Expense based performance analysis and resource rationalization: Case of Indian Railways

With rapid economic growth in India, lot of emphasis has been given on railway infrastructure development in last few years. Indian Railways has been striving hard to bring down the costs and improve upon the operating ratio. The purpose of this study is to evaluate the efficiency performance of different railway zones and suggest cost saving strategies for its zones. The paper employs the Constant Return to Scale (CRS) and Variable Return to Scale (VRS) data-envelopment methods as well as performs sensitivity analysis with the set of variables to analyze the efficiency of sixteen railway zones over Indian Railways network. The study is based upon the data published by Ministry of Railways in Indian Railways Annual Statistical Statements. The results highlight the inefficiencies of different zones and suggest the changes that may be incorporated in inputs, by comparing the performance of underperforming units with that of best practice units. The study mainly suggests the importance of operating and working expenses as input parameters in benchmarking analysis while considering output in terms of passenger-kilometer and net ton-kilometers. Results obtained from Data Envelopment Analysis (DEA)-Malmquist Index show that technological innovation and staff management are important factors in cost reduction. The paper further highlights the important issues for consideration of different stakeholders in railway sector i.e. rail operators, policy makers, customers and infrastructure managers. The results give valuable insight on performance evaluation to Indian railway industry as well as comparable railway systems existing in other parts of globe.