 1.95** 0.059
Total loans and advances -.0118 .0024 -4.93* 0.000

Explanatory Variables Coefficient Robust Standard Error t-statistics Probability
Lending Rate -.0225 .0071 -3.17* 0.003
Macro-Specific Factors
GDP -.0007 .0007 -0.99 0.327
Tax Rate .1028 .0463 2.22* 0.033
Inflation rate -.0105 .0039 -2.64* 0.012
Constant -.1510 .1631 -0.93 0.360

R2 : within = 0.5950
Between = 0.0045
Overall = 0.2309
Number of Obs 461
Number of Groups 39
Rho .6865
Prob>F 0.0000
Source: Authors computations
Note: *significant at 5%, **significant at 10% and significant at 10% level.
The results of the model developed to examine the Macro-Specific Factors

determinants of NPA in this study is as follows: With respect to the macro-economic factors that are
examined namely, gross domestic product, inflation rate
NPA = -.1510 -.0170ROA +.4705Provisions +.0177CAR and tax rate. GDP has negative and insignificant impact
-.0118TLA -.0225LR -.0007GDP +.1028TR-.0105IR+ e on NPA which is similar to the findings Sari, Priyarsono
and Anggraeni, 2015; Boudriga, Taktak and Jellouli,
As shown in table no. 3, both bank-specific and macro- 2010(negative and insignificant) yet contrary to the findings
specific factors are examined to determine their impact of Ekanayake and Azreez, 2015(negative and significant).
on NPA. The regression results intable no. 3 reveals the While tax rate has positive and significant effect on NPA.
significance of the factors studied in explaining the Inflation rate shows a negative and significant impact on
dynamics of NPAs. The R- square within regression is NPA.
.5950, which shows that 59.50% variation in the dependent
variable i.e., NPA is explained by the independent variables Thus, contrary to the researcher`s expectation, GDP from
taken. macroeconomic factors did not show any significant impact
on the level of NPAs of public & private sector banks in
Bank-Specific Factors India.
At bank-specific level, all the variables considered have
significant impact on NPA, as indicated by their p-value Limitations of the study
being less than 0.05, which signifies that the variables have While the study considered micro and macro variables
an explanatory power over NPA. Return on asset (ROA), which were quantitative in nature there are certain other
lending rate and total loans & advances shows a negative critical factors that can have an impact on NPAs such as
relationship with NPA as expected.This finding is similar credit quality, managerial effectiveness, governance of
to the findings of Sari, Priyarsono and Anggraeni, 2015; board members, bank size, changes in economic policies
Ekanayake and Azreez, 2015. related to industries that have a large share in bank
advances are few which this study has not be able to
While provisions for bad & doubtful assets shows capture in its analysis. Thus, there can be a study to analyse
positive and significant impact, similar to the findings the impact of qualitative as well as quantitative factors on
of Boudriga, Taktak and Jellouli, 2010; Ekanayake and NPAs in Indian banking sector.
Azreez, 2015(positive but insignificant); but contrary to the
expected sign and findings ofMessai and Jouini (2013).The Conclusions
coefficient estimates of capital adequacy ratio is positive The purpose of this paper is to study the impact of bank-

BANKING
specific and macro-specific variables on NPAs in India Lukytawati (2015), “Bank-Specific and Macroeconomic
over the period 2004-05 to 2016-17. Recent years have Determinants of Non-Performing Loan of Regional
witnessed sharp increase in bad loans of the public as well Development Banks in Indonesia”,International Journal of
as private sectors banks. The problem of surging bad loans Science and Research (IJSR),Volume 6 Issue 2, February
creates a vicious cycle, and hence understanding the factors 2017
impacting the non-performing assets becomes important. 5. Gezu, G. (2014). “Determinants of Non-Performing
The results of this study indicate that among bank-specific Loans: Empirical Study in case of Commercial Banks in
factors, provision for bad and doubtful assets acts as a Ethiopia”,Master Thesis, Jimma University, Business and
cushion against expected losses in future. Thus, higher loss Economics College, Department of Accounting and Fiance,
loan provisions are associated with higher NPAs. Due to Jimma, Ethiopia.
high provisioning the bank sustains alower return on assets 6. Shashidhar M. Lokare (2014), “Re-emerging stress
and thereby bears higher bad loans. in the asset quality of Indian Banks: Macro Financial
Linkages”, RBI Working Paper Series, W P S (DEPR): 03/2014
With respect to macro-specific factors,the findings reveal 7. Joseph and Prakash (2014), “ A study of analysing
that high gross domestic product translate in lower bad the trend of NPA Level in Private Sector and Public Sector
loans, as expected but does not have significant bearing on Banks”, International Journal of Scientific and Research
NPAs.Nevertheless, in case of tax rate, the results confirm Publications, Volume 4, Issue 7, July 2014
that high tax rate is associated with high NPA. 8. David Kwashie Garr (2013), “Determinants of Credit
Risk in the Banking Industry of Ghana”,Developing Country
Some of the possible steps that can be taken to control Studies, ISSN 2224-607X (Paper) ISSN 2225-0565 (Online)
the rise in NPAs is to strengthen the credit quality review 9. Vol.3, No.11, 2013
system, effective credit monitoring and supervision, 10. Abelkader Boudriga, N. B. (2010). “Bank Specific,
structural reforms in management standards, good Business and Institutional Environemnt Determinants
andstrong governance, and tracking and proper reporting of banks Non Performing Loans:Evidence from MENA
of stressed assets can help reduce the problem to a large Countries”, Working Paper, 547, Economic Reserach Forum.
extent. 11. Mescai & Jouini (2009), “Micro and Macro
Determinants of Non-performing Loans”, International
Further study is required to better understand the factors Journal of Economics and Financial Issues, Vol. 3, No. 4,
influencing non-performing assets. 2013, pp.852-860, ISSN: 2146-4138
12. Khemraj and Pasha (2009), “The Determinants Of
For instance, qualitative factors such as banks’ governance Non-Performing Loans: An Econometric Case Study Of
mechanism and cultural factors that substantially influence Guyana”,MPRA Paper No. 53128, posted 23. http://mpra.
the fabric of the banking system especially in the case ub.uni-muenchen.de/53128/
ofloans and advances. A sector wise analysis of non- 13. Fofack, Hippolyte (2005), “Nonperforming Loans in
priority lending and its impact on NPAs can be another Sub-Saharan Africa: Causal Analysis and Macroeconomic
interesting area to identify further causes that contribute Implications”, World Bank Policy Research Working Paper
to bad loans. 3769, November 2005
14. Sharma (2005), “ Problem of NPAs and its impact on
References Strategic Banking Variables”, Finance India, Vol. XIX No.3,
1. Malepati and Gowri (2017), “Sectoral Analysis of NPAs September 2005, 953-967.
of SelectPrivate and Public Sector Banks”, SUMEDHA 15. Rajiv Ranjan & Sarat Chandra Dhal (2003), “Non-
Journal of Management, Vol.6, No.1, January-March 2017 Performing Loans and Terms of Credit of Public Sector
2. Ekanayahe et al., (2015). “Determinants of Non- Banks in India: An Empirical Assessment”, Reserve Bank of
Performing Loans in Licensed Commercial Banks: Evidence India, Occassional Papers, Vol 24, No. 3, 2003
from Sri Lanka”,Asian Economic and Financial Review, 2015,
5(6):868-882
3. Ghosh, Amit (2015). “Banking industry specific and
regional economic determinants of non-performing loans:
Evidence from USA”, Journal of Financial Stability Vol 20 jsymss@iift.edu
(2015) pp 93-104 rsaradhi@iift.edu
4. Sari , Brilia Wulantika, Priyarsono D.S , Anggraeni

