BCG and McKinsey advise India on railway finances

15 January 2015 Authored

To create a clear vision for the sustainable future of the Indian Railway, the Indian Railway Minister established a committee to assess how to best improve the revenue of the railway network. The committee, which consists of nine member including two consultants from The Boston Consulting Group and McKinsey & Company, recently returned with a recommendation to increase fares, engage assists, and diversify investment channels.

As it stands the Indian Railway services have seen a considerable decrease in their margins, with higher pension costs and salaries cutting into the government’s earnings. Now for every 93 spent it earns 100, and while the surplus in 2007-08 was Rs 11,754 crore (€ 1.5 billion), it is expected to be Rs 602 crore (€ 80 million) in 2014. In response to the decreasing surplus generated by the Indian Railways, Indian Railway Minister, Suresh Prabhu, announced the creation of a nine member committee on the 4th of December last year.

The committee, which is headed by the former Financial Services Secretary D.K. Mittal has been charged with examining the existing revenue structure and recommending ways to raise greater revenue for the public sector facing a mammoth financial crisis. In order to get a broad perspective on ways in which the revenue streams could be improved, the committee consists of a number of experts from a variety of economic sectors, including government officials, scientists and two members from The Boston Consulting Group (BCG) and McKinsey & Company.

BCG and McKinsey advise India on railway finances

Recommendations made

The committee recently returned with recommendations for Parliament for the 2015-16 Railway Budget, which include increasing the highly subsidised and loss-making suburban train fares gradually over time, as well as selling advertising and other branding measures on company assists. Another recommendation made was to task public sector undertakings (PSUs) with the execution of rail projects. “The PSUs should be given a free hand to raise funds from the banks and after completion of the projects, they would be handed over to railways,” explains a Railway Ministry official privy to the report.