Indian Railways: The backbone of service sector

Sarika Sharma

Abstract Starting in 1990s, Indian economy have been sharing a common feature in the composition of it's Gross Domestic Product (GDP) in the form of the rising contribution of the service sector. Service sector with double-digit growth during the past two year i.e. 2004-05 & 2005-06 has further strengthened its place as the leading sector of the Indian economy. Service sector now accounts for more than 60 percent of overall GDP. In service sector, Indian Railways play very significance role for upliftment of Indian economy. Indian railways is the world's fourth largest rail network and second largest rail network under the single management in Asia. Indian railways has been performing exceedingly well, during 2006-07, gross earnings went up by 14 percent to register US $ 18.19 billion as against US $ 13.25 billion in previous year, while passenger earnings accounted for US $ 4.19 billion, freight earnings accounted for US $ 10.16 billion. Total freight increased to 728.41 mt. during 2006-07 from 666.51 mt. in 2005-06. Indian Railways is very important part of service sector, which provide effective and direct services to the Nation and its population. Therefore purpose of this paper is to give present scenario of service sector specially focuses on Indian Railway in this concern paper elaborate the importance of Indian Railways in service sector, services provided by the Indian Railways, it's contribution in GDP of India and measure the performance of service sector. Furthermore paper try to summaries the GDP growth and share of service sector in it's percentage.

Research Scholar, Faculty of Commerce, B.H.U., Varanasi-221005.

Indian Railways: The backbone of Service Sector

*

Sarika Sharma

The services sector, also referred as the tertiary sector, is the largest of the three constituent sectors in terms of contribution to GDP in India. The service sector comprises of trade, hotels and restaurants, transport, storage, communication, financing, insurance real estate, business services, community services (public administration and defense) etc. The service sector provides services of final consumption nature as well as intermediate nature, the latter accounting for a major share. Substantial part of services such as transport and communications is in the form of intermediate inputs of production of other goods and services. Initially in 1980s when the services sector emerged as the main contributor to GDP, it was attributed to the dominant role played by the public sector and rise in the pay an allowances of workers of public sector in the after math of implementing new pay scales recommended by the fifth pay commission. However the import of the liberalisation of trade and industrial policies since 1984 also appears to have resulted in services growth. In addition to this, growing urbanization has also contributed to the growth in services sector. Service sector in India today accounts for more than half of Indias GDP. According to data for the financial year 2006-07, the share of services, industry, and agriculture in India's GDP is 55.1 per cent, 26.4 percent and 18.5 percent respectively. It is fact that the service sector now accounts for more than half of the GDP marks a watershed in the evolution of the India economy and takes it closer to the fundamentals of a developed economy. Services or the "tertiary sector" of the economy covers a wide gamut of activities like trading, banking & finance, infotainment, real estate, transportation, security, management and technical consultancy among several others. India is the 7th largest country in terms of its geographical size. Indian Railways is the world's fourth largest rail network and second largest rail network under a single management. This means, there is a need for efficient means for longdistance transportation. The long-distance road network is very poorly developed in

Research Scholar, Faculty of Commerce, B.H.U., Varanasi-221005. 1

most parts of India. Bulk of long distance traffic is carried by the Indian Railways, as a result. Indian Railways therefore, forms the backbone of public transport in India. With ever-increasing number of people and goods that use Indian Railways, the cost of maintenance and expansion of existing infrastructure is burgeoning. Being a medium of mass transport, the railways can not afford to increase its fare to keep up with its growing expenses. There is an urgent need to look for ways to cut down its expenses, increase its efficiency, and look for ways to cut down its expenses, increase its efficiency and look for additional sources of revenue, which will guarantee that Indian railways continues to serve the public without any degradation of service. Indian Railways is the primary means and long distance travel for majority of Indians.

Performance of Services Sector in India

Indian economy has registered a highly impressive growth during the fiscal year 2005-06 sustained manufacturing activity and impressive performance of the service sector with reasonable support from the recovery in agricultural activity have added greater momentum to this growth process. Indian Railways is also the worlds fourth largest freight carrier, daily carrying 1.49 million (mt) of freight. Contributing to the development of India's industrial and economic landscape for over 150 years, it accounts for about 2.3 per cent of GDP and employees about 1.5 million people directly. India Railways has been performing exceedingly well. During 2006-07 gross earnings went up by 14% to register US $ 15.19 billion as against US $ 13.25 billion while passenger earnings accounted for US $ 4.19 billion (13.8 per cent growth) freight earnings accounted for US $ 10.16 billion. Total freight increased to 728.41 mt. during 2006.07 from 666.51 mt. in 2005-06. Its impressive performance has resulted in the generation of a cash surplus before dividend of US $ 4.9 billion, up 37 per cent against US $ 3.58 billion in 2005-06. Railways also paid a dividend of US $ 1.03 billion in 2006-07 against US $ 93.34 million in 2005-06. Simultaneously, the operating ratio of Railways has improved to 78.68 per cent during the year 2006-07 from 83.72 per cent in 2005-06 making Indian Railways a member of the selected club of Railways in the world, having an operating ratio of less than 80 per cent.