CASE STUDY
ANALYSIS OF COST AND

PERFORMANCE MANAGEMENT
OF A CENTRAL HEAVY
ENTERPRISE PSU

CASE STUDY
Prabir Kumar Mukhopadhayay Prof. P C Basak Durgesh Maiti

Chairman Former Professor of Management Sr. Manager(Finance)
Damodar Valley Corporation IGNOU Damodar Valley Corporation,
Ministry of Power, Govt. of India New Delhi Ministry of Power, Govt. of India
1. Introduction of The CPSU wagon procurement through tenders. As such, with passage
Braithwaite was established in 1913 as the Indian of time, numbers of wagon builders have increased causing
Subsidiary of Braithwaite & Co. Engineers Limited (U.K.), steep competition. As a result, both prices of wagon and
for undertaking fabrication of Structural Steel Works. The delivery time fell sharply. Particularly, PSU manufacturers
Clive works in Calcutta commenced manufacture of wagons faced severe difficulties. All of them became sick immediately
for Indian Railways from 1934. after liberalization and were referred to Board for Board for
Industrial & Financial Reconstruction (BIFR).
In the meanwhile the Company was incorporated
in erstwhile Bengal as Braithwaite & Co (India) Ltd on 3. Causes of Business Decline
February 28, 1930. In the year 1960 Braithwaite’s Angus As per available record, till date no study has been
Works located at Bhadreswar, Dist. Hooghly was setup made on how and why these PSU wagon builders faced
for manufacture of Cranes, Foundry products, Machinery difficulties due to liberalization and fallen sick. However,
Components etc. The Project Division at Calcutta was only Braithwaite & Company Limited, though became sick,
established in 1978 to execute turnkey projects for material came out of sickness and turnaround. In this study this
handling plants. In 1987 Victoria Works was taken over, company has been selected as a case study and its sickness
which is equipped with all facilities for manufacture of and turnaround strategies have been critically analysed. The
Pressure Vessels, Railway Wagons and Heavy Structurals study is relevant because the requirement of rolling stock,
for Bridges and other engineering applications. i.e., wagon for Indian Railways is ever increasing. As such,
the main revenue of Indian Railways comes on account of
Braithwaite & Co Limited (BCL) was registered and freight business. Wagon loading per day of Indian Railway
incorporated on 1st December 1976 as a fully owned Govt. has increased from 41633 in 2010-11 to 48259 in 2014-15
of India Undertaking. The company today has three units denoting an improvement of 15.92%. This has enabled the
- Clive Works, Victoria Works both in Calcutta and Angus substantial increase in Freight Earnings.
Works (in Hooghly District), West Bengal. With effect from
6th August, 2010 the administrative control of the company Other than Indian Railways, many industrial units, like,
has been taken over by the Ministry of Railways. NTPC, SAIL, BHEL, NALCO etc. also buy wagons for their
plant requirement. Apart from that, there is ever lasting
2. BUSINESS SCENARIO demand of wagons from international market, particularly
The main wagon requirements of the country always from African counties. Hence, sustaining in this sector by
come from the Indian Railways. Till 1980s Railways used to the wagon manufacturing PSU companies is the need of
place entire wagon order to wagon builders. At that time, the hour.
number of wagon builders were few, namely, Braithwaite &
Company Limited, Burn Standard Company Limited, Bharat The operational and financial performance of BCL was not
Wagon Engineering Company, Jessop, Texmaco, Cimmco very encouraging over the years. Owing to continuous losses
etc. After liberalisation of the economy and opening of over the years, the company was referred to BIFR in 1992
markets in 1990s Indian Railways started adoption of and was declared sick. Major reasons of sickness were

This is a classic example of a PSU going into the bleak of sickness, gradually
limping back to break even & turning around into a profitable venture. The
commitment of the management, cooperation from its employees & an impetus
from the Government made it possible to bounce back into business. The factors
which contributed to the revival of the company are primarily technological
advancement, employee management, Improvising on market conditions,
diversification, financial restructuring & better marketing strategies. The study
of the roller coaster ride of the company is more relevant in today’s time when
Govt. is giving a boost to local industry under the flagship of Make in India
concept & ease of doing business
strategic issues, organizational issues, operational issues, BCL exhibited initial turnaround after implementing the
marketing issues, technology issues. BCL remained sick upto Revival Scheme and earned profit in 1996-97, 1997-98 and
2004-05 mainly due to outdated technology, dependence 1998-99. But performance of BCL again deteriorated and
on single customer, un-remunerative price, and depletion the company incurred loss in 1999-00, 2001-02 and 2002-
of skilled manpower, lack of motivation among employees, 03.
delay in order execution and lack of vendor’s confidence.
5.2 Outcome of first revival of BCL
BCL management revived the company and turned it
around with their strategies and policies like augmentation The sanctioned revival package was declared failed in
of infrastructural facilities, thrust in increasing productivity, 2003. The reason of such failure was attributed to:
thrust on marketing and diversification, human resource
planning, technology tie-up, financial management. As a) Inadequate working capital
recognition of turnaround BCL was awarded Turnaround
CPSE Award by BRPSE in 2010 by GOI. b) Delay in implementation of capital projects
4. Period of Study c) Higher internal charges coupled with execution of

The period of study was from 1991-92 to2013-14 (23years). railway orders at un-remunerative prices.
The entire period of study was divided into three periods for
5.3 Second Revival of BCL
the purpose of comparison which were:
Union Cabinet approved the financial restructuring of
Falling sick and refer to BIFR: 1991-92 to 2004-05 (loss BCL in January 2006 and the following financial relief/
period) – Period of 14 years concession/assistance had been granted.
Turnaround period: 2005-06 to 2009-10 (Marginal net a) Rs.4 Cr in the form of equity.
profit period ) – Period of 5 years
b) The interest amount to Rs.43.61 Cr of Govt. of India
Post Turnaround Period: 2010-11 to 2013-14 (Good net loan till 31.03.05 was waived. Further no interest to
profit period) – Period of 4 years be levied beyond the cut off date 31.03.15 till date of
approval.
5. Revival of BCL
5.1 BIFR scheme and its outcome c) Govt. of India loan as on 31.03.05 amounting to
Rs.69.30 Cr was converted into equity
BIFR approved a revival scheme on 17.10.1995 and
Government of India approved its implementation on d) Reduction in equity capital to the extent of Rs.167.30
01.07.1996. Cr by way of adjustment of accumulated losses.

