India's railway, the world's largest, has progressed from being - for want of a better phrase - a train wreck of an organisation, to a business school case study that makes more money than Tesco.

Lalu Prasad, the Railway Minister, unveiled figures last month that would have been unimaginable even a few years ago. “The railways are poised to create history,” he said during a speech on the state-owned enterprise's finances that included a forecast of a record profit this year of more than £3 billion.

Mr Prasad, responsible for more than 1.5 million employees and 14 million passengers travelling between 8,000 stations every day, defied several pieces of wisdom established during the chequered 154 years of Indian Railways.

Most radically, he said that for the first time tickets would include the time of arrival - to encourage punctuality. He also cut freight rates and passenger fares by up to 7 per cent and announced further investment in rolling stock.

Until recently, when its coffers were down to their last £40 million, the railway was dismissed as being on a one-way track to ruin. “Indian Railways is on the verge of a financial crisis,” a government study concluded seven years ago. “To put it bluntly, the 'business as usual, low growth' will rapidly drive it to fatal bankruptcy.” Yet today it is sitting on a £13 billion cash pile. KPMG, the accountancy firm, says that it “evokes the admiration of internationally renowned institutions and companies alike”.

Commentators put it down to getting the basics right. “They did what business schools teach,” Premchand Palety, director of the Centre for Forecasting and Research in Delhi, said. “They analysed the railways and the competition. Ideas for improvement were taken from inside the organisation and from best practices abroad. They then came up with the mantra: ‘Run heavier, longer and faster trains.'”

Mr Prasad put his overstaffed workforce to work rather than risk his political career by making job cuts. Now freight trains are turned round in five days, compared with seven in 2001, meaning that 800 begin new journeys every day, with each of the extra 250 trips adding up to £7million to the bottom line. By increasing load and length, it added £800million to annual revenue.

“Trains were being overloaded illegally, [so] they thought why not do it legally,” Mr Palety said. Linking freight charges to the price of the goods carried has also paid dividends as commodities markets boom.

Similar thinking was applied to passenger trains, which have a target length of 24 carriages, compared with 15 a few years ago. If there are spaces in first class and second is oversold, passengers are upgraded automatically. The department has “stopped thinking of itself as a monopoly” and has cut fares to lure passengers away from the sub-continent's flourishing budget airlines.

Strong links have been forged with the Indian Institute of Management, in Ahmadabad, the country's leading management school, while senior staff have been sent to New York University's Stern School of Business, Insead campuses in France and Singapore and HEC Paris.

Mr Prasad, a lower-caste politician born in Bihar, one of the poorest states, is fêted now as a business visionary. This year is expected to be his last in charge. He has achieved a huge amount, but it is not quite a case of job done. Delhi's main station, for example, remains a deeply unpleasant place to disembark, while Bombay's could double for a post-apocalyptic world. Many platforms across the 39,000-mile network are not long enough and the highest-speed engines amble along at a sedate 62 miles per hour. In France they are nearly three times faster.

Even the cheerleaders share horror stories. When Mr Palety travelled from Delhi to Maharashtra last week, a journey that should have taken about 17 hours lasted for two days. “Yes, it was well-managed,” he says, “but at the end of the day it was an overloaded train.”

Number crunching

5.4bn

Passengers on India’s trains every year

900m

Passengers on Britain’s trains

62mph

Speed of India’s fastest train

125mph

Britain’s fastest train

1.5m

Employed by Indian Railways

1.3m

Employed by the NHS

Source: Times archives

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