Table-1 Growth rate of Service Sector (from 2001-02 to 2005-06) in India

Year Trade, Hotel, Transport & Communication (%) 9.2 9.1 12.0 10.6 11.5 Finance, Insurance, Real Estate (%) 7.3 8.0 4.5 9.2 9.7 Community Social & Personal Services (%) 3.9 3.8 5.4 9.2 7.8 Total Services GDP (%) 7.1 7.3 8.2 9.9 10.0 Total GDP at Factor Cost (%) 5.8 3.8 8.5 7.5 8.4

2001-02 2002-03 2003-04 2004-05 2005-06

Source: Services, Quarterly Review of the Economy November, 2006.

Table-2 Composition of Services Sector and its share in GDP

Year Share of trad, Hotel, transport and Communication in Services GDP (%) 45 46 48 48 49 49 Share of Financing, Insurance's, real Estate and Business Services in Services GDP (%) 26 26 25 25 25 26 Share of Community Social & Personal Services in Services GDP (%) 29 27 27 27 26 25 Share of Service in GDP (%)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

50 52 52 53 54 54

Source : Services, Quarterly Review of the Economy, November, 2006.

Table-1 contains figures on the annual growth rates of GDP at factor cost service sectors and its three constituent categories from 2001-02 onwards. Growth rates recorded by three components of services viz. (a) Trade, Hotel Transport & Communication, (b) Financing, Insurance, Real Estate and (c) Community, social and personal service are also given in Table-1. First, the services sector on aggregate has been registering as much as or higher rates of growth than that observed in GDP. Trade hotel, transport and communication segment of services sector has always been registering higher growth rates than the other two segments
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of services. Community social and personal services segments has relatively lower rates of growth among the three segments. Table-2 elaborate the contribution of services sector (excluding construction which is sometimes grouped within services sector) to GDP it's increased from 50 percent to 54 percent between 2001-02 and 2006-07. During the same period, share of Trade, Hostel, Transportation and communications segment in total services increased from 45 percent to 49 percent while the share of other two segments have come down. The pattern is not surprising given the relatively sharp rise in the telecommunications sector in the recent past.

Public Services obligations of Indian Railways:

Railways is the most important means of land transportation because of its speed and safety. It is a useful mean of transport for carrying cheap, bulky and heavy articles over long distances. The use of Railways, as a mode of transport, dependents on physical factors like topography and climatic conditions of a region. The cost of providing railway service in plain region is less as compared to hilly areas because of the high cost involved in digging tunnels. The development of railways is also difficult in areas of heavy rainfall and snowfall throughout the year. Railways assist to accelerate the process of industrialization in many countries. The stage of economic and industrial development of a country can be judged from the adequacy of the rail network in it. The railways are large-scale surface transport industry with heavy capital investment. The capacity of railways to carry passenger and goods is much larger than road transport. Railways transport is an important and inexpensive mode for economic exploration of natural resources in India. It has their own separate track and wagons to carry passengers and goods. The movement from one track to another or in the reverse direction can only be made where facilities for switching or crossing loops have been provided. The movement of goods and passengers in railways transport take place at fixed points provided for the purpose, i.e. at terminal stations or in the sidings, where they have to be brought by road or other modes. Railways transport
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increases the competitiveness of products in the market by reducing transportation cost. The industrially developed countries have developed well-planned railway network in their countries to optimize the utilization of their resources by cutting down the transportation cost this mode of transport offers an excellent opportunity to do so. Besides their role in fulfilling economic and plan objectives, the railways have to undertake a number of obligations to the public. They have to do so because they are being managed by welfare govt. These obligations are stated below : According to section 27 of the Indian Railways Act 1890, railways have the obligation to provide reasonable facilities for receiving and forwarding the traffic offered to them without any undue preference. Thus, the railways can not normally refused to carry and goods offered to them or discriminate between what to carry and what not to carry. Such obligations are not substance in other modes of transportation. Until January 1962, the responsibility of the Indian Railways, as a carrier was limited to that of a bailey only. But, now the railways have assumed greater responsibility for the loss, destruction, damage, deterioration, etc. of animals or goods delivered to them for carriage. Under section 27(a) of the Indian Railways Act, the central govt. may direct any railways administration, in the public interest, to give preference to the transport of such goods or class of goods as may be specified. Such directions are generally given in respect of low rated commodity like coal, mineral ores for export raw materials for iron and steel industries. Manure, food-grain etc. Indian railways have to grant freight concession on a number of commodities to increase export. Social obligations of Indian Railways force it to provide certain services below the cost of operation. Essential commodities of mass consumption like sugarcane, salt, edible oil etc. are carried at low rates below cost. Fares of the short distance second ordinary class and season's tickets are much below their costs. In addition special concessions are extended to certain categories of people.