CASE STUDY
5.4 Performance improvement of BCL after second revival/  Increase in credit limit of non-funded facilities by the
turnaround bank.
Consequent to approval of BRPSE recommendations
for financial restructuring by Govt. of India, BCL was  Improvement of profitability by reduction of interest
discharged from the purview of BIFR in 2006.BCL therefore, burden.
ceased to be Sick Industrial Company and is on the path of
5.6 Strategies adopted for revival of BCL
turnaround since then.
 Revival through the process of BIFR and financial
Table 1 restructuring through BRPSE recommendations.
Turnover vis a vis net profit
 Organizational and Business restructuring.
Year Turnover(Rs. in Net Profit(Rs.In lacs)
lacs)
 Manpower rationalisation through VRS
2006-07 5471 56
2007-08 5120 55  Improved marketing strategies
2008-09 6788 150
 Cost control measures.
2009-10 12761 175
2010-11 16971 618 6. COST MANAGEMENT:
A detailed status of the cost structure of the company
2011-12 26123 689 from 1991-92 till 2013-14 is given in Table 2. The Total cost
2012-13 29424 715 has an increasing trend with bulk of the cost being material
cost. The loss period is showing erratic profitability with
2013-14 36711 1042
marginal profits in some financial years. This is the time
5.5 Major benefits after financial strategy of BCL when the company was going through a major upheaval.
 Net worth become positive. ROI is an important tool to measure profitability based on
investments made by shareholders. It can be seen from the
 Improved net worth has helped to submit pre- table below that ROI from 2005-06 is positive and investors
qualification of Mega Bridge Projects. are getting a steady Return on the Investments made. Prior
to this period the investors were not getting any return or
 Improvement of capital worthiness. returns were marginal.
Table 2
Total Cost and its Components Cost (Rs.in lacs)
Year NET PROFIT/ Material Cost Labour Total Sales , Marketing and Total ROI
(LOSS) AFTER Cost Factory other Overhead Cost %
TAX-PAT Overhead
1991-92 -225.91 2549 2408 70 2099 7126 1.87

1992-93 -164.88 2848 2548 72 1977 7445 1.48
1993-94 -7457.3 2045 2145 72 2757 7019 -39.13
1994-95 -3602.7 1843 2029 87 2767 6726 -7.58
1995-96 -3127.06 4178 2496 82 661 7417 -15.91
1996-97* 68.61 5016 2228 111 2303 9658 4.70
1997-98* 214.05 5938 2523 118 1854 10433 4.17
1998-99 41.14 6306 2736 131 3253 12426 2.96

Year NET PROFIT/ Material Cost Labour Total Sales , Marketing and Total ROI
(LOSS) AFTER Cost Factory other Overhead Cost %
TAX-PAT Overhead
1999-00 -1412.82 3290 2638 496 813 7237 -5.78

2000-01 173.79 5154 2733 545 2715 11147 3.98
2001-02 -3355.47 1780 2343 521 1511 6155 -9.65
2002-03 2921.72 1795 1189 514 2188 5686 5.05
2003-04 -2355.91 1467 632 507 269 2875 -0.36
2004-05 -2190.67 1841 658 500 105 3104 -18.71
2005-06 221.15 2319 722 515 389 3945 65.08
2006-07 56.22 3150 852 603 270 4875 45.2
2007-08 55.25 2660 888 583 492 4623 67
2008-09 150.28 3482 1064 630 846 6022 40.05
2009-10 175.31 9879 1139 716 1131 12865 31.77
2010-11 617.94 13375 1286 732 777 16170 38.72
2011-12 689.17 21555 1321 766 1375 25017 20.41
2012-13 715.29 24330 1390 919 1719 28358 19.68
2013-14 1042.75 29011 2758 1119 2122 35010 21.57
* In the year 1996-97 & 1997-98, Interest to the tune of Rs. 8158.93lakhs & Rs.62.32 lakhs respectively were waived on
account of Government loan which has been excluded from the business profit while evaluating the financial results of
the loss period.
In Table 3 we see that though the employee strength is gradually decreasing, simultaneously the production is increasing.
This reflects significant improvement in labour productivity. This is because of certain better HR policies like placing the
right man in the right place, imparting training & introducing Voluntary Retirement policies.
Table 3
Comparative Analysis of Sales/ Profit/ Employees for last 14 years
Particulars/Years Gross Production Gross Sales Net Profit / Loss No of Employees
(Rs in Lacs) (Rs in Lacs) (Rs in Lacs)
2000-01 9700 11183 174 2357
2001-02 3901 4052 (-) 3355 1132
2002-03 3465 3544 (-) 2922 703
2003-04 2889 2892 (-) 2356 572
2004-05 3268 2992 (-) 2191 550
2005-06 4436 4493 221 546

CASE STUDY
2006-07 5342 5471 56 525
2007-08 4842 5120 55 495
2008-09 6351 6788 150 472
2009-10 12319 12761 175 443
2010-11 16920 16971 618 412
2011-12 25309 26123 689 392
2012-13 28596 29424 715 353
2013-14 35666 36711 1043 328
Table 4 below gives an overview of the cost structure. The major cost components are material followed by labour &
marketing overhead. It is observed that there is a considerable increase in material cost while the other costs have declined.
Table 4
Percentagewise Cost Breakup for last 14 years
Year Material Cost Labour Cost Total Factory Overhead Sales, Marketing and
other Overhead
2000-01 46% 25% 5% 24%
2001-02 29% 38% 8% 25%
2002-03 32% 21% 9% 38%
2003-04 51% 22% 18% 9%
2004-05 59% 21% 16% 3%
2005-06 59% 18% 13% 10%
2006-07 64% 17% 12% 6%
2007-08 58% 19% 13% 11%
2008-09 58% 18% 10% 14%
2009-10 77% 9% 6% 9%
2010-11 83% 8% 5% 5%
2011-12 86% 5% 3% 5%
2012-13 86% 5% 3% 6%
2013-14 83% 8% 3% 6%

