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ii" A"Report"on"Indian"Railway"Passenger"Services !

!

Acknowledgement

Apart from the individual efforts, the success of any project depends largely on the support,encouragement and guidelines of others. We take this opportunity to express our gratitude tothe people who have been instrumental in the successful completion of this project.

We would also like to thank our course instructor, Dr. Amarendu Nandy for giving usdirection and guidance throughout the course of this project.

! !

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A"Report"on"Indian"Railway"Passenger"Services" 1"!

! 1!

Contents'INTRODUCTION:!..........................................................................................................................................!2!

MAIN!FACTORS!INFLUENCING!DEMAND!.....................................................................................................!2!

Methodology!Adopted:!...........................................................................................................................!3!

Synthesis!of!data:!....................................................................................................................................!3!

Shortcomings:!..........................................................................................................................................!5!

PRICE!ELASTICITY!.........................................................................................................................................!6!

Methodology!Adopted:!...........................................................................................................................!6!

Synthesis!of!data:!....................................................................................................................................!6!

Shortcomings:!..........................................................................................................................................!8!

CONSUMER!PREFERENCES!..........................................................................................................................!8!

SUBSTITUTION!EFFECTS!.............................................................................................................................!10!

Purpose!of!the!questionnaire:!...............................................................................................................!11!

Outcome!of!the!survey:!.........................................................................................................................!11!

Synthesis!of!results:!...............................................................................................................................!12!

Inference:!..............................................................................................................................................!14!

DEMAND!AND!SUPPLY!............. ............. ............. ............. ............. ............. ............. ............ ............. ...........!15!

Methodology!Adopted:!.........................................................................................................................!15!

Synthesis!of!Data:!..................................................................................................................................!15!

Shortcomings:!........................................................................................................................................!17!

ANNUAL!PROFITS!&!NET!INCOME!.............................................................................................................!17!

GOVERNMENT!POLICIES,!SOCIAL!CONSTRAINTS!.......................................................................................!19!

CONCLUSION:!............................................................................................................................................!24!

References:!................................................................................................................................................!24!

!

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! 3!

Methodology'Adopted:'

We selected 3 days (say A, B & C) each representing a holiday, a weekday and a weekend

respectively. By selecting a particular train and noting the number of booked tickets before a pre-

defined timeline (say N days) from A, B& C , we collected the primary data from the IRCTC

portal. Care is taken to avoid regional biases throughout the study. Readings were taken from

trains running in Northern, Eastern, Southern, Western and Central India. Care is also taken to

avoid overlapping of factors influencing demand (ie. The dates are selected such that if A is a

holiday, it is neither a weekday nor a weekend.)

Synthesis'of'data:'

Tier 1 cities:We identified the factors influencing the demand in Tier 1 cities to be holidays, weekdays,

weekends and national emergencies (like Mumbai blast and Bangalore unrest). From the primary

data collected from IRCTC portal, the impact of these factors is found to be as follows:

Since the major portion of the consumers in this region belongs to floating population, holidays

prove to be the major driving force of demand in Tier 1 cities contributing 40% of the total

demand.

Holiday!40%!

Weekday!27%!

weekend!33%!

Tier"1"ci;es"

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4" A"Report"on"Indian"Railway"Passenger"Services !!

! 4!

But at the outbreak of emergencies like Bangalore unrest, the demand peaked from the normal

values to a significant amount. The effect of its impact is found to be:

Tier 2 cities:

The factors influencing the demand in Tier 2 cities are found to be holidays, weekdays,

weekends. The impact of each factor is found to be:

Same as Tier 1 cities, holidays prove to be the major driving force of demand in Tier 2 cities

contributing 45% of the total demand.

0!1000!

2000!

3000!

4000!

5000!

6000!

Holiday! Weekday! weekend! Emergency!

d e m a n d o f ; c k e t s

Impact"of"emergencies"on"Tier"1"ci;es"

Holiday!45%!

Weekday!

25%!

weekend!30%!

Tier"2"ci;es"

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! 5!