Services Provided by Indian Railways

The pattern of investment on the railways involves heavy outlays on railways tracks, signaling equipment as well as on the regular maintenance of these assets. Investment is required towards provision of terminal and transmission facilities, locomotives, various types of coaches and electric multiple unit stock. The track as well as other fixed facilities are generally used both for coaching (passenger and parcels) and goods traffic, which are the main constituents of rail transport. The railway is executing certain unproductive work such as transport of workmen to the site of work, movement of stores for operational purposes, movement of empty wagons to be made available at the loading points where traffic is offered, shunting in yards and at terminals. The cost of these services are included in public traffic cost and termed as Revenue Earning Traffic', and these expenses are included in cost of various functional groups/constituent element of rail transport. The railway transport cost can be classified as fully distributed cost, which represents the total expenditure in transport service, which can be quantified. Rail transport cost is the unit cost of each of its functions plus the cost of movement of a given commodity. In the railway freight structure, the following factors are taken into account while fixing the freight rate for a commodity. (i) (ii) (iii) (iv) Cost of Services Social costs of a commodity Ability of a particular commodity to bear the transport cost Loading and unloading characteristics of a commodity. Freight is the backbone of the Indian Railways and contributes more than 66 percent of this organizations earnings, even subsidising the losses it makes on passenger operations. The Indian Railways decided to adopt the use of information technology to improve the utilisation and maintenance of its rolling stock, for better capacity utilisation and increased output. Rail Transport Services Comprises of two categories of Traffic
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(a) Coaching (Passenger and Parcel traffic) (b) Goods (Freight traffic) (a) Coaching : Passenger traffic service This includes electric multiple unit transport services (computer services) and rail car service. The total expenditure on coaching service can be grouped as under: (i) Passenger (Terminal Service) This include expenses relating to facilities provided for booking of passengers, waiting rooms, platforms, shunting/marshalling of trains, provision and maintenance of coaching yards. (ii) Catering Services : Catering service includes expenses on refreshment rooms, restaurants at stations, dining car services, in the running trains(iii) Special Services : Reservation, enquiries, retiring room facilities, the expenses of conductor guards, TTEs and catch attendants. Line Haul Service : This services includes proportionate share of expenditure on traction, cost of train passing staff including guards, provision and maintenance of coaching stock and signaling. Luggage Parcel Service : These service include booking and delivery of luggage and parcels, loading and unloading from vans, transshipment, repackaging at junction stations, shutting of parcel vans at stations, provisions and maintenance of commercial sidings. (b) Goods : The railway freight transport comprises of the following functional groups : (i) Terminal Services This service include booking and delivery of goods, loadings into and unloading from wagons, and shunting the wagons from and to the marshalling yards. (ii) Line Haul This service can be subdivided into;
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i) ii)

Marshalling yards for formation and breaking up of trains. Transshipment of all goods at break of gauge and that of smalls from one wagon to another on the same gauge termed as repackaging of small and

(iii)

Line Haul from originating to destination stations.

Additional Services Offered to Railway Employees

There are some additional services, which can be offered to railway employees once the communication network is in place. We suggest in this section that the same communication infrastructure can be used to. Provide telephone service to all railway employees. It no longer has to maintain a separate telephone network of its own. Each office can have fax machines attached to some of the computers and the same network that railways will developed to inter connect various offices, can be used to send and receive fax providing telephone service is easy. A VOIP based PBX can be bought from a company like CISCO and the existing telephone can be connected to this PBx, which can talk to telephone exchange of railways using the railways network. Additionally a microphone and speaker can be attached to every terminal and terminal and the need for a separate handset for telephone disappears. Providing fax service is even easier. A fax machine can be connected to a computer that is connected to the railway network and using existing technology, it can fax a documents to any other computer connected to the railways network.

Conclusion
At present service sector in India account for more than half of India's GDP. According to the data of the financial year 2006-07, the share of services, industry, and agriculture in India's GDP is 55.1 percent, 26.4 per cent, and 18.5 per cent respectively. Now the service sector accounts for more than half the GDP i.e. 51% makes a watershed in the evolution of the Indian economy and takes it closer to the
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fundamentals of a developing economy like India. In the development of service sector Indian Railways is in the unique position to become the backbone of information transport in India making India one of the best nations in terms of communication infrastructure. Indian Railways is in a dynamic phase of growth with new initiative planned to capitalise on the existing gains and moving steadier and closer to the large objective of offering world class services to national and it's rank and file.

REFERENCES:
Journals 1. Alok Kumar Mishra, Indian Railways, Backbone of Information Transport in India, Oct. 15, 2002, p.2 and 11. 2. Services, Quarterly Review of the Economy, November, 2006, p. S1 to S3. 3. Suresh D, Tendulkar, Indias Growing Service Sector : Database Problems and Issues, Economic and Political Weekly, Sept. 15, 2007, p.3721. 4. Sl. Shetty, Status Paper on Database Issues of the Services Sector, Economic and Political Weekly, Sept. 15, 2007, p.3723. 5. Rajiv Sharma, Surendu Hazra, Sunita Chitakara, Measurement of GDP of Services Sector in the New Series of National Accounts Statistics, Economic and Political Wekkly, Sept. 15, 2007, p.3727. 6. Rail Transportation, Thursday, March 02, 2006. Websites: 7. http://www.ibef.org/economy/railways.aspx. 8. http://indiaonestop.com/economy-macro-viewhtm 9. http://www.iloveindia.com/economy-of-india/service-sector.html.