Figure 1: Percentage contribution of each component labour component was 25 % of total cost which reduced to
cost to the total cost 8% of the total cost in 2013-14.
Similarly, total factory overhead & sales and other

overheads which were 8 % & 25 % of the total cost in 2001-
02 have reduced to 3 % & 6% in 2013-14 respectively. The
company was judicious enough to reduce its overall cost.
Optimum mix of all the components like labour, material &
overhead had been achieved, as a result of which production
increased significantly.
The company relied more on its own fund than loan fund
as a result Debt ratio (Total long term debt/ total assets)
& Debt equity ratio (Total liabilities/Shareholders fund)
are showing decreasing trend. Interest payment was the
key factor in the loss of the company. The company has
been able to trade off its high cost debt in favour of low
cost debt, thereby could able to reduce the overall cost
Labour cost, Total Factory Overhead and Sales, Marketing of capital. Another reason for the favourable debt equity
and other Overhead cost decreased in the post-turnaround ratio is waiver off loan including interest by Government of
in comparison to turnaround period. However, material cost India. The company also met its long term obligations in a
increased due to increase in the production. prudent way. Both, the short term & long term solvency of
the company improved gradually. Gradually the company
Labour Productivity ratio (Gross Production/ labour went into a better position to repay its short term debts &
cost) which was 6.31 in 2002-03 has increased to 20.60 meet its long term liabilities which in turn created a positive
in 2013-14. Over the years, though the productions have image of the company in the eyes of the investors & stake
increased but the labour cost has decreased. This implies holders.
that labour productivity has increased. In 2001-02, the
Table 5
Solvency 2001-02 2006-07 2013-14
Debt Equity ratio -1.35 4.24 0.65
Interest Payable 528 228 215
The Current Ratio & Acid Test Ratio (are favorable over the years and showing increasing trend, e.g.
Table 6
Important Ratios
2001-02 2006-07 2013-14
Current Ratio 0.75 1.18 1.34
Quick Ratio 0.62 0.82 1.90
Net Profitability Ratio -83% 1% 3%
This clearly implies that Short term assets have increased and/or short term liabilities have decreased. The working
capital of the company has improved & the company has been able to repay its creditors in a timely manner. With this
credibility of the company has improved & vendors/suppliers started reposing faith in the company.

CASE STUDY
The Net Profit Ratio is the indicator of overall profitability of the business.
Table 7
Regression Co-efficient of Net Profit
Independent Co-effi- Standard Lower Upper
Variables cients Error t-statistic P-value Lower 95% Upper 95% 95.0% 95.0%
Intercept -4549.853 2867.923 -1.586 0.147 -11037.546 1937.840 -11037.546 1937.840
Material cost -0.114 0.110 -1.024 0.332 -0.364 0.137 -0.364 0.137
Labour cost -2.642 0.770 -3.428 0.007* -4.386 -0.898 -4.386 -0.898
Total factory cost 9.378 5.786 1.620 0.139 -3.711 22.467 -3.711 22.467
Sales marketing
& other overhead
cost 2.550 0.679 3.752 0.004* 1.012 4.087 1.012 4.087
* Statistically Significant
Thus the regression model of Net Profit/Loss is given New management team implemented certain policies
by: which resulted into enhancement of productivity and
profitability and finally ensured turnaround of the company.
Net Profit= -4549.853 - (0.114*Material Cost) - The main focus of the management was capital infusion
(2.643*Labour Cost) + (9.378*Total Factory Cost) + for purchase of latest technology machines, in-house
(2.55*Sales Marketing & other Overhead Cost). This model production of critical wagon components, introduction of
can be applied to any unknown similar factory. Using same modern project management techniques, venture into new
parameters we can increase Net Profit by improving the cost field of activities, manpower rationalization, compliance
components. with latest customer specification and working capital
management.
It is observed from the above statistical analysis that the
material cost component (having co-relation coefficient To improve the performance of BCL, the management
of -0.114) have lesser significant effect on net profit as stressed on the following six broad activities for increased
compared to labour cost (having co-relation coefficient of productivity, business promotion and through that achieve
-2.643), factory overhead (having co-relation coefficient targeted growth:
of 9.378) and sales, marketing & other overhead (having
7.1 Augmentation of Infrastructural Facility
co-relation coefficient of 2.55). The major impact on net
profit will arise by adopting suitable cost reduction devise  Providing plant and machinery for meeting requirements
with focus on labour and overhead components to arrive at of Railways,
the desired results.
 Infrastructure for manufacturing of stainless steel
Moreover to achieve optimum result, saving in labour cost wagons, coupler projects,
has led to higher profitability whereas sales and marketing
overhead have been commensurate with sale growth and  An effort of forward and vertical integration,
profitability.
 Implementation of latest Enterprise Resource Planning
7. PERFORMANCE MANAGEMENT (ERP) system,
In enhancing productivity and profitability of an
engineering organization, management policies play a  Capital infusion for purchase of latest technology
key role. A successful turnaround is achieved only when machines,
management policies are strategized in an effective manner.
It boost individual performance, enhance team productivity  Introduction of Computerised Numerical Control (CNC)
and motivate for a new achievement which ultimately machines in production process.
improve both top line and bottom line of an organization.

7.2 Thrust on Increased Productivity  Thrust for technology collaboration and strategic
 Outsourcing/sub-contracting for bulk manufacturing, alliance wherever required.
7.6 Financial Management
 In-house production of critical wagon components,
 Adequate provision for working capital towards inputs
 Annual maintenance contract (AMC) to reduce for augmenting products.
downtime and loss of production hours for various
machines.  Increase in limits of various fund/ non fund based  
facilities for meeting bank guarantee/LC requirements,
7.3 Thrust in Marketing and Diversification
working capital etc.
 Manufacture of non-Railway/Export wagons,
 Ensuring minimum purchase of inventory and overall
 Venture into new fields of activities, i.e. fabrication cost reduction.
of bridge girders outside plant area, manufacture of
stainless steel wagon, manufacture of frameless tank The study finds that for successful turnaround of a sick
wagon, refurbishment of wagons, company, first of all the root cause of the sickness have
to be ascertained. Taking into account the root causes
 Up-gradation/AMC for cranes, of sickness, right combination of turnaround strategies
have to be selected based on organisational strength &
 Manufacture of bogie and couplers, weaknesses. Here the top management has an important
role to play. They must take all the stakeholder’s confidence.
 Manufacture of pressure vessels. Their commitment and cooperation gives great advantage
in successful implementation of the turnaround strategies.
7.4 Human Resource Planning
 Manpower rationalisation achieved through 8. Conclusion
introduction of Voluntary Retirement Scheme (VRS). Management took effective operational decisions like
improved human resource management, cost cutting/
 Redundancy has been avoided which is the prime reduction etc., sharp business acumen etc. They have also
reasons for success of restructuring proposal. taken effective financial decisions like cost optimization,
loan swapping, optimizing leverage between debt-equity,
 Improved relationships with unions by inviting them in capital budgeting etc.
certain decision making.
The above operational and financial decisions have led to
 To improve employee’s motivation through revision of the complete transformation of the organization.
pay scales, release of arrears and rationalisation of
perks. We can also see that post 2004-05, the company has
been able to achieve a certain degree of stability in the
 Increased the age of retirement to 60 years from 58 market after breaking the viscous cycle of loss of the
years. initial periods. By overcoming the turbulent periods, it is
now continuously growing at a steady rate. The company
7.5 Technology Tie Up
which made a loss of whopping Rs 33.55 Cr in 2001-02 had
 Compliance of G-93 specifications given by Railway registered a profit of Rs.10.43 Cr in 2013-14. This change
Board. has only been possible because of the successful policy
implementation and relentless efforts of the management.
 Procurement of 5 Tonnes Arc Furnace.
A successful turnaround is achieved only when
 Collaboration/ tie up for manufacture of low tare management policies are strategized in an effective manner.
wagons and modern freight wagons. It boost individual performance, enhance team productivity
and motivate employees to improve both top line and
 In-house manufacturing of wagons components like bottom line of the organization through performance
dished ends, valve components, brake items etc. improvement of the team which in turn takes the company

to a new height. 9. Pearce, J. A. & Rabinson, R. B. (2007) Strategic
Management; Formulation, Implementation and Control.
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Government of India, from 2000-01 to 2013-14 Strategy in Indian engineering Industry, Volume 13 No.
6 , 2015; International Journal of Applied Business and
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Journal 24(6) 519-540. 2, No.1, Jan-June 2017; BULMIM Journal of Management
and Research .
5. Burbank , R.K. (2005); The classic Five- step Turnaround
Process. The Journal of Private Equity (Special Turnaround 12. Rosario, E.J., Kawamura, T. & Peiris, T. L. G. S. (2004);
issue), Vol 8 , No.2 : pp 53-58. Implementing Turnaround Strategy; Effect of Change
Management and Management Competence Factors.
6. Hambric, D & Schecter, S.(2003): Business Turnaround
Strategies for Mature Industrial Product Businee Units, 13. Whonderr-Arthur, J. (2009); Strategy Implementation.
Academy of Management Journal.26.
7. Khandwalla , Pradip N. (2001); Turnaround Excellence

, Response Books, a division of Sage Publication.
8. Manimala, M.J. & Sunita Panickar (2011); Successful mukhopadyay@yahoo.com

Turnarounds: The role of Appropriate Entrepreneurial parimalbasak1@gmail.com
Strategy , Indian Institute of Management , Bangalore, maitidurgesh@gmail.com
Working Paper No.337.

INSTITUTE NEWS
EASTERN INDIA REGIONAL COUNCIL
EIRC organized a seminar on Annual Return & GST Audit

on 17th May 2018. CMA Chiranjib Das, GST Consultant was
the resource person. CMA Shyamal Kumar Bhattacharjee,
vice chairman EIRC and CMA Pranab Kr. Chakraborty,
chairman EIRC were also present on the occasion. Another
seminar was organized by EIRC on Valuation Rules 2018
on 20th April 2018. Shri Hansraj Jharia was the resource
person. A seminar on Companies Act 2013 was organized
by EIRC on May 12, 2018. CMA Prof Goutam Mitra was
the resource person. The Region organized an inaugural
session of 2nd batch of certificate course of GST on 17th
June, 2018 at EIRC seminar hall. CMA Debajit Sen, Director,
Finance, Marathon Electric Motors (I) Ltd., Shri Manmohan
Daga, and CMA Pranab Chakraborty, Chairman, EIRC were
present during the session. The course was inaugurated by
CMA Pranab Kr Chakraborty, chairman, EIRC. The Region
organized ‘Overview of Recent Amendments under the
Companies Act’ on June 20, 2018 where CS Sanjay Gupta,
CMA Pranab Kr Chakraborty, Chairman, EIRC and CMA
Bibekananda Mukhopadhyay were among the eminent
dignitaries present in the session.

INSTITUTE NEWS
The Institute of Cost Accountants of India-Ranchi Chapter

The Chapter arranged a workshop on E Way Bill under
GST on June 17, 2018 at Ranchi. Keynote speaker CMA
Sanjay Singh, Senior Manager Finance CCL lucidly explained
various provisions of the subject. Participants from GAIL,
BHEL, ONGC, MECON, SAIL, ECL, HEC, DVC and practicing
members from Ranchi, Ramgarh, Koderma, Hazaribag,
Patna, Dhanbad participated enthusiastically. Welcome
address was delivered by Chairman of the chapter CMA
Bidydhar Prasad. CMA Umar Farooque, RCM EIRC informed
participants that in this year the chapter will arrange series
of programs for capacity building measures of members.
NORTHERN INDIA REGIONAL COUNCIL

The Institute of Cost Accountants of India-Jaipur Chapter
The Chapter organized a seminar on ‘Personal &

Professional Excellence’ and ‘GST E-Way Bill & ISD
Mechanism’ on 28th April, 2018 at its premises. In the first
technical session, Dr. Satish Batra, Dy. Director, Bhavan’s
College of Communication and Management addressed the
participants and explained smart way of living and stress
management. In the second technical session, CMA Sanjay
Arya, Practicing Cost Accountant, Gurugram explained
various provisions related to E-Way Bill and ISD Mechanism.
A Campus Placement programme was held at New Delhi in

April 2018. Qualified students from Jaipur who got selected in
campus placement were felicitated at the chapter on 9th May
2018. The Chapter celebrated 59th CMA Foundation Day
at its premises on 28th May 2018. Children of Sewa Bharti
Sansthan were provided with stationery items and dresses
under the charity initiative for which donations were given
by the esteemed members of the chapter. Tree Plantation
Program was also organized on this occasion in which
members of the chapter, management committee members
and staffs took part with great enthusiasm.
The Institute of Cost Accountants of India-Srinagar Chapter

Srinagar organized a one day career awareness programme
on Cost and Management Accountancy, on May 26, 2018
in collaboration with Srinagar Chapter of the Institute. Prof
(Dr) Yasmeen Ashai, Principal of the college inaugurated
the event. CMA Bashir Masoudi , Former Head Finance,
Rourkela Steel Plant, Steel Authority of India Ltd and
chairman of the chapter, CMA Ghulam Jeelani Tak,
Administrative Officer, LIC were among the eminent
dignitaries who were present during the programme.
Another seminar on GST was conducted by the chapter in
collaboration with Kashmir University on May 29, 2018 and
CMA Bashir Masoudi , CMA Padhi, Prof Sangmi and CMA
The Department of Commerce, Amar Singh College, Qaisor were present during the programme.
SOUTHERN INDIA REGIONAL COUNCIL
The Institute of Cost Accountants of India -Trivandrum Chapter

INSTITUTE NEWS
The Chapter jointly with Trivandrum Management

Association successfully conducted the Professional
development Programme on “Recovery of Corporate Debts
based on Insolvency and Bankruptcy Code, 2016 & Developing
Jurisprudence out of decided case laws under the code” on
8th June ,2018 in their conference hall. Adv Asish Mohan
and CS Bijoy P Pulipra were the speakers on the theme.
The Institute of Cost Accountants of India -Cochin Chapter
the speaker of the seminar. On June 6, 2018 another

seminar on Discussion on “Cost Accounting Standards and
Cost Audit 2017-18" was organized and CMA P. Raju Iyer,
Council Member & Chairman, Cost Accounting Standards
Board of the Institute was the speaker of the programme.
The Chapter conducted session inauguration of educational
course on valuation at CMA Bhawan, Center for Excellence
on 16th June, 2018 and the session was inaugurated
by Dr. V. T. Jalajakumari, Asst. Regional Director, Indira
Gandhi National Open University, Ernakulam. As part of
the campaign, the Chapter observed 4th International
The Chapter on May 27, 2018 organized a seminar on Yoga Day at CMA Bhawan, Cochin on June 21, 2018 under
“Disruption for Reinventing Business” and Shri K. Harikumar, the guidance of Shri Sanjeev, Yoga Master, Karma Yoga
Managing Director, Travancore Cochin Chemicals Ltd was Research and Training Institute, Cochin.

The Institute of Cost Accountants of India -Visakhapatnam Chapter
The Chapter on April 21, 2018 organized a professional

development programme at its premises on ‘Cloud
Computing From CMA Perspective’ at CMA Bhawan.
Speaker CMA TCA Srinivasa Prasad explained the cloud
computing characteristics etc. The Chapter observed 4th
International Yoga Day on June 21, 2018 at CMA Bhawan
attended by members, staffs and students.
The Institute of Cost Accountants of India -Bangalore Chapter
The Chapter organized two professional development

meets on April and May, 2018. On May 11, 2018,
Practitioners’ Meet was organized on Cost Audit Discussion
on CRA-1 and on June 5, 2018 another Meet was organized
on International Environment day programme at Shamanna
Park and Seshadripuram College and also CMA Sanjay
Gupta, President of the Institute interacted with the
chapter members on occasion of World Environment
day at its premises and CMA Prasanna Kumar, Practicing
Cost Accountant and CMA Sanjay Gupta, President of

INSTITUTE NEWS
the Institute, CMA Jagan Mohan Rao, Council Member

were the speakers of the programmes. On June 16, 2018
a seminar on Cost Audit was held at its premises and Shri
Dr.DN Panda, Former Judicial Member, Customs, Excise
& Service Tax Appellate Tribunal was the speaker of the
seminar. A training on Communication and Soft Skills (CSS)
for intermediate oral students was organized on April 21
and 22, 2018 by the chapter. An industry oriented training
programme for final students was conducted by the chapter
from April 29, 2018 till May 3, 2018 at its premises

The Institute of Cost Accountants of India- Coimbatore Chapter
The Chapter entered into MoU with PSG College of Arts & Science, Coimbatore for conducting classes for intermediate
course. The chapter conducted a communication and soft skill program for intermediate students from 12th May, 2018.
The chapter organized 49th Annual General Meeting on May 26, 2018.
WESTERN INDIA REGIONAL COUNCIL
The Institute of Cost Accountants of India- Pimpri Chinchwad Akurdi Chapter
The Chapter conducted a full day seminar on “Compulsory Audit (u/s 35), Audit by Tax Authorities (u/s 65), Special
Audit (u/s 66) of CGST Act” on May 10, 2018 at CMA Bhawan. CMA Ashok Nawal, Council Member and CMA L D Pawar,
RCM & Vice-Chairman, WIRC were the speakers of the seminar. CMA L D Pawar, RCM and vice chairman, WIRC highlighted
changes made under GST. CMA Ashok Nawal briefed on the topic Audit under GST. The Chapter conducted a seminar on
‘IBC 2016 – Game changer for Corporate & Professional’ on 19th May, 2018 at CMA Bhawan and CMA L D Pawar, Insolvency

INSTITUTE NEWS
Professional, RCM & vice chairman, WIRC was the key speaker of the seminar. CMA L D Pawar briefly highlighted on
background of IBC 2016 and existing laws therein. The Chapter celebrated 59th Foundation Day of the Institute on May
28, 2018 at CMA Bhawan. The Chapter also conducted a seminar on ‘Innovative use of Excel’ on 28th May, 2018 at CMA
Bhawan. CMA Pradeep Deshpande was the key speaker of the seminar. He briefly highlighted the importance and need
of Excel at various fields like corporate offices, companies, small scale industries, traders, brokers, public & government
sectors etc.
The Institute of Cost Accountants of India- Nasik Ojhar Chapter
The Chapter completed the first batch of GST Course in coordination with Tax Research Department of the Institute,
Kolkata. The first session was taken by Ms. Rashmi Kachi. She explained the GST in Accounting Environment with special
reference to Tally and the second session was taken by Mr. Sanjay Pokharkar, Dy. Commissioner, GST Nashik. Dr. Shilpa
Parkhi was the coordinator of the entire course of GST Certificate.
The Institute of Cost Accountants of India- Ahmedabad Chapter
The Chapter organized campus placement on May 17,

2018 and May 18, 2018 at its office. CMA Manas Kumar
Thakur, Immediate Past President & Chairman of Training &
Placement Committee of the Institute was the chief guest of
the function. CMA K M Mehta, vice chairman of the chapter,
CMA Manas Kumar Thakur, chief guest briefed about the
objective of campus placement program. A press meet for
campus placement was also organized on 17th May, 2018.

Memberships
Admission to Associateship, Effective Date is JUNE 05, 2018
Membership No Name Membership No Name
44574 Jagannath Panda 44608 Kochukoshy Thomas Manalil
44575 Ritika Srivastava 44609 Venkata Rupesh Kumar Chenna
44576 Venkata Vijayalakshmi Somisethy 44610 Subaramaniiam C V
44577 Ramakrishnan N 44611 Kamal Kishore
44578 Yewale Keshav Machindranath 44612 Prashant Payagonda Nidagundi
44579 Sunil Kochhar 44613 Kranthi Allenkala
44580 Shriram V 44614 Abhishek Jain
44581 Naresh Kumar 44615 Pradeep Velayudhan
44582 Sonu Devi Gupta 44616 Tiruveedhula Anusha
44583 Aditya Yellajosyula 44617 Ikramuddin Ahmed
44584 Goutham Katepalli 44618 Jayprakash Babulal Sharma
44585 Pradip Kumar Shaw 44619 Saurabh
44586 Sagar Pramodrao Dasharathe 44620 Sanchari Basu
44587 Bhuvanasri V 44621 Siddharth Gusain
44588 Sidharth Agarwal 44622 Mukesh Kumar Rajpat Bhai Dube
44589 Suyog Hanumant Gavali 44623 Vinita Ashok Patankar
44590 Gaurangbhai Lavjibhai Chovatiya 44624 Chhavi Saxena
44591 Swagata Dutta 44625 Rupali Santosh Khandal
44592 Dadaso Nanaso Kakade 44626 Narayana Swamy Kuruba
44593 Lakshman Prasad Chaurasiya 44627 Avdesh Bansal
44594 Rangaswamy Gari Gangadhar 44628 Jaydev Saha
44595 Arun Vishwakarma 44629 Akshay Ankit
44596 Kiran Surender Singh Rawat 44630 Pratik Madhusudan Joshi
44597 Sriram Seshadri 44631 Ashish Anand
44598 Venkata Anusha Gulakaram 44632 Gopinath Pinnaka
44599 Parveen Dutt Sharma 44633 Harshil Rajeshbhai Parmar
44600 Pooja Saha 44634 Anup Kumar Shaw
44601 Namrata Goyal 44635 Tikam Singh Chauhan
44602 Mamta Gupta 44636 Narendra Challakolusu
44603 Govind Singh Bisht 44637 Shivchand Bishram Prajapati
44604 Dnyanda Jayant Limaye 44638 Himanshi Narula
44605 Shilpi Yadav 44639 Santosh Kumar
44606 Uma Shrestha 44640 Ashis Kumar Sahoo
44607 Anil Kumar Jajoo 44641 Saroj Kumar Hati

Memberships
44642 Prayas Kumar Pradhan 44676 Sultan Saini
44643 Shailesh Vasant Chavan 44677 Sunil Samota
44644 Rupa Sanjay Rele 44678 Rajan Ranjan Sahu
44645 Mrudul Chillarige 44679 Ajeet Pal Singh
44646 Ramanprit Kaur 44680 Sravanthi Mullapudi
44647 Dil Nasheena Shaik 44681 Reena Pranav Damania
44648 Soumya Sarkar 44682 Girish Chillapali
44649 Prakash Giri 44683 Ramana Reddy Sirammagari
44650 Maharajan Suganthi 44684 Umashankar Pichaimani
44651 Shalu 44685 S Kasi Viswanathan
44652 Anna Thiru Bagavathi Subbiah 44686 Shikha Gupta
44653 Nagi Reddy Buthukuri 44687 Mamta Kamal Chellaramani
44654 Abdul Rahiman Pathaya Kanakkasseri 44688 Rakesh Ramachandran
44655 Mohammad Rahil 44689 S M Amir Hamza Askari
44656 Ankush Kumar 44690 Hemant Rana
44657 Amol Ramkrishna Pawar 44691 Sanvedi Parag Rane
44658 Pushpavathi Korikani 44692 Veera Venkateswararao Konakala
44659 Arun Kumar Gopinathan 44693 Harish Andavarapu
44660 Dilip Kumar Nayak 44694 Gaurav Gautam Ramteke
44661 Pravin Vishnu Gavali 44695 Pinal Chunilal Pichholiya
44662 Abhishek Chandrakant Bhalerao 44696 Kiran Kanth Kesireddy
44663 Swaminathan Selvan 44697 Tamanna Raheja
44664 Sushanth Kota 44698 Shankar Dayal Singh
44665 Rishikesh Ramchandra Karve 44699 Priyanka
44666 Dayashankar Shivlal Sharma 44700 Prathamesh Suresh Hariyan
44667 Ravi Teja Guntupalli 44701 Venkatesh S
44668 Sapana Baliram Metha 44702 Rambabu Dompaka
44669 Abhishek Ramdas Dalvi 44703 Ashish Jain
44670 Rajesh Ranjan 44704 Ravneet Kaur
44671 Mandeep Singh 44705 Reemi C Shah
44672 Manikandan Ramamoorhy 44706 Hima P R
44673 Shashank Garg 44707 Habeebulla Mp
44674 Nitender Kumar Sharma 44708 Jegatha K
44675 Manish 44709 Pankaj Kumar

Memberships
44710 Choudhury Sandeep Parida 44715 Rajagopal Reddy Dunnuthala
44711 Gorakati Poornima Reddy 44716 Shifali Jand
44712 Anukriti Mehta 44717 Pankaj Sharma
44713 Ravi Shankar Kaky 44718 Nithya P A
44714 G Chinna Reddy 44719 Muzaffar S A
Advancement to Fellowship, Effective Date is JUNE 05, 2018

10129 Dandapani Venkataraman 31013 Murali Mohan
11146 Elavarthy Kesava Reddy 31086 Harsh Satish Udeshi
13482 Shyam Sunder Chandak 31535 Sudhir Negi
17187 Sanjib Kumar Mitra 31726 Vamsi Krishna Kota
17628 L Augustin Amaladas 31750 Manjiri Satish Patankar
18616 Vinay Prakash Mathur 32561 Thangiah Ponraj Thangaprabhu
19309 Madhu Sudhan Rao Bayana 32625 Manoj Kumar Sharma
19719 Prosenjit Dutta 32710 Nagarjunrao V S Akula
22852 Rakesh Chandra 32753 L Arun
23019 Ali Ahmed Khan 33059 Yamini Padmavati Thodeti
24100 Somesh Chatterjee 33572 Pavan Kumar Vishwabramhana
24600 Swaraj Sewri Bhattacharjee 33744 Lakshmana Pavan Kumar V
25367 Rajesh Kumar Umak 33776 S Senthil Nathan
27187 Iswar Chandra Kundu 34118 Wajid Mohammad
28087 Anupama Ramani 34340 Sachin Sudhakar Jagdale
30051 Nidhi Sinha 34386 Trivedi Nehalkumar Pankajkumar
30950 Babul Bhadra 34506 Pradeep Miglani

