PERFORMANCE EVALUATION OF SRTCS WITH SPECIFIC REFERENCE TO COST MANAGEMENT

Transcription

1 INDIAN JOURNAL OF TRANSPORT MANAGEMENT PERFORMANCE EVALUATION OF SRTCS WITH SPECIFIC REFERENCE TO COST MANAGEMENT MAHALINGU and Dr J MADEGOWDA * 4 MAHALINGU Dr J MADEGOWDA ABSTRACT Though the State Road Transport Corporations are primarily service-oriented organisations, they are also required to function on business principles by their owner-governments and by the provisions of the Road Transport Corporations Act, The term 'business principles' implies the operation of transport services on profitable lines. Hence, the corporations are expected to operate their services more effectively, efficiently and economically. This is an important avenue available for the corporations to improve their economic and financial viability which in turn enhances their profitability. Against this background, the study is an endeavour to evaluate the cost effectiveness of State Road Transport Corporations. Key Words :- State Road Transport Corporations, Cost Management, Fuel Productivity, Kilometreage Cost, Cost Ratios, Operating Cost, Motor Vehicle Tax. * Shri Mahalingu is the Associate Professor and HoD of Commerce, Government College, Mandya and Dr J Madegowda is the Professor, Department of Commerce, Kuvempu University, Shankaraghatta.

2 JANUARY - MARCH 12 5 INTRODUCTION Movement of personnel and goods is an important need of mankind. With the population explosion and expansion of extensive economic activities, the demand for transport is growing exponentially. A good transportation system is, therefore, a pre-requisite for the overall development of any country. The fact that the modern economy is unimaginable without the transport service is an indication of its relevance, need and significance. India is the seventh largest country in the world in terms of geographical area of 3,287,263 sq kms and second in terms of population (1.21 billion as per the 2011 Census). India accounts for almost 17.31% of the world's population. This means that, one out of six persons on this planet live in India. The country has about 70% of its population living in about 5,50,000 villages in rural area. It has about 4.2 million kms of road network consisting of national highways, state highways, major district roads and village roads, and these make it the second largest country in the world in terms of road network. 1 The country with this size of a population, area to be covered and the country with a substantial increase in its economic activities needs a well developed transport system. Facility for the mobility of people and goods is provided by different modes of transport. As is known very well, important modes of transport are airways, railways, roadways and the waterways. Among the four modes of transport, road transport is the important mode catering to the needs of both passenger and freight transport. PASSENGER ROAD TRANSPORT AND SRTCs Road transport is a dominant and popular mode of passenger transport because of its special features such as easy accessibility, adaptability to individual needs, reliability, cost effectiveness and flexibility of operations. Moreover, it generates employment opportunities both directly and indirectly, and contributes sizeably to the state exchequer in the form of different taxes. The share of road transport in passenger segment has witnessed a quantum jump from a mere 15% in to about 87% of the total traffic by the end of the tenth Five-Year Plan (ie, by 31 March 07). The passenger road transport service is provided by both public and private operators. Public sector participation in the passenger road transport commenced with the enactment of the Road Transport Corporations Act, This Act enables the state and central governments to establish the State Road Transport Corporations (SRTCs). These state-run transport entities are in different forms such as undertakings, corporations, departmental undertakings and companies. Irrespective of the form, the transport corporations (herein after referred to as SRTCs or simply, corporations) provide transport service to the public. STATEMENT OF THE PROBLEMS The state-run transport corporations operate around 1,10,000 passenger buses with a total investment of about Rs 60 billion. Though these corporations have been successful in improving their performance over the years, there is no consistency in their performance. Further, they are more successful from the point of view of their physical performance than in their financial performance. The corporations have succeeded in improving their physical performance on a continuous basis which is evident from the details outlined in Table-1 :-

3 INDIAN JOURNAL OF TRANSPORT MANAGEMENT TABLE-1 : PHYSICAL PERFORMANCE OF STUs (05-06 TO 08-09) 6 Parameters of Physical Performance Fleet Utilisation (%) Vehicle Productivity (Kms Per Day) Passengers Carried Daily (Crore) Fuel Productivity (Kms Per Litre of HSD*) Man-Power Productivity (Kms Per Day Per Employee) * High Speed Diesel. Source :- State Transport Undertakings - Profile and Performance, to 08-09, CIRT. It is evident from the above that the corporations have succeeded in improving their physical performance from the point of view of most of the parameters year after year on a continuous basis. They have succeeded in improving vehicle kilometreage from kms during to kms per vehicle per day in 08-09, registering an increase of 14.4 kms per day per vehicle or by 4.72%. This assumes importance for two reasons - firstly, an increase in the revenue earning kms and secondly, reduction in some of the kilometreage costs such as the salary of crew members - both having favourable impact on the profit and profitability of the corporations. Similarly, fuel productivity has also registered a continuous improvement from 4.78 kms per litre of high speed diesel (HSD) in to 5 kms during 08-09, representing an increase of.22 km per litre of diesel or 4.6%. This is a commendable achievement if one considers the relative share of fuel cost in the total cost. Further, it has direct favourable impact on the profit and profitability of corporations as it improves their profitability. Manpower productivity has also improved perennially from 48.9 kms per day per employee in to 55.1 kms during accounting for an increase by 6.2 kms per employee per day or by 12.68%. This is also a significant improvement as the period cost (ie, salary of employees) spreads over a larger revenue generating km resulting in both the reduction in kilometreage cost and increase in the kilometreage profit. As far as other parameters (fleet utilisation and number of passengers carried) are concerned, though there has been an improvement over the years, there is no consistency. In spite of the above success, many corporations are incurring and reporting loss on continuous basis which is not convincing. These corporations have incurred and reported a loss of Rs per km during which increased to Rs in This may be due to the increase in the prices of input factors and/or their inability to manage their operating and non-operating costs adequately. Of course, unremunerative fare policy may also be responsible for this situation. Out of these three important factors, the second factor viz, cost management is taken up in this study for further analysis. This is because of the reason that the managements of corporations have full control over the majority of the items of operating and non-operating costs. It may be noted here that the term 'cost management' is used to mean either obtaining more output from a given amount of expenses or incurring a lower amount of expenses for a given volume of output or both.

4 JANUARY - MARCH 12 OBJECTIVES OF THE STUDY In the light of the above, this study makes an attempt to evaluate both the operating and non-operating costs to find out whether the corporations have been able to manage them properly. In order to achieve this primary objective, the following supporting objectives are set out for the present study :- 1) To study the relative share of operating and non-operating costs. 2) Utilising performance statistics, the study assesses the impact of personnel and material cost, taxes, depreciation, interest, and miscellaneous expenses on the profitability of the corporations. METHODOLOGY Passenger road transport is basically a service industry and its financial performance is influenced by the costs and physical performance. A study of the costs of the operation of transport services is vital as it shows the areas wherein the corporations have to concentrate for control and also for presenting a good case before the governments for at least annual and adequate revision of fares in the light of cost hikes. This also enables the organisations to minimise their costs by effective control and by efficient use of the resources. Minimisation of cost ensures financial viability of the corporations. For the purpose of detailed analysis of operating and non-operating costs, 19 corporations (including seven corporations from Tamil Nadu where their average cost details were used, Appendix-1) 2 are selected giving weightage to different parts of the country and also their size. Further, the study covers a period of five years from to The data required for the present study was collected from secondary sources such as publications of the Central Institute of Road Transport, Working Group Report on Road Transport for the 11 th Five-year Plan, articles, research papers, theses and books. Using the performance statistics of corporations selected for the present study, relative shares of each major element of cost to total cost are computed. Further, an important statistical tool viz, the Mean is used in this study. The method of analysis followed in this study is purely analytical analysing the performance of the corporations based on the performance statistics. COMPONENTS OF TOTAL COST Total cost which comprises of both the operating and non-operating costs is classified into six broad categories as Personnel Cost, Material Cost, Taxes, Depreciation, Interest and Miscellaneous Expenses. The Figure-1 presents the structure and composition of the costs of the SRTCs. COST, REVENUE AND PROFIT - A BRIEF ANALYSIS Costs can be analysed in both absolute and relative terms. An endeavour has been made to analyse in relative terms. Cost is one of the important variables which influences the profit and profitability. Its analysis enables the management to understand the nature of costs and also their relative share which in turn helps the management to exercise control over the costs. Before taking up the element-wise analysis of costs, it is necessary to obtain an idea about the cost-revenue-profit relationship. With this objective, the relevant data relating to different elements of costs per km, total revenue per km and profit or loss per km in respect of all corporations are presented in Table-2 covering five years from to

5 INDIAN JOURNAL OF TRANSPORT MANAGEMENT FIGURE-1 : COMPOSITION OF TOTAL COST OF SRTCs Personnel Cost 8 Operating Cost Material Cost Total Cost Depreciation Motor Vehicle Taxes Non-operating Cost Interest Miscellaneous Expenses TABLE-2 : KILOMETREAGE COST, REVENUE AND PROFIT (05-06 TO 08-09) Items Amount (paise) per Km Personnel Cost Material Cost Motor Vehicle Taxes Depreciation Interest Miscellaneous Expenses * Total Cost Per Km Total Revenue Per Km Profit/Loss Per Km * includes 35 paise per km of payment for hired vehicles. Source :- Calculations are made on the basis of the data extracted from the State Transport Undertakings - Profile and Performance, to 08-09, CIRT.

6 JANUARY - MARCH 12 9 It is unequivocal from the above that the corporations have achieved mixed results during the study period. In spite of the inflationary trend prevailing in the economy, the corporations have succeeded in lowering the kilometreage material cost during to Rs 7.76 from Rs in the previous year; and the kilometreage motor vehicle taxes during the last two years from Rs in to Rs during and to Rs in Similarly, miscellaneous expenses were lowered during to Rs.799 per km from Rs in In other years and with respect to different items of expenses, one can find a continuous increase from one year to another. For example, labour cost increased from Rs per km in to Rs 8.26 per km during Similar type of trends can be found in the items of other expenses also. However, an important aspect is that major items of costs registered substantial increase during when compared to For instance, labour cost increased from Rs in to Rs 8.26 per km during accounting for increase by Rs.751 per km or by 10%. It may be noted here that kilometreage labour cost increased by Rs.01 during when compared to which works out to just a.13% increase. Similar type of substantial increase in other major items of operating costs during when compared to can be found including the kilometreage total cost. As a result of changes in the items of costs, the kilometreage cost registered a continuous increase year after year. It increased from Rs in to Rs during representing an increase by Rs per km or by 13.68%. Similarly, the revenue per km also registered a continuous increase year after year - increasing from Rs per km in to Rs during accounting for an increase by Rs or by 14.97%. Of course, the rate of increase in kilometreage revenue is higher (14.97%) than that of the cost (13.68%). Still, the kilometreage loss increased marginally from Rs in to Rs This is due to the higher kilometreage cost (Rs ) on which the rate of increase in computed. Of course, the corporations succeeded in lowering the loss per km during to Rs from Rs during However, they did not succeed in lowering the loss further during instead they allowed it to increase to Rs during ANALYSIS OF OPERATING COST The analysis of operating and non-operating costs provides a sound basis for taking appropriate decisions relating to cost reduction and control. 3 The expenses incurred for the actual operation of the vehicles is termed as operating cost. It includes all the expenses such as staff cost, material cost, motor vehicle taxes, depreciation and payment to hired vehicles. Further, there are some other expenses not directly incurred for the operation of transport service but which are indirect in nature called non-operating expenses. Both the operating and non-operating costs are analysed in relative terms ie, by computing percentage to total cost, and used a statistical measure viz, the mean. The study of operating cost in percentage to total cost helps to know the share of it in total cost. Table-3 presents the data relating to Operating Cost to Total Cost Ratio and Mean Ratio for 19 corporations for five years.

7 INDIAN JOURNAL OF TRANSPORT MANAGEMENT TABLE-3: OPERATING COST TO THE TOTAL COST RATIO Ser Corporation Operating Cost to Total Cost Ratio (%) No Mean* 1 APSRTC MSRTC GSRTC UPSRTC KnSRTC RSRTC NWKnRTC NEKnRTC PRTC NBSTC BSRTC SBSTC OSRTC HRTC TRPTC DTC BMTC CSTC STUs of Tamil Nadu Average * Corporation-wise averages computed using the Operating Cost to Total Cost Ratios for five years. Source :- Operating Cost to the Total Cost Ratios for different corporations and different years are computed based on the data extracted from State Transport Undertakings - Profile and Performance, to 08-09, CIRT. An analysis of the contents of the Table-3 reveals the following :- 1) All the corporations have failed to reduce the Operating Cost to the Total Cost Ratio on a continuous basis year after year. 2) The corporations have been able to reduce this ratio during one year or the other when compared to the previous year. For example, Karnataka SRTC (KnSRTC) has succeeded in lowering the ratio to 92.14% during from 92.82% in 04-05, but failed to continue this trend in the subsequent year when it increased to 92.88%. Again, it lowered its ratio to during Similar type of inconsistencies can be observed in other years and for all the corporations selected for the present study. 10

8 JANUARY - MARCH ) But seven corporations have been able to reduce their ratio during to lower than that in For example, KnSRTC succeeded in lowering the Operating Cost to Total Cost Ratio to 92.36% during from 92.82% in Similar achievements can be found in the case of MSRTC, NWKnRTC, NEKnRTC, SBSTC, TRPTC and DTC. 4) Even the average for all the corporations selected for the present work has declined from 88.66% for to 87.39% during ) Further, it can be observed from the above that there are more number of corporations whose Operating Cost to Total Cost Ratio is more than the average for all the corporations in each of the five years of the study period. This becomes evident from Table-4. TABLE-4 : NUMBER OF SRTCs WHOSE OPERATING COST TO THE TOTAL COST RATIO IS ABOVE OR BELOW THE AVERAGE SRTCs Whose Operating Number of SRTCs Cost to the Total Cost Ratio is : Below Average Above Average From Table-4, it can be concluded that the effort of the corporations to lower their Operating Cost to the Total Ratio in any measure is appreciable. Further, even the number of corporations whose Operating Cost to the Total Cost Ratios are lower than the average for all the corporations has increased from 4 in to 6 during However, what is more concerned is their inability to maintain this performance consistently. Of course, in the light of the hike in the prices of input factors, an increase in the cost is inevitable. But, this does not mean that it should also increase the ratio. The corporations have to lay more emphasis on this aspect as all costs are controllable by the corporations - either by one level of the management or the other, and at one point of time or the other. This unsatisfactory performance of the corporations is analysed further by evaluating the major categories of operating costs in the following paragraphs. PERSONNEL OR LABOUR COST As is known very well, personnel or labour cost is one of major items of operating costs. And the SRTCs have recruited a large number of persons for different jobs as drivers, conductors, technical and mechanical staff, engineers, computer engineers and operators, workshop maintenance staff, supervising staff, accountants, auditing staff, administrative and clerical staff. And all these employees are paid a monthly salary. Therefore, this labour cost is an item of fixed or period cost and it cannot be reduced as it is in accordance with the terms and conditions of the appointment. Hence, the only alternative for the corporations is to obtain the maximum possible work from them so that the incidence of labour or personnel cost on each unit of revenue generating activity is kept to a minimum which in turn ensures higher profitability. Against this background, the details relating to Personnel Cost to Total Cost Ratio are presented in Table-5.

9 INDIAN JOURNAL OF TRANSPORT MANAGEMENT TABLE-5 : RELATIVE SHARE OF PERSONNEL COST TO TOTAL COST (04-05 TO 08-09) Ser Corporation Personnel Cost to Total Cost Ratio (%) Mean No APSRTC MSRTC GSRTC UPSRTC KnSRTC RSRTC NWKnRTC NEKnRTC PRTC NBSTC BSRTC SBSTC OSRTC HRTC TRPTC DTC BMTC CSTC STUs of Tamil Nadu Average Source :- Personnel Cost to Total Cost Ratios for different corporations and for different years are computed based on the data extracted from STUs : Profile and Performance, to 08-09, CIRT. A close observation and analysis of the Table-5 reveals, more or less, the same pattern as in the case of Operating Cost to Total Cost Ratio. This becomes evident from the following analysis. From among the corporations selected for the study, the performance of NWKnRTC is commendable as it has achieved a continuous reduction in the Labour Cost to the Total Cost Ratio consistently. It declined from 34.95% in to 30.38% during The other corporations have achieved mixed success as they were able to lower the Labour Cost to the Total Cost Ratio for one year or the other (when compared to the immediately preceding year). But all these other corporations have failed to maintain this on a consistent basis. For example, NEKnRTC has succeeded in lowering the ratio to 28.5% during (from 28.53% in 05-06) but allowed it to increase to 30.12% during A similar inconsistency can be observed in other corporations. Another important achievement is that 13 corporations 12

10 JANUARY - MARCH have reduced their Labour Cost to the Total Cost Ratio during than in As a result of all these, even the year-wise average for all the corporations registered a continuous reduction during to It declined from 38.89% in to 37.46% during to 37.07% during and to 36.29% during but increased slightly during to 36.39%. However, the average ratio for of 36.39% is much lower than for of 38.89%. From the point of view of the year-wise average, there are more corporations whose Labour Cost to the Total Cost Ratio is below the average for all the corporations. For instance, in 10 corporations out of 19, the ratio is lower than the average for all the corporations. And this number increased to 12 during the next three years and again declined to 10 during as is evident from Table-6. TABLE-6 : NUMBER OF SRTCs WHOSE PERSONNEL COST TO TOTAL COST RATIO IS ABOVE OR BELOW THE AVERAGE SRTCs Whose Personnel Number of SRTCs Cost to the Total Cost Ratio is : Below Average Above Average From the Table-6, it is obvious that the corporations have achieved mixed success and failed to reduce the ratio consistently year after year. The corporations, therefore, should concentrate on this aspect. The fact that they have achieved the reduction in the ratio in one year implies that they are capable of achieving the reduction. Hence, they should aim at continuous reduction. The experience of NWKnRTC is the best example in this regard. They should undertake the inter-firm comparison systematically and try and achieve the result which others have achieved. MATERIAL COST Material cost is the most important element of operating cost as well as total cost. Within the total operating costs, the costs of fuel, tyre and tube costs are important items. Other items of material costs are, oil and lubricants, springs, auto spare parts, batteries, reconditioned items and general items, tickets and tickets issuing machines. This item of cost assumes importance as it provides the most potential avenue for cost management - at the time of purchase, storage and usage. Even a small percentage reduction in material cost enables a sizeable reduction in the total cost. In this background, Material Cost to Total Cost Ratio is presented for five years, for all the corporations selected for the present study (Table-7).

11 INDIAN JOURNAL OF TRANSPORT MANAGEMENT TABLE-7 : RELATIVE SHARE OF MATERIAL COST TO TOTAL COST (04-05 TO 08-09) Ser Corporation Material Cost to Total Cost Ratio (%) No Mean 1 APSRTC MSRTC GSRTC UPSRTC KnSRTC RSRTC NWKnRTC NEKnRTC PRTC NBSTC BSRTC SBSTC OSRTC HRTC TRPTC DTC BMTC CSTC STUs of Tamil Nadu Average Source :- Material Cost to the Total Cost Ratios for different corporations and different years are computed based on the data extracted from STUs - Profile and Performance, to 08-09, CIRT. An analysis of the contents of the Table-7 provides a disappointing note when compared to the performance of the corporations from the point of view of both the Operating Cost to the Total Cost Ratio and the Labour Cost to the Total Cost Ratio. This becomes obvious from the analysis in the succeeding paragraphs. As in the case of other performance evaluation parameters, even from the point of view of the Material Cost to the Total Cost Ratio, 16 corporations have succeeded in lowering the ratio during one year or the other when compared to immediate preceding year. For instance, KnSRTC has reduced the ratio to 45.87% during from 47.43% in However, in the next year viz, 08-09, it allowed its ratio to increase to 49.23%. These inconsistencies in the performance can be observed in the other 15 corporations too. This may be on account of the hike in the prices of materials such as fuel, oil and lubricants among other reasons. Only four corporations (including the average for the seven STUs of 14

12 JANUARY - MARCH Tamil Nadu) have succeeded in reducing their Material Cost to the Total Cost Ratio during to less than that in This is a commendable achievement in the light of the continuous increase in the price of materials. For example, in the case of CSTC, it was 27.97% during and it was reduced to 26.15% in The two corporations that achieved a commendable success of reducing the ratio continuously were TRPTC and CSTC. But in the case of three corporation viz, NWKnRTC, NEKnRTC and NBSTC, the ratio has registered a continuous increase. What is surprising is that NWKnRTC which has achieved a continuous reduction in its Labour Cost to the Total Cost Ratio has failed in the case of Material Cost to the Total Cost Ratio. As a result of this mixed success was achieved for all the corporations (year-wise) for all the years except for Another aspect is the wide variation in the ratio among the corporations - in the case of DTC, it is only 13.25% (average for five years) as against 63.44% in the case of OSRTC. Even the number of corporations whose Material Cost to the Total Cost Ratio is higher than the year-wise average for all the corporations is more when compared to those having a lower ratio than the average recorded. For instance, for 08-09, the ratio in the case of 11 corporations is higher than the average for all the corporations. Table-8 substantiates this aspect. TABLE-8 : NUMBER OF SRTCs WHOSE MATERIAL COST TO THE TOTAL COST RATIO IS ABOVE OR BELOW THE AVERAGE SRTCs whose Material Number of SRTCs Cost to the Total Cost Ratio is : Below Average Above Average The Table-8 brings the point to the fore that the corporations have to exercise maximum control over material cost by procuring the required material from the most desirable sources at competitive prices and by using them more productively. More particularly, they have to lay emphasis on the fuel productivity by obtaining more number of kilometres per litre of diesel which in turn enables the corporations to minimise their costs. Further, dead kilometres shall be minimised as they do not add to the revenue, but only to cost of operation. MOTOR VEHICLE AND OTHER TAXES Different kinds of taxes are levied by both the central, state and local governments on the operations of the transport undertakings. Taxes are both direct and indirect. These include customs duty, excise duty, sales tax, motor vehicle tax, passenger tax, registration fees and road tax. Existing tax structure for commercial vehicles shows wide variations among the states. Therefore, incidence of taxes per vehicle and/or vehicle km and/or per passenger-km differs from one state to another as the different governments use different bases for the levy of taxes. No uniform rates of tax are being followed by the state governments. It is also important that the undertakings are required to pay tax at par with

13 INDIAN JOURNAL OF TRANSPORT MANAGEMENT 16 the purely commercial vehicles apart from meeting social obligations. Some corporations which earn profit before tax are reporting losses after the consideration of these taxes. Anyhow, the relative share of motor vehicle and other taxes in the total cost is presented in Table-9. TABLE-9 : RELATIVE SHARE OF MOTOR VEHICLE TAXES TO TOTAL COST (04-05 TO 08-09) Ser Corporation Motor Vehicle Taxes to Total Cost Ratio (%) No Mean 1 APSRTC MSRTC GSRTC UPSRTC KnSRTC RSRTC NWKnRTC NEKnRTC PRTC NBSTC BSRTC SBSTC OSRTC HRTC TRPTC DTC BMTC CSTC STUs of Tamil Nadu Average Source :- Taxes to Total Cost Ratios for different corporations and different years are computed based on the data extracted from STUs - Profile and Performance, to 08-09, CIRT. As outlined, there is less scope for the corporations to minimise the incidence of motor vehicle and other taxes as it depends upon the rates at which different kinds of taxes are levied by the governments. Still, the corporations can achieve some reduction by increasing the revenue generating kilometres if the taxes are levied on the seating capacity. Keeping this limitation in mind, an analysis of the contents of the Table-9 is made in the succeeding paragraphs. Out of 19 corporations, two (viz, NBSTC and CSTC) are ones where the tax incidence is zero (except for in the case of CSTC). Out of the remaining 17, in the case of MSRTC, the Taxes to the Total Cost Ratio registered a continuous increase from 13.42% in

14 JANUARY - MARCH to 14.78% for The remaining 16 corporations were able to lower this ratio for one year or the other. For example, in the case of KnSRTC, it declined from 7.19% in to 5.69% during One can observe this type of performance in the case of other corporations. Further, in the case 13 corporations, the ratio for is lower than for which is a desirable change. And in the case of four corporations, they have succeeded in lowering their ratio continuously year after year. For example, in the case of RSRTC, it has succeeded in reducing its Tax to the Total Cost Ratio from 11.98% in to 9.06% for Even the average for all the corporations (year-wise) registered a continuous decline. It declined from 6.07% for to 5.13% for which is a commendable achievement. As a cumulative effect of the above, the number of corporations whose ratio of Taxes to the Total Cost is lower than the average for all the corporations is more than the number of corporations with a higher ratio than the average. This becomes obvious from Table-10. TABLE-10 : NUMBER OF SRTCs WHOSE MOTOR VEHICLE TAXES TO THE TOTAL COST RATIO IS ABOVE OR BELOW THE AVERAGE SRTCs whose Taxes to Number of SRTCs the Total Cost Ratio is : Below Average Above Average These taxes are not controllable by the management of the corporations, as they are levied by governments. However, the corporations can put up a strong case with the government for some relief on the grounds of social commitments - provision of transport service to some sections of the commuters either free or at a concessional fare. Further, there is also need to go for a uniform rate of taxes throughout the country. DEPRECIATION There are two types of assets owned and used by the transport corporations. These include fixed assets and current assets. Fixed assets are used in the corporations to derive the benefit for more than one accounting period. Periodic profit is measured by charging not only the cost of current assets but also a portion of the cost of fixed assets against periodic revenue. Since fixed assets are used for revenue generating activities, an appropriation of the cost of the fixed assets needs to be made as cost. Such an appropriation of the fixed assets is known as depreciation. In the words of the Institute of Chartered Accountants in England and Wales, depreciation represents that part of the fixed asset to its owner which is not recoverable when the asset is finally out of use by him. Provision against this loss of capital is an integral cost of conducting the business during the effective commercial life of the asset and is not dependent on the amount of profit earned. Generally, the assets used in the transport corporations are vehicles and other assets such as bus stations, office buildings, workshops, garages, plant and machinery, tools and equipments and furniture and fittings.

15 INDIAN JOURNAL OF TRANSPORT MANAGEMENT 18 The corporations are required to use these assets more productively and profitably. Because, if the assets are not utilised properly, it results in not only reduction in the potential revenue but also dead capital on which payment of interest cannot be avoided. In this background, the relevant details pertaining to the relative share of depreciation in the total cost are presented in Table-11. TABLE-11 : RELATIVE SHARE OF DEPRECIATION IN TOTAL COST (04-05 TO 08-09) Ser Corporation Depreciation to Total Cost Ratio (%) No Mean 1 APSRTC MSRTC GSRTC UPSRTC KnSRTC RSRTC NWKnRTC NEKnRTC PRTC NBSTC BSRTC SBSTC OSRTC HRTC TRPTC DTC BMTC CSTC STUs of Tamil Nadu Average Source :- Depreciation to Total Cost Ratios for different corporations and different years are computed based on the data extracted from STUs - Profile and Performance, to 08-09, CIRT. As in the case of other parameters, even in the case of depreciation, the corporations have achieved mixed results. Out of 19 corporations, two corporations viz, NBSTC and DTC have achieved a continuous fall in the Depreciation to the Total Cost Ratio which is appreciable. In the case of three other corporations (including the average for 7 STUs of Tamil Nadu), the ratio of

16 JANUARY - MARCH Depreciation to the Total Cost has registered continuous increase, year after year during the study period. All the remaining 14 corporations have succeeded in lowering their ratio in one or the other year and there is no consistency in the performance. And in the case of eight corporations, the ratio for is lower than in which is noteworthy. Even the year-wise average for all the corporations registered a continuous increase except for during which it declined to 4.82% from 5.03% in The number of corporations whose Depreciation to the Total Cost Ratio is lower than the average increased from 8 in to 11 during as presented in Table-12. TABLE-12 : NUMBER OF SRTCs WHOSE DEPRECIATION TO THE TOTAL COST RATIO IS ABOVE OR BELOW THE AVERAGE SRTCs whose Number of SRTCs Depreciation to the Total Cost Ratio is : Below Average Above Average Since most of the corporations are investing borrowed funds, it is necessary to invest the financial resources more intelligently so as to obtain the maximum benefit from the capital revenue utilised. INTEREST EXPENSE The corporations need funds to meet the capital and revenue expenditure requirements. Their capital comprises of contributions from state and central government, public deposits, and borrowings from IDBI, LIC, banks and other financial institutions. Interest is payable on borrowed funds and on equity capital contributions made by the governments at the rates agreed to at the time of borrowing money or at the time of accepting the capital contributions from the governments. Therefore, the corporations must be very careful to mobilise only the requisite amount of capital and at most economical rates of interest, and to invest the same more productively. In this background, the relative share in the form of ratio of Interest Expense to Total Cost is presented in Table-13. It is obvious from the Table-13 that only two corporations viz, GSRTC and OSRTC have succeeded in lowering the Interest to the Total Cost Ratio continuously year after year. Contrary to this, another two corporations viz, MSRTC and NWKnRTC have experienced a continuous increase (except for in the case of MSRTC) in the ratio. Out of the remaining nine corporations, only five have succeeded in lowering their Interest to the Total Cost Ratio during to a level lower than that in All the corporations, except NWKnRTC, have succeeded in lowering their ratio in one or the other years but failed to maintain this consistently. And even in the case of a year-wise average for all the corporations, the corporations have not been able to reduce this ratio consistently.

17 INDIAN JOURNAL OF TRANSPORT MANAGEMENT TABLE-13 : RELATIVE SHARE OF INTEREST TO TOTAL COST (04-05 TO 08-09) 20 Ser Corporation Interest to Total Cost Ratio (%) No Mean* 1 APSRTC MSRTC GSRTC UPSRTC KnSRTC RSRTC NWKnRTC NEKnRTC PRTC OSRTC HRTC BMTC STUs of Tamil Nadu Average * As the statistics for other 6 corporations appear to be unrealistic, they were not considered. + Average for all the 19 corporations. Source :- Interest to the Total Cost Ratios for different corporations and different years are computed based on the data extracted from STUs - Profile and Performance, to 08-09, CIRT. Though there are few constraints, the corporations have to exercise control over the interest expense. This is possible through the mobilisation of only the requisite amount of capital [as no capital (usually) is cost free], employment of capital so mobilised more judiciously and productively, and by obtaining the maximum possible capital productivity. MISCELLANEOUS EXPENSES AND NON-OPERATING COSTS All other expenses including non-operating costs such as office expenses, account for about 5% of the total cost. Of course, the ratio differs from one corporation to another and also from one year to another as in the case of other elements of costs. The performance of the corporations even from the points of view of these categories of total costs is, more or less, a replica of their performance in other elements of costs. Still, it is necessary for the corporations to exercise maximum control over these expenses.

18 JANUARY - MARCH 12 SUGGESTIONS AND CONCLUSION The comprehensive factual analysis made above highlights a number of aspects about the performance of the SRTCs. It shows both the success and failures - more failures than success. In the light of this analysis, the following suggestions are offered for consideration of the corporations and the governments :- (1) As known, there are two major determinants of profit which is the primary determinant of profitability. They are revenue and cost. Revenue does not provide much scope for the corporations to improve their profitability. Because, it depends upon the revision of fares for which the government's permission is necessary and most of times, the governments decline permission, for reasons other than economic. Hence, the corporations have to concentrate more on the cost factors which are fully within the control of the corporations. (2) The corporations should appreciate two factors as under :- (a) The cost of the items are controllable either by one level of management or by the other, or at one point of time or the other. (b) No element of cost is in such a position that its amount cannot further be reduced. Therefore, the corporations should concentrate on cost management for improving their financial viability. (3) The corporations should also realise that the value of cost savings is much higher than the value of increase in revenue. This is because of the reason that the increase in the amount of revenue by Re 1 requires the incurrence of (say) Re.75. That means, an increase in the revenue by Re 1 increases the profit by only Re.25. On the other hand, a decrease in the cost by Re 1 increases the profit by Re 1. Hence, the corporations should lay greater emphasis on the cost management which combines the features of cost control, cost reduction, cost economies and cost savings. (4) As has been seen, almost all the corporations have succeeded in lowering all cost ratios over the years when compared to the immediate preceding year. This shows two things - firstly, the fact that they have succeeded in reducing the cost ratios in one or the other years implies that the ratios can be reduced even in other years; and secondly, there is no justification as to why the same reduction has not been continued. Few corporations have achieved this continuous success. Other corporations have to take cognizance of these aspects to achieve the best results. (5) There are few corporations which have achieved higher results. Other corporations should ask themselves as to why they should not be able to achieve the same. The corporations should use these as targets and endeavour to achieve the same. To conclude, it can be said that the cost management is an important aspect of profitability and it provides a number of avenues for the corporations to exploit for enhancing their profitability. Hence, the corporations have to concentrate on this aspect for the purpose of not only improving their financial performance but also for their survival. 21

19 INDIAN JOURNAL OF TRANSPORT MANAGEMENT Notes and References (1) Eleventh Five Year Plan, Vol-III, Planning Commission, Government of India, 2008, Oxford University Press, New Delhi, pp 303. (2) All 7 corporations of Tamil Nadu are taken as one as the averages for all the 7 corporations are computed and used in this paper. Hence, the sample size is taken as 19 corporations (but not 25 corporations). (3) Mohinder Singh (1998), Transport Management, pp 4. Other General References (1) Dr J Madegowda (2005), Commercial Viability, Himalaya Publishing House, Mumbai. (2) Dr J Madegowda (2000), Performance Evaluation of SRTCs in India, Mangal Deep Publications, Jaipur (3) Dr Yaralagadda Srinivasulu, Marketing of Passenger Transport Services, APH Publishing Corporation, New Delhi, (4) M K Thomas, (2000), Public Sector Bus Transport in India in the New Millennium - A Historical Perspective, Ebenezer Publishers, Pune. (5) P G Patankar, Road Passenger Transport in India, Central Institute of Road Transport, Pune. List of Seven STUs in Tamil Nadu 22 Appendix-1 (1) MTC (CNI) : Metropolitan Transport Corporation (Chennai) Ltd (2) SETC (TN) : State Express Transport Corporation (Tamil Nadu) Ltd (3) TNSTC (CBE) : Tamil Nadu State Transport Corporation (Coimbatore) Ltd (4) TNSTC (KUM) : Tamil Nadu State Transport Corporation (Kumbakonam) Ltd (5) TNSTC (MDU) : Tamil Nadu State Transport Corporation (Madurai) Ltd (6) TNSTC (SLM) : Tamil Nadu State Transport Corporation (Salem) Ltd (7) TNSTC (VPM) : Tamil Nadu State Transport Corporation (Villupuram) Ltd

20 JANUARY - MARCH Appendix-2 List of Corporations used in the present work - Abbreviations and their expanded Forms (1) APSRTC : Andhra Pradesh State Road Transport Corporation (2) MSRTC : