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INDIAN RAILWAYS AND THE MOVE TO FULL ELE...

Philip C. Zerrillo...

Case

INDIAN RAILWAYS AND THE MOVE TO FULL ELECTRIFICATION: EXCEEDING THE GLOBAL BENCHMARK

Philip C. Zerrillo; David J. Sharp; Samriddhi Mukherjee; Rohit Kumar Kedia

ISB278 | Published September 24, 2021 | 8 pages Case

Collection: Indian School of Business

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Learning Objectives

The Indian Railways (IR), the country’s largest transporter, is considering a plan to fully electrify its network. The move will cut its fuel expenditure by a whopping 50%. However, the project will require a capital investment of INR 350 billion (approximately USD 4.9 billion1). The investment is beyond the normal capital that is available for annual investment, as the IR is not run with a profit mindset and has limited retained earnings. Therefore, the IR has to consider potential financing options. The proposed investment also requires the IR management to overcome numerous operational changes in areas such a rolling stock, crew, usage of fueling depots, training, disposal of usable diesel locomotives, etc. The electric-based platform appears to be where the industry is headed worldwide, and potential future cost savings may also be possible if the IR moves to this platform. The project would make India the first country in Asia to move to complete electrification, establishing it as a pioneer in the rail industry and boosting national pride. It would reduce the country’s reliance on imported fuels and help with the nation’s balance of payments, thereby advancing its economic agenda. A third non-financial but national objective of the project would be a significant reduction in carbon emissions. The board of the IR is tasked with examining various aspects of the proposed electrification project and deciding whether or not to approve the idea. The case requires students to make a decision as to whether or not the savings are worth the investment and resource allocation.

This case will help students- - Understand the costs and benefits, both direct and indirect, that are part of any comprehensive capital budgeting calculation. - Go beyond simple cost-benefit analysis and consider national policy and societal outcomes. - Evaluate the considerations around the adoption of one technology over another and the related changes, such as the potential impact of this technology on government priorities. - Utilize an opportunity to conduct a net present value (NPV) analysis