FROM THE RESEARCH DESK
INDIAN RAILWAYS -
CMAs AS GAME CHANGERS
 Performance Costing:
Performance Costing will enable the Indian Railways to take correct business decisions and to improve
resource utilization, cost competitiveness, profitability, and sustainability of the organization. All this
will make the Railways an efficient organization and a viable entity. Performance or outcome budgeting
together with performance costing is a powerful management tool that has evolved in response to the
ineffectiveness of traditional ways of budgeting and cost accounting and cost management practices. This
combination is perhaps the only way that the Railways can achieve the milestones like-
Re-position itself as ‘market leader’ in the transport sector by capturing the market share from other
transport sectors;
Rationalize the existing tariff structure;
Make strategic investments in expansion of the rail infrastructure;
Induce foreign and indigenous private players to invest in rail infrastructure;
Improve capacity utilization and revenue earnings from both passenger business and freight busi-
ness; and
Become the ‘first choice’ of all customers in the country.
The Institute is actively involved in this great exercises and closely working with Indian railway to achieve
this national priority.
 Goods and Services Tax (GST):
CMA with his academic knowledge and professional expertise can play a crucial role as a Consultant
and a catalyst for due compliances of law relating to goods and services tax and spread tax-literacy
and GST awareness to the employees of Indian Railways for better handling logistics. CMAs are recog-
nized to make representations before the Appellate Tribunals for Dispute Resolution in this regard. The
Institute of Cost Accountants of India (ICAI) has opened a Goods and Services Tax (GST) helpdesk to
assist professionals acquire proper knowledge about the new tax structure. The Institute successfully
carried out workshops for the employees of Eastern and South-eastern Railways to impart knowledge
on GST.
 Green Audit:
The Indian Railways, going green is a commendable effort and a great example of the government body set-

ting an example in eco-friendly practices. With a view to improving aesthetic ambience along the track
close to the approach of major stations, creation of ‘Green Curtains’ at Agra and Jaipur stations is being
undertaken on pilot basis, conservation of energy by using renewable sources to reduce carbon footprint;
Bio-toilet set-up, launching digital contract, etc. CMAs can support these initiatives by sorting out the dis-
crepancies of availability and allocation of Government funds sanctioned for these projects. CMAs with
their multi-disciplinary and techno-commercial skills; are the apt professionals to conduct Green Audit
to ensure Compliance of Environmental Laws, effective assessment of Environment Cost, Environment
Impact Assessment and Carbon Credit.
 Recent Initiatives taken by the Institute:

The demand for cost accountants is expected to be rise exponentially in the coming years with various
State governments and ministries striving to improve efficiencies on the costing front. ICWAI Management
Accounting Research Foundation (ICWAI MARF), a Section 8 Company, promoted by the Institute of Cost
Accountants of India and Indian Railways entered into a path breaking MOU on 30th January 2017 where-
in the ICWAI MARF will undertake a comprehensive study of existing Costing System in Indian Railway
and develop a suitable up-gradation of the existing system to ensure managerial analysis of costing data
for efficiency improvements in key performance areas. The Institute is intended to implement ‘Accounting
Reforms’ (AR) in the Railways. The project is expected to be rolled out by the third quarter of 2018.
 Activity-Based Costing (ABC):

Applying ABC Technique, CMA s reduce the wastages of resources and can measure real cost sustained
for every operation to link at every activity cost to their respective performance. CMAs act as a catalyst
to the management to initiate timely action for effective use of resources to enhance productivity, profit-
ability and best utilization of capacity.
 Logistics Management:
Introduction of GST will benefit the logistics sector including railways by removing the need for businesses
to maintain multiple warehouses across states to avoid CST levy and state entry taxes. Transport service
rate of GST at 5 per cent will be anti-inflationary and give a much-needed boost to rail freight. Reduction
in cost of transportation of goods will lead to reduced prices. CMAs help in accurately determining proper
queuing of transportation and logistics towards achieving minimum cost of operation of all the activities.
They can assist in analyzing and reviewing all qualitative and quantitative issues pertaining to Logistics
Network Designing and Supply chain management.

THE JOURNAL FOR CMAs
MANAGEMENT
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www.icmai.

in July 2018 l The Management Accountant 1

26 The Management Accountant l July 2018 www.icmai.in

www.icmai.in July 2018 l The Management Accountant 27

28 The Management Accountant l July 2018 www.icmai.in

  Shri Bhupender Yadav, Member of Parliament (BJP), 

www.icmai.in July 2018 l The Management Accountant 29

  CMA Sanjay Gupta, President of the Institute, presenting

 Heartiest Congratulations to Team CMA for winning "CMA

 CMA Niranjan Mishra, Chairman, Taxation Committee

 CMA H Padmanabhan, Vice President of the Institute

 CMA H Padmanabhan, Vice President addressing at

  Release of Research Bulletin, Vol 43 No IV, January

30 The Management Accountant l July 2018 www.icmai.in

www.icmai.in July 2018 l The Management Accountant 31

CMA Aruna Mohan

32 The Management Accountant l July 2018 www.icmai.in

www.icmai.in July 2018 l The Management Accountant 33

Coach Wise Costing System  An outsourcing proposal to rebuild Wagons was

34 The Management Accountant l July 2018 www.icmai.in

The role of CMA in Railways is to highlight and guide the

 Identify the areas requiring better utilization of available

 Whether to continue “in-house” or outsource old or new

 If outsourcing is preferred, what quantum and when to

 Alternate use of spare available resources.

 Identify areas of avoidable expenditure and monitor

www.icmai.in July 2018 l The Management Accountant 35

COST AND MANAGEMENT

36 The Management Accountant l July 2018 www.icmai.in

“Desh ko Gati bhi Rail se milegi aur pragati bhi”- Level 1:

Theme COST FOCUS in Vision 2017-19 of Indian

www.icmai.in July 2018 l The Management Accountant 37

Figure 2: Sub-themes of Cost focus Asset utilization Implementation of

The COST FOCUS aims to reduce the operating expenses

38 The Management Accountant l July 2018 www.icmai.in

96.5% (however, CAG said it

2018-19 92.8% (targeted)

Analysis of revenue of Railway:

Figure 6: Gross Tariff receipts of Railways (Source: Indian Railways website)

Figure 7: Pie chart for revenue earned

www.icmai.in July 2018 l The Management Accountant 39

Passenger Parcel Freight Misc. Suspense Gross tariff receipt

2015-16 Revenue 442,832.6 43,714.9 1,092,076.5 59,258.5 5,425.6 1,643,335.1

Figure 9: Graph comparing percentage of revenue

The share of Railways constitutes 31% in inter-regional

Inter-regional freight flow

Figure 10: Revenue per tonne km (Source: Indian

Year Revenue per tonne km (in Paisa)

40 The Management Accountant l July 2018 www.icmai.in

2010 2011 2012 2013 2014

Navigation 4.18 3.25 2.38 2.17 2.17

Aviation 14.84 16.19 16.15 16.87 17.32

Rail 8.39 8.64 8.98 9.33 9.57

Road 163.08 186.37 203.10 209.60 217.44

Figure 13: Comparative analysis of green

Passenger revenue of Railways:

PASSENGER REVENUE (Rs. In millions)

Year Suburban Non-suburban Total

1980-81 905.2 7,369.5 8,274.7