Indian Railways looks to cut costs, faces hurdle from workers unions

A year back, in January 2017, the railway ministry unveiled ‘Mission 41K’ to save Rs 41,000 crore on expenditure over the next 10 years.

While that target would be primarily achieved by taking a slew of measures that include moving to electric traction over diesel and more usage of renewable energy, cost and wastage cutting measures like closing down many printing presses and getting rid of ceremonial expenditures. And these have come with associated heartburn.

“Railway Board have taken a decision to close down 9 out of 14 printing presses within a timeline of 6 months and continue with only 5 presses which have been recently been modernised. Consequent upon decision, we had two major challenges: (i) to meet with a timeline of closure/merger of 9 printing presses and manage the printing activities with 5 presses only,” details of a meeting of Railway Board held in August said.

Despite this decision of the railways to relocate the affected staff, the decision has been widely opposed by the workers’ unions.

To boost revenues, the railways is adopting all possible routes. It has set a target to garner Rs 3,000 crore from the sale of scrap this year, up from actual Rs 2,719 crore it realised during FY17 and against Rs 2,801 crore in FY16. But till July, Rs 838 crore have been realised, railways’ documents reveal.

As railways went for more gauge conversions, there has been higher scrap generation forcing authorities to monetise them at a faster rate. But some measures like the adoption of reverse auctioning and stopping the supplies of steel and wheels needed for making wagons are hurting the private players.

One of the innovative ways to bring down the cost is the adoption of a reverse auction currently being undertaken for the tender of procurement of 22,258 wagons, one of the largest of its kind ever done by the railways.

Earlier, wagon makers and component suppliers would put their own respective bids in sealed envelops, which were then opened by the authorities and the lowest bidder emerged the winner.

Under reverse auctioning, the prices are disclosed to every participant on an online platform and competitors compete to undercut each other.

During the auctioning, the bidder shall be able to view the bid start price, bid decrement value, prevailing lowest and the last bid.

“Whenever a lower price bid is received in the closing moment i.e. within 15 minutes of existing end time of the reverse auction, the end time of reverse auction shall be extended automatically by another 15 minutes. All participating sellers of that auction shall be notified by the GeM (Government e-Marketplace) system about the extension of time through email and SMS and they shall be allowed to submit the revised bid.

The same process shall be repeated, if there is another lower bid received in the RA during last 15 minutes,” the rules for reverse auction says.

This might ensure that prices would hit so low that it becomes uneconomical to produce the wagons whose prices have already hit levels in previous tenders where margins are wafer thin, say industry players on conditions of anonymity.

Officially, companies are tight-lipped as railways continue to be their key customer. “Reverse auction is now becoming the norm for wagon procurement and the railways adopting the norm was expected. But we don’t expect pressure on pricing as it depends upon demand and supply situation. If there are too many suppliers, prices are bound to fall whatever be the mode of tendering,” Texmaco finance director AK Vijay said.

There has already been another change in the auctioning process which would ensure lesser spending by the railways.

Earlier, wagon making was actually an engineering conversion job that required low working capital requirement, as railways used to provide all the steel required for building the wagons plus the wheels and bearings.

As a consequence, prices of, say, BOXNHL variety of wagons went up to Rs 24 lakh from Rs 11.52 lakh for the 2016 order.

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“Cessation of providing free supply items resulting in enhanced working capital requirement and intense competition are some of the challenges,” Titagarh Wagons said in its annual report.

Source: DNA Money