Tier 3 cities:

The factors influencing the demand in Tier 3 cities are found to be weekdays, weekends and

festivals. The impact of each factor is found to be:

Festivals are the driving factors of demand in these cities contributing about 46% of the total

value. This is inferred from the demand hike seen during the days of Diwali & Dasara. And the

demand is more or less the same during the weekdays and weekends. This can be attributed to

the fact that there are no near substitutes available for this product. Adequate supply, poor roads

and low fares adds value to the product.

Shortcomings:'

The dates are selected such that if A is a holiday, it is neither a weekday nor a weekend. We tried

our best in accomplishing this. But because of the constraint that details on ticket availability are

available only for the span of 5 months, overlaps have occurred in some samples.

Fes\vals!

46%!

Weekday!26%!

weekend!28%!

Tier"3"ci;es"

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! 6!

PRICE'ELASTICITY'

The price elasticity of demand measures the percentage change in quantity demanded that occurs

in response to a 1% change in price of the product. Denoting quantity and price by Q and P ,

Price elasticity of demand, Ep is represented as

Ep=(% Q)/(% P)

where % Q means percentage change in Q and % P means percentage change in P.


We have determined the elasticity of price in the following two ways:

1. By taking into account the number of people who have the willingness and ability to

book tatkal tickets when normal tickets are not available.2. By approximating the utility offered in 2 tier AC and 3 tier AC classes to be the same

and finding the change in quantity demanded with change in price.

The relevant data are collected from the IRCTC portal.

Synthesis'of'data:'

Method 1:

From the data collected from IRCTC portal, the following approximations are made in order tomake a sound comparison. Consider as per the data, 105 [total availability + waitlisted tickets]

consumers buy normal ticket which is priced at Rs.100 and 10 consumers buy tatkal ticket which

is priced at Rs.150. Let us consider the total availability of normal and tatkal tickets to be 100

and 60. So, the demand to supply ratio is 105/100 in case of normal ticket and 10/60 in case of

tatkal ticket. In order to make the denominators equal, the following methodology is followed.

10/60 = 16.66/100

So, the modified ratios used are 105/100 and 17/100.

By analyzing the collected data, the demand curve is found.

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! 7!

The quantity demanded is 5101 when the price is Rs.520. This quantity drops to 2522

when the price rises to Rs.600. So, the price elasticity of demand is found to be

Ep = ( % Q)/(% P)

= (P/Q)*( Q/ P)

= - (520/5101)*(2522/80)

= -3.21

Method 2:

From the data collected from IRCTC portal, the demand curve appears be as follows:

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! 8!

The mean value of 2 tier AC ticket samples considered is Rs.1043. Similarly, the mean

value of 3 tier AC ticket samples considered is Rs.826. the quantity demanded decreases from

1669 to 720 as price increases from Rs.826 to Rs.1043.

Ep = (% Q)/(% P)

= (P/Q)*( Q/ P)

= - (826/1669)*(949/217)

= - 2.16

It is also found that for a travel of distance greater than 700 kms (approximately a journey

of 10 hours and more), 3 tier AC is being considered as an inferior good. More people prefer 2

tier AC when compared to 3 tier AC even though the price is higher.

Shortcomings:'

Even in trains where the SL class tickets are waitlisted till 300, tatkal tickets remain

unsold. It cannot be completely attributed to the fact that consumers are not willing to pay more.

The fact is that many consumers are ignorant about the availability of tatkal tickets.

CONSUMER'PREFERENCES'

Due to varying purchasing power, not all can sustain an AC-1 or an AC-2 class of a train always.

But by large, railway attempts to offer mobility to low-income segments of society by keeping

rail fares at uneconomically low levels which have often led to the physical deterioration of the

rolling stock due to a lack of funds for new investment. It is a perfect example of economies of

scale. Price constraints are inevitable in the Indian framework. We have tried to analyse all this

covering majority of our country. In one of the cases, AC-3 class was chosen when we carried

out our analysis because majority of the trains have an AC-3 class. As many as 22 trains across

the country were considered for this analysis covering the four regions of the country. Consumer

preferences were determined by assessing the effect of a day train vis-a-vis a night train. It so

happens that few people prefer a night journey so as to have a comfortable journey in terms of

sleep which might be contrary to some. Also, the no of stoppages

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! 9!

(Duronto/Rajadhani/Shatabdi/Superfast/ Express) as a variant was taken into consideration

keeping all other factors are same. The same process was replicated for the sleeper class.

We took a further step by checking the airline and bus services on these routes at those dates.

Analogous to common beliefs, buses and airlines did not go full. So at large, the consumers feelit is reasonable to travel by train. Airlines are preferred when the distance is quite large and the

difference between the air ticket and railway ticket is comparable which is unrealistic. Even

though fares were increased in the recent railway budget, we find that this did not have any

impact on the demand. Such is the enormity of demand in this country. But given a choice

between AC-3 and AC-2, it was observed most people do prefer AC-3 for a start as people said

they found the services in both classes quite comparable.

Among the 22 trains which were considered, three trains(Falaknuma express, East coast express

and Amravati express) running from Howrah to Bhubaneswar gave a clear idea about the effect

of day/night journey, no. of stops and the time of journey on consumer preferences.

Falaknuma express and East coast express are both day trains. Yet people preferred Falaknuma

express to the East coast express because the no, of stops made my Falaknuma express is 5

which is considerably less than East coast express 17. Also the duration of journey is lesser by

20%. Amravati express has the same no. of stops, almost the same fare and duration of

journey(6hr 20min), but has more demand than Falaknuma express. The only difference between

these two trains is that Amravati express is a night train. So, over particular distances it its

observed that people prefer night travel. But no such conclusions can be drawn on consumer

preferences for longer distance trains.

In the case of Brahmaputra mail and Rajdhani, two trains running from Delhi to Patna covering a

distance of around 1000 km, Brahmaputra mail has 11 stops compared to the Rajdhanis 4 andthe journey time is almost 3hrs longer. But still it has more demand because the fare is

considerably less at Rs.914 while ticket price in Rajdhani is Rs.1230.

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! 10!

SUBSTITUTION'EFFECTS'

As we know that Indian Railways is a monopoly but not a pure monopoly. Thereby, we have

tried to work on this aspect of the Indian Railways. The process of measuring the effect of

substitution is described below:

Surveys were taken, both in person from the localities in Khelgaon and also using the social

networking sites catering to different segments of the society. The segments were divided under

the following sections:

1. Age

By considering age we tried to determine the target segment in which the services were provided.

This led to a clear understanding as to which age group preferred what.

2. Gender

Males are more robust in nature than women. So obviously this would have an impact when they

chose the options while filling the survey,

3. State

People from different regions are sometimes inclined to choose a particular service despite

variations in price of the substitutes. So we wanted to gauge what effect a persons domicile had

on his preference and hence led to varying price elasticity.

4. Annual Income

Income is the most significant factor as it relates to the purchasing power of the individual.

Appropriate care was taken when it was filled by people who were not earning as their

preferences might be influenced by their sources of income.

5. Preferences for a short distance journey

This question inquired about a general response to what people would choose when travelling a

short distance. We have included car just in this question as when we surveyed people in the

localities of Khelgaon, they were hesitant to go for any other passenger service if they had car at

their disposal.

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! 11!

From now on, the services considered were railway, bus and airline. The question title is self-

explanatory.

6. Preferences for a short distance journey varying prices for the different services.

7. Preferences for a medium distance journey

8. Preferences for a medium distance journey varying prices for the different services.

9. Preferences for a long distance journey

10. Preferences for a long distance journey varying prices for the different services.

Purpose'of'the'questionnaire:'

The questions were so framed to bring out the best responses to calculate price-elasticity, cross price-elasticity. For example, we fixed the railway price and varied the bus price to calculate the

price elasticity due to the substitution effect in some cases whereas in some the same process was

applied with respect to airlines.

Assumptions made:

Besides the considerations made in terms of the questionnaire, there are few assumptions that

were made. The list includes:

1. Some people prefer car for distances up to 1000km just for the love for driving.

2. Airlines are sometimes not preferred when the airport lies well far off from the outskirts

of a city for medium distances.

3. Airlines ideally would not have a significant impact on distances less than 750-900km.

Outcome'of'the'survey:'We now look towards the outcome of our survey and calculate the cross price elasticity.

The Cross-Price Elasticity measures the rate of change of quantity demanded of one good, due to

a price change of another good. If two goods are substitutes, we should expect see consumers

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! 12!

purchase more of one good when the price of its substitute increases. Similarly if the two goods

are complements, we should see a price rise in one good cause the demand for both goods to fall.

As already mentioned earlier the cross price elasticity for train is very inelastic due to a very

large difference between the quantity demanded and quantity supplied.

Synthesis'of'results:'

1. The floated online survey attracted 27 respondents.

2. Out of the 27 we had respondents across the age matrix decided. The distribution of the

population age is show in the graph below.

3. We had 78 % male and 22 % female representation.

4. As per the results the respondents represented all the geographical regions.

5. The respondents were across the salary matrix varying from the Lower class, middle and

upper class.

0!

5!

10!

15!

20!

25!

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! 13!

4. For the distance less than 300 kms. it was found that they train journey had an relatively

elastic demand, in this case the other means of transport like Car and Buses were a good

substitute.

5. For the distances 300-600 kms. it was found that the demand for the railway ticket was

highly inelastic. Here flight is evident to be an inferior good. The cross price elasticity

was found to be 0.0058 (with respect to bus fares only).

0!1!2!3!4!5!

6!7!8!9!

10!

0^2!lacs! 2^4!lacs! 4^6!lacs! 6^8!lacs! 8^10!lacs! 10!lacs!and!above!

N o o f r e s p o n d e n t s

Salary"

0%!

5%!

10%!

15%!

20%!

25%!

30%!

35%!

40%!

45%!

50%!

Bus! Car! Train!

p e o p l e p r e f e r i n g

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! 14!

0!

0.01!

0.02!

0.03!

0.04!

0.05!

0.06!

0.07!

300^600! 600^1000! >1000! c r o s s p r i c e e l a s ; c i t y

Distances"

6. For the distances 600-1000 kms. it again found that the demand was highly inelastic, with

calculated cross price elasticity to be 0.01. (with respect to bus fares only).

7. Similarly for 1000+ kms. consumers seem to be demanding train tickets only irrespective

of the fares of other modes of transport. In this case the buses become an inferior good

and are not preferred. Here also the demand is highly inelastic and in this case the cross

price elasticity was calculated to be 0.006 (with respect to the flight ticket fares only).

Inference:'

It is inferred that trains have very little substitution effects. The substitution effect is onlyobserved in the distances less than 300 kms. The demand is thus elastic for the distances less

than 300 kms and highly inelastic demand is faced by the train tickets for the distances greater

than 300 kms.

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! 15!

DEMAND'AND'SUPPLY'

Supply and demand is an economic model of price determination in a market. It concludes that,

the unit price for a particular good or service will vary until it settles at a point where the

quantity demanded by consumers (at current price) will equal the quantity supplied by producers

(at current price), resulting in an economic equilibrium of price and quantity. But in a country

like ours, where the population outweighs any other parameter resulting in a higher demand for

most of the normal goods and services, supply will naturally trail the demand. Railways being a

monopoly will find a greater amount of this effect on it. We nonetheless have tried to observe the

pattern in the entire country.


We selected five trains each from four different zones (north, east, south and west). Coverage of

all the zones leads to a clearer understanding and that is what we have tried to replicate. For each

of these trains we calculated the supply i.e. the number of seats available in three different

classes (AC2, AC3, and Sleeper). This way we got data for supply for a considerable section of

the society. The booking status for a particular class in a train gave an idea about the demand.

The aim was to arrive at conclusions regarding the variation in demand and supply across the

three classes and the different zones.

Synthesis'of'Data:'

We analyzed this data in two ways:

First we looked at how demand and supply varied across the four zones. It was observed that

demand is almost always greater than supply, except for one zone viz. East zone.

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! 16!

When the variation of demand and supply w.r.t the three classes was analyzed, it was observed

that there is not much difference between the three classes. This shows that the number of seats

allocated in each class, by the railways, is in the right proportion.

0!

1000!

2000!

3000!

4000!

5000!

6000!

7000!

South! East! North! West!

Supply!

Demand!

0!

2000!

4000!

6000!

8000!

10000!

12000!

14000!

16000!

AC2! AC3! Sleeper!

Series!1!

Series!2!

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But, the profits of Indian Railways can be visualized on an erratic and sort of declining track

after the handover of Railway ministry from Lalu Yadav to Mamata Banerjee.

In 2011-2012 Indian Railways earned 104,278.79 crore which consists of 69,675.97 crore

from freight and 28,645.52 crore from passengers tickets. Still the major part of operations cost

0! 1000! 2000! 3000! 4000! 5000!

2006!

2007!

2008!

2009!

2010!

2011!

2012!

Total!Expenditure!

Total!Income!

0! 200! 400! 600! 800! 1000! 1200!

2006!

2007!

2008!

2009!

2010!

2011!

2012!

Net!Prot!a er!Tax!

Net!Prot!Before!Tax!

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! 19!

is related to passenger trains but the share of profits hovers around less than 30% from the

passenger operations.

Another hurdle for IR is the Operation Ratio which figures above 90% in most of the fiscal

years, a model that caters to its social demand but non-profitable in the long run. The wagonturn-around time, which is still hovering around 5.2 days, is another factor to be worked upon.

GOVERNMENT'POLICIES,'SOCIAL'CONSTRAINTS'

State Ownership of Railways in India :

Government enterprises are may not necessarily be technically inefficient. For example, Chinese

Railways has been performing exceptionally well and matches the best transport models in the

world. However, as they have a recourse to maintain supply by government deficit financing, the

incentive to be cost-effective and the flexibility to users and their nominal demands is lacking.

The response to market conditions and efficient management with clearly defined goals is often

hampered by the interference from the government.

Consequently this leads to :

(a) Inadequate maintenance of assets catering to low-income segments with attempts to offer

mobility of society by keeping rail fares at exceptionally low levels have often leads to due to alack of funds for new investment and high operational ratio.

(b) Demand is always more than the supply regulatory protected monopolies usually fail in

their responsiveness to demands for expanded services or improved quality and security.

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! 20!

Since its inception in 1853 as a British-colonial organization with a 13-km track length,

Indian Railways (IR) has grown to be one of the world's largest railway networks comprising

115,000 km (71,000 mi) of track over a route of 65,000 km (40,000 mi) and 7,500 stations. IR

carries about 7,500 million passengers annually or more than 20 million passengers daily moving

across the length and breadth of the country. Its historic role in the Indias post independence

social and economic development is marvelous and well recognized.

The provision of railway infrastructure facilities and services by Indian Railways, with restricted

entry to the market, facilitates the achievement of multiple objectives of the government. For

example, protection of public interest and sentiments is perceived as the main goal of public

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! 21!

monopolies, which demands price and service regulation. In addition, there was often an

obligation placed on the state-owned railway companies to seek government approval when

catering to public demand.

IR as a Tool to Serve Social and Economic Development Objectives:

Indian Railways face dual crisis as it has to function as a commercial organization but the ruling

political parties also utilize it as a social and economic instrument of policy. Railway tariffs have

been used to fight inflation and win public sentiments for elections. It also caters as social safety

net and stabilizer for the economy. All these factors reduce the competitive advantage of the

Railways and diminish its financial viability. Moreover, social obligations to their employees

made it nearly impossible to reach any agreement on hassles or even wage issues.

It can be argued that the best way to align consumer needs and demand, with the provision of

railway services, in a manner, which promotes economic and financial sustainability, is through

competition. Many countries and their policymakers have concluded therefore, that the solution

to this myriad of problems can only be found in creating a competitive market based railway

industry, with private participation.

The Salient points which figured in Rakesh Mohan Committee report :

Recommendation StatusEminent threats and aims of reforms Unlikeliness of the government to

subsidize IR and competition from other modes of transport, like Bus, Flight etc. hasforced IR to adapt to the situation and

become more user friendly andcommercially viable organization.

Institutional Framework It has been IRs experience that theactivities which important by the profit

point-of view, but were given only peripheral importance, have benefitted a lot by the process of corporatization.CONCOR, IRCON, RITES, IRCTC are thesuccessful examples of corporatization of IR.

The market access for newoperators and separation of infrastructure management

No fruitful steps have been taken in thisdirection. Still there is no access for newoperators and no separation of operations

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! 22!

from railway operations and infrastructure management.

The financing of publicservice obligations

Although its operation ratio is high, IR generates sufficient revenues and their working

expenses and development needs aresuccessfully met.Improvisation of financial condition of Railway undertakings

Staff is the major cost driver of IR and amajor prerequisite for financialsustainance. RITES estimates 25% surplusemployees then the requirement. IR isreducing its staff by 2% per year to addressthis issue, and will be successful if itcontinues for a period of 7-10 years.

Partnerships with Private Sector Numerous models of PPP, FDI as prospective partners have been proposed

Key Reasons for the inefficiency of Indian Railways:

Misguided Intervention by the Governments Excessive Operating Costs due to overstaffing & inefficiency Perverse Management Incentives with lack of competition Lack of Dynamism & innovation

The Government of India, in response to this grave situation, created the Rakesh Mohan

Committee, to review the performances and recommend the optimal solutions to revitalize the

organization so that it could continue to be an essential component of the countrys transport

system.

Consumers can be divided into four different hypothetical segments:

The Opportunist:(10%)

They belong to the high-income segment upper class travellers and prefers flight over railways.

Mostly an opportunist travels by AC 1/2 Tier & Executive Class.

Comfort Seeker :(30%)

Generally middle-class travellers belong to the comfort seeker group and mostly travels in AC 3

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! 23!

Tier & Chair Car. They value comfortable travel even at a price.

Value Seeker:(26%)

Middle class family travellers who travel in sleeper class belong to this category. They want

comfort but does not want to pay due to lack of income, funds or perception.

Ends Seeker:(34%)

Lower class traveller, who values cheapest means of travel or travels without ticket belongs to

this class. He has no preferences or frills.

Consumer Perception of Indian Railways :

According to our survey results, the consumer perception of the Indian Railways was

disappointing. More than 75 percent of the consumers perceive Railways by its poor

performance and services. Only 25 percent of the consumers voted for it, of which 17 percent feltthat it is affordable. So the performance of Indian Railways is not commendable by any means.

Conusmer"Class"

Oppurtunist!

Comfort!Seeker!

Value!Seeker!

End!Seeker!

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CONCLUSION:'

From our study, we put forth the following recommendations, which would benefit consumers

and the Indian Railways as a whole. The number of trains could be increased keeping in mind

that the supply could be just below the demand. The deficit between the supply and the demand

should be decreased. Improvements in security measures are suggested in the wake of increased

theft reports. The quality of food supplied in the train could be improved.

References:'

1) http://irctc.co.in/

2) http://en.wikipedia.org/wiki/Indian_Railways

3) Pindyck,"Robert"S.,"Daniel"L."Rubinfeld" and! Prem"L."Mehta"(henceforth,"PRM)" (2009),! Microeconomics ,!Seventh!Edition,!New!Delhi:!Pearson!Prentice!Hall.

4) http://www.unescap.org/ttdw/Publications/TIS_pubs/RailwayRestructuring/RailwayRestr

ucturing.pdf 5) http://dspace.library.iitb.ac.in/jspui/bitstream/10054/1211/1/444230.pdf

6) http://irfc.nic.in/

Unreliable!

Chao\c!

Unhygienic!

Inconvenient!

Unfriendly!

Posi\ve!feedback!

Affordable!

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