Beruflich Dokumente
Kultur Dokumente
1
Manisha Karne*
ABSTRACT
Though it is unfashionable to talk about state intervention now a day, this paper wishes to
review the role of passenger state road transportation in India with special reference to
Maharashtra State Road Transport Corporation (henceforth MSRTC). State Road
Transport corporations (henceforth SRTCs) in our country have played crucial role of
providing the most economical and reliable access to mobility to the people of India .But
currently many of these SRTCs find themselves plagued by several problems, partly
external but largely self-inflicted. The problems faced by the SRTCs were accentuated
after passing of the Motor Vehicles act, 1989, which liberalized private bus operations.
With declining financial support from both Central and State Governments after
liberalization and in the wake of intense competition from clandestine operations, these
organizations have had to largely fend for themselves.
Maharashtra State Road Transport Corporation(henceforth MSRTC) has played
crucial role in the provision of public transportation services in Maharashtra. But over the
last few years, due to a variety of factors, particularly falling load factors and competition
from the private sector; MSRTC’s financial performance has shown a marked
deterioration. Whereas in the neighboring state of Karnataka, there was dramatic
financial turnaround after KnSRTC had been split into smaller organizations2.This paper
examines whether the organizational set up needs to be reorganized and what has been
the impact of reorganization that was introduced in the recent past on the basis of the
recommendations of the Upasani Committee.
1
The author is thankful to Prof. S. Sriraman of University of Mumbai and Dr. Vijay Mudgal of MSRTC for
their suggestions and valuable help.
2
After 1996-97, KnSRTC was divided into four smaller organisations viz. North West KnSRTC, North
East KnSRTC, Banglore Metropolitan Transport Corporation and Karnataka State Road Transport
Corporation , which remained the apex body.
* Reader, Department of Economics, SNDT University Mumbai
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1. Introduction:
Passenger road transport in India has always been predominantly under the domain of the
public sector. The Road Transport Corporation Act (henceforth known as ‘RTC Act’)
was passed by the Parliament in India in 1950. This Act advocated the nationalization of
passenger road transport services in States of the Union. Under the provisions of the
above Act, many States nationalized their passenger road transport services and thus
State Road Transport Corporations (SRTCs) came into being. Section 18 of the RTC Act
States that “it shall be general duty of the Corporation to exercise its power as
progressively to provide or secure or promote an efficient, adequate, economical and
properly co-coordinated system of road transport services”. Further Section 22 of the
same Act States that the Corporation shall act on “business principles”. Following on the
heels of the RTC Act was the Industrial Policy Resolution of 1956, which included the
passenger road transport industry in Schedule ‘B’. The industry was included in such a
category that was marked for being progressively brought under Government control
with the expectation that the States would take the initiative in establishing new
undertakings.
The process of nationalization of passenger road transport services in the State of
Maharashtra began in July 1948 when, initially, a departmental undertaking of the
Provincial Government with a fleet of 36 buses started operating on the Poona-
Ahmednagar and allied routes, which were later handed over to a Statutory Corporation
viz., Bombay State Road Transport Corporation (BSRTC).
Consequent to the bifurcation of the erstwhile Bombay State with effect from May
1, 1960, the Bombay Reorganization Act, 1960 made provision for the corresponding
bifurcation of the erstwhile Bombay State Road Transport Corporation into the
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Maharashtra State Road Transport Corporation (MSRTC) and the Gujarat State Road
Transport Corporation (GSRTC). After bifurcation and with the approval of the Central
Government, a notification was issued in June 1961 merging the Maharashtra State Road
Transport Corporation, State Transport, Marathwada and Provincial Transport Services,
1The Section 3 of the RTC Act provides that the State Govt. can establish Road Transport Corporation.
2
Nagpur formally with effect from July 1, 1961. Simultaneously, the jurisdiction of the
Maharashtra State Transport Corporation (MSRTC) was extended to cover the entire
State of Maharashtra.The current Status of MSRTC is provided in the Appendix I
• Falling load factor: Even though MSRTC operates along 100% nationalized
routes in Maharashtra state; it faces competition from private bus and maxi-
cab operators who operate stage carriage services in a clandestine manner
posing as contract carriage operators. Since these operators compete with
MSRTC only along its high density routes, MSRTC’s load factors have fallen
along these routes thereby affecting its financial performance. As can be seen
from Table 1, there has been a steep decline in load factor for MSRTC, from
around 70% in 1994-95 to nearly 56 percent in 2005-06.
Table 1: Decline in load factors in MSRTC
LF in LF in
Year Year
MSRTC MSRTC
1994-95 70.35 2000-01 59.76
1995-95 73.09 2001-02 60.05
1996-97 72.77 2002-03 58.99
1997-98 67.55 2003-04 55.98
1998-99 65.63 2004-05 56.20
1999-2000 63.55 2005-06 56.69
Source: MSRTC
• Excessive Governmental Control: In the RTC Act (1950), guidelines were laid
for the control mechanism between the Road Transport Corporations (RTCs) and
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the Government. While RTCs were allowed to tap various avenues of finance to
fulfill their investment requirements, the same required approval from the
respective State Governments. A major problem with this clause was that State
Governments were keen to use RTCs as a tool to further their political interests
rather than facilitate their financial autonomy. Moreover, the Act stipulated that
even in matters related to recruitment, State Governments would have a major
say. Most significantly RTCs did not even possess pricing autonomy. Failure to
comply with Government orders meant heavy penalties to the RTCs. Thus, this
flawed control mechanism between State Governments and RTCs was, to a large
extent, responsible for the deteriorating financial health of these RTCs.
• Heavy Tax burden: Since RTCs were corporations; they were required to pay
tax to the state in form of passenger tax, motor vehicle tax and so forth. The
MSRTC pays Passenger Tax for Mofussil services is 17.5@ and for City services
@ 3.5%. The rate of passenger taxation in Maharashtra is highest as indicated in
the Table no. 2 which gives the comparative picture for passenger taxation in
some other states. The rate of passenger taxation in Maharashtra is highest and
this has impacted MSRTC’s supply, both quantitatively as well as qualitatively.
The burden of Passenger taxation is indicated in Table 3 below.
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2002-03 2003- 2004- 2005-
Year
04 05 06
Rs. 17.05 21.50 26.46 34.91
Crores
Even the Motor Vehicle Tax paid by the corporation is higher than the private
operators. The tax disparity is not only burdensome but it is unjust from the point of
view of the services given by MSRTC. This tax disparity is indicated in the Table no. 5
below.
Table 5: Motor vehicle tax paid by the MSRTC and Private Operators
Type of Bus Tax paid by MSRTC per Tax paid by Private
bus per Year (in Rs. operatorsper bus per Year
Lakhs) (in Rs. Lakhs)
Ordinary Bus 2.51 1.40
Deluxe Bus 8.66 1.40
Air- conditioned bus 16.89 2.25
• Burden of social obligations. We have already pointed out in the context of fare
fixation that there are optimal pricing strategies. The optimal price to achieve profit
maximization will differ from that needed to maximize social welfare or sales
revenue. Whenever there is more than one objective to attain, some of these are
treated as goals while the others are treated as constraints. Section 22 of the RTC Act
stipulates that RTCs shall act on ‘business principles’. At the same time, it stipulates
that they function in public interest as well. Thus, the problem of SRTCs is one of
constrained maximization where the objective function is the revenue maximization
function based on fares while the constraints spell out the social obligations. This
inherent dichotomy in the act has led to a lot of ambiguity and confusion in
interpreting the roles and functions of RTCs.
Social obligations as far as MSRTC is concerned have basically been in terms
of provision of routes that are un-remunerative as well as concessions in fares to be
offered to certain Sections of the society. In the case of un-remunerative routes (which
are categorized as ‘B’ and ’C’ routes) in regard to MSRTC, it has normally been
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observed that these constitute more than 60% of the total number of routes. For instance
the yearly loss of “C” type operation is to the tune of Rs.224.39 crores (approx) during
2005-06. As MSRTC is guided by the service motive these routes are operated with a
view to provide minimum transport facilities to remote rural and backward areas often on
social and political grounds. Though this approach has earned MSRTC the credit of being
the ‘Lifeline’ of rural Maharashtra, there are significant implications. For example, ‘B’
routes are defined as ones where the variable costs are covered and only a part of the
fixed costs are recovered. This situation is just the reverse of that which occurs in
economic theory literature to explain the idea of a firm continuing to be in operation
when a part of the variable costs are covered in addition to fixed costs. In reality, an
organization cannot afford not to take care of variable costs only – a situation that occurs
at the expense of fixed costs, the consequence being running down of fixed assets. The
result is that there is little provision for replacement of the fleet let alone its expansion.
Further, there is no mechanism to find out the social cost that is incurred and to provide
clear guidelines as to who would bear the costs when such new routes are suggested.
As pointed out earlier, MSRTC too has to offer concessions in fares to various
Sections of the society. Generally it is observed that in MSRTC almost 72% of the
concessions are given to the students in different categories whereas 25% are given to
senior citizens. This provision by way of cross subsidization has imposed a heavy burden
on MSRTC over a period of time. Till very recently, the non-plan support (i.e.
compensation for subsidies) was arbitrary and minimal. However, an encouraging trend
has been that since 2000-01, MSRTC have quantified the costs of providing these social
obligatory services and the State Government is reimbursing the amount that MSRTC
incurs as a cost of fare concessions. The State Government has started giving explicit
subsidy for these social obligations. But it must be noted that the assistance does not
seem to be conditional upon the achievement of any measures of efficiency or
productivity earlier or even in the recent past. The fare concessions given in 2001-02 was
218.58 and in 2005-06 it amounted to 372.99 crore causing additional burden.
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• Inadequate Replacement of Fleet: Due to the inability of MSRTC to raise
timely finances, its replacement of fleet has been woefully inadequate. This has
further worsened its position in an intense competitive environment. MSRTC is
thus forced to operate with a fleet whose age is sub-optimally high thereby
resulting in frequent breakdowns. As pointed out in the Upasani committee report
the average age of MSRTC fleet is 6.7 laks kms as against stipulated life of
5.5lakh kms. The non-replacement of overage buses is a cause of concern as it
increases repairs and maintenance costs and reduces productivity
Vertically Integrated Organization: Like most of the other RTCs, MSRTC chose
to operate as a vertically integrated enterprise by owning and managing all allied
activities apart from its core activity of providing public passenger bus transportation.
Over a period of time it owned and operated a large number of depots, workshops,
terminals, bus body building units, tyre retreading plants and so forth. The weak
financial situation of MSRTC made the maintenance of these assets all the more
difficult. Owning and operating these allied activities, which had been justified on the
grounds of lack of specialisation in the country, no longer has any economic rationale
in the post liberalisation era of specialisation. However, the strong labour unions of
MSRTC, apart from a general reluctance to outsourcing has resulted in MSRTC
concentrating its attention needlessly on activities it could have outsourced at a lower
cost and hence reduced its operating cost, particularly personnel cost which
constitutes a relatively large share of 42% in total costs. This would have also
reduced the Staff Bus ratio, which currently stands at a relatively high level of 6.28 in
2002-03 and 6.67 in 2006 for MSRTC.
Thus the end result of all these problems was the MSRTC’s financial health
deteriorated year after year. The MSRTC has often pointed out to the burden of social
obligations, the existing organizational structure and the fare structure (controlled) as
being important reasons for their poor physical and financial performance. Further, the
growth in parallel operations of private vehicles in an unregulated environment that was
encouraged by a policy of liberalization appearing as amendments to the Motor Vehicles
Act, 1989 aggravated the problem as the MSRTC was not able to compete effectively
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with these parallel operations. This was due to the absence of a level playing field
considering the fare flexibility of the private operators and higher taxes paid by the
MSRTC which resulted in the poor financial situation that they are placed in today. The
financial performance of MSRTC for the period of 93-94 to 2005-06 is shown in the
Appendix No II
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inadequate. Therefore, MSRTC in February 1973 constituted the Administrative Set-up
committee under the Chairmanship of Mr. N.S. Pardasani mainly to examine whether
decentralization of day- to- day functions to appropriate regional set up would be
desirable and, if so, to indicate duties of such authorities to achieve optimum efficiency.
Since the Depot is a vital profit centre, it should become the “unit of accounting”
and should function as autonomously as possible. The Pardasani Committee
strongly opposed the introduction of a regional set-up in the structure since they
believed that this would lead to problems. But despite this view, the regional set –
up was introduced in the MSRTC thereby making it a four-tier organization.
Thus, an important recommendation of the Pardasani Committee i.e. of
decentralization of functions and powers to lower levels was not adopted by
MSRTC and it continued to be a highly centralized organization.
In September 1985, the Government of Maharashtra constituted another
Committee of experts under the chairmanship of Dr. P.G. Patankar to study, in depth, the
present organization structure of MSRTC with a view to streamlining it so as to ensure
effective decision-making and also monitoring of organization of operational efficiency.
In the view of the committee, the centralized and tall organization structure with four
hierarchical tiers in management without adequate and uniform decentralization of
powers could be ineffective and costly.
After taking a comprehensive overview and making a comparative analysis of
productivity levels in different SRTCs vis-à-vis relative positions of the four regions of
MSRTC, the Patankar Committee recommended that MSRTC should resort to
decentralization of authority- delegating more and more powers for operational activity at
the divisional and depot levels. But such decentralization, it was suggested, should be
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within the framework of the centralized policy making body, and a centralized
administrative set-up with minimum number of operational tiers for effective line of
control. The Committee based its recommendations on the basis of its conclusion that
breaking a single Corporation for the entire State between two or more Corporations on a
regional basis will not necessarily give desired improvement in the quality of
management.
Both Paradasani Committee and Dr Patankar Committee did not recommend division
of the Corporation in to smaller corporations. Their emphasis was mainly on up-gradation
of skills, decentralization of administrative work, delegation of powers and authority to
strengthen depots and divisions, improving quality of recruitment, proper planning,
and appointments of Professionals on board including that of Chairman and Managing
Director and non-interference by the Government etc. It should be noted that like
Paradasani Committee Dr. Patankar Committee had felt that once Depots and Divisions
were strengthened, the regional set up should be redundant and can be done away without
any disadvantage whatsoever. It was felt that the posts of
Regional Managers who are not accountable to Corporate Office for profit or loss should
be abolished as their duties being only supervisory and advisory.
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State has to take immediate action. The main highlights of the recommendations made by
the committee on this issue are as under.
• Control on clandestine operations
• Due to the growing urbanization and the competition from other modes of
transport, there is an urgent need for MSRTC to revamp its operations.
• Review of losses made by some depots and to avoid further losses operations with
the help of hire –purchase agreement for operation can be considered.
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tier organisational structure. Karnataka has four Corporations, while in Tamilnadu,
there is a separate company for each district to manage transport services.
The experience of MSRTC of working of a 4-tier organisational set up shows
that in initial stages the Regional set up having considerable delegated powers of the
Central Office functioned very well. Later on number of restrictions was placed on
the exercise of these powers either by the Central Office or by the Board or because
of the general policy instructions given by the State Government. One of the main
reasons why the decentralized set up could not achieve expected results was because
of the existence of the Central Office manned by officers of higher rank who
continued to call for information and issue directions on matters which were
delegated exclusively to the Regional offices. Even the matters, which are within the
scope of day to day management like framing timetables, appointment of personnel,
transfers of unit cadre staff etc. were interfered with. All this resulted in reduced
responsibility of the Regional office and diluted the authority given to the Divisional
Office and resulted in lack of control and indiscipline. It was strongly felt that
the Regional set up has failed to serve the purpose for which it was created. For
instance in the year 2001-02 the MSRTC has spent a sum of Rs 8.37 crores on six
regional offices. Reduction of one tier could be achieved either by eliminating
regional offices and retaining one single large corporation or by eliminating Central
office and its associate offices and creating three separate Corporations by suitably
combining the operations of contiguous geographical areas. There was also a feeling
that the advantages of a large single corporation far outweigh the likely advantages in
splitting the operations in three corporations. It was also felt that establishment of
independent regional corporations or district wise companies or corporations or
subsidiary corporations would not only result in increase in overheads and
administrative costs without any commensurate operational benefits but also the
financial viability of such companies or corporations was doubtful.
The Karnataka‘s experience needs to be noted here. After splitting of the
KnSRTC, there has been a spectacular improvement in its performance. However the
improvement was also due to other factors like the full support extended by the
government in handling the labour relations, 14% reduction in passenger tax,
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charging a concessional sales tax at the rate of 5% on all purchases except oil, cement
and steel, made by Karnataka Corporation. This experience brings out clearly that
organizational restructuring if supported by other relevant steps can lead to positive
changes in the organization’s performance. So after taking into considerations
different aspects related to organizational structure, Upasani committee made certain
recommendations for organizational restructuring of MSRTC.
• The Committee recommended that as a first step MSRTC should eliminate the
Regional se up and Central Units like Kurla Stores, Central Stores Purchase
Organisation and to empower all Divisions and Central Workshops and make
them accountable for financial results also. Such an exercise would result
reduction in staff and staff cost as well as down sizing of administrative and
workshop organization structures.
• A long term plan has to be made for establishing new system and procedures and
modification of some of the existing systems and procedures in view of the
decentralization and organizational restructuring.
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as indicated by Upasani committee. This organizational restructuring though only
partially has been accompanied by number of measures to raise revenue were also taken
by MSRTC. Some of the new services started were introduction of Air-conditioned
Deluxe Buses on high density routes, introduction of Mini buses and Midi Buses to curb
the clandestine operations, Annual concession travel card system, Janata Bus service,
improved passenger amenities, Travel as you like scheme etc. Along with this certain
supplementary measures such as computerisation in Reservations, Accounting and
computer training for employees were introduce to improve the operational
administrative efficiency of MSRTC. The Corporation has taken measures to improve
fuel efficiency and there is encouraging outcome as the KPTL and KPL shows
improvement as shown in the table 6 below.
3
The Upasani committee(2003) was of the view that the results of reorganization will begin to appear only
in the third year.
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No
1 % Fleet Utilization 93.16 95.47 94.16 93.96 94.11
2 % load Factor 56.59 56.20 55.98 58.99 60.05
3 Vehicle Utilization 321.30 323.45 317.73 311.85 308.20
4 Effective Kms (In 172.14 179.76 176.52 176.56 178.27
Crores)
5 KPTL (HSD) 48.93 48.54 48.07 47.63 47.02
6 KPL(Engine oil) 928 874 788 724 660
7 Gross Revenue (Rs. In 3295.30 3263.45 2747.07 2727.51 2641.49
Crores)
Paise per km(EPKM) 1914.43 1315.45 1556.23 1544.77 1481.76
7 Total Expenditure 3329.93 3396.63 2927.11 2808.81 2711.02
in(Rs. Crores)
8 CPKM (in paise) 1914.54 1889.54 1658.23 1590.86 1520.77
9 Profit/Loss Excl. prior -34.63 -133.18 -180.04 -81.30 -69.53
period adjustment(Rs
crores)
10 Profit/Loss Incl. prior -37.29 -129.37 -205.07 -71.91 -55.38
period adjustment(Rs
crores)
One has to take note of the fact that there have been only partial efforts of
reorganization and the regional set up though now have become non-operational, the
regional offices still exists. The control of clandestine operations requires stringent policy
interventions and involvement of various authorities like the Road Transport Authority,
MSRTC and the State government. Hence controlling the clandestine operations is the
issue which remains unresolved. But despite of theses constraints, the efforts of cost
cutting through organizational restructuring, improving operational efficiency and
modernization has certainly helped in improving the EPKM, controlling falling load
factor and reducing losses over the last 2-3 years i.e. the period after Upasani
Committee’s recommendations have been partially implemented. In RSRTC, which too
had a highly centralized organizational structure like MSRTC earlier, there was
progressive improvement in physical parameters when re-organization was introduced in
1990. There was devolution of power to depot level and due to this novel scheme of
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designating each depot as a ‘profit centre’, which were given incentives for successful
achievements of the physical and financial targets set for the depots, the performance of
RSRTC improved substantially thereafter.
There is research finding which supports the need for implementing organizational
restructuring. This finding about the measurement of Technical Efficiency score by
using Malmquist Data Envelopment Analysis technique indicated that all the regions of
MSRTC are operating either on or very close to the production frontier.(Karne,
2004).Our findings indicate that though technical efficiency scores for the regions are
high, under a centralized framework for decision making, the imposition of targets,
financial constraints and the burden of social obligations have created distortions in the
functioning of these regions. Thus, a centralized framework is recognized as the major
cause of poor performance of this organization, which further implies this organization
requires restructuring.
The efforts of reorganisation will fail to bring desired results unless there is an
environment in which professional and competent managers are able to exercise
delegated authority and could be held responsible for the physical as well as financial
performance. Such structure can be created only if there is no state government
interference in day today operations. Hence, MSRTC needs to be given full autonomy
within the framework of RTC Act. If Memorandum of Understanding can be prepared
between MSRTC and State government it will give clarity to the mission and objectives
of MSRTC and targets to be achieved in performance and at the same time it will also
regulate the relationship between the government and the Corporation. To conclude ,If
MSRTC wishes the to maintain its status of life line of Maharashtra then there is an
urgent need to implement reforms in the near future and this would also set an example
for other SRTCs facing similar problems.
Appendix I
MSRTC at a glance
Established on 1st June 1948.
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No. of divisions 30
No. of depots 247
No/ of buses held 15445
Average No. of routes 16640
Average no. of schedules operated 13930
No. of villages served (directly) 41418
Total population served 1009.78 Lakhs (99.77% of total population) as on 31-03-2005
Daily Effective kms operated 48.36 Lakhs
Average daily passengers traveled 62.10 Lakhs
No. of central workshops 3
No. of divisional workshops 32
No of employees (including staff at central units) 102818 as on 31-3-06
MSRTC 1993-94 1994-95 1995-96 1996-97 1997- 1998-99 1999- 2000- 2001-
98 2000 2001 2002
Profit/loss 43.92 3.51 -3.17 -136.24 -88.37 -142.93 -156.31 -22.97 -69.53
(Rr. crores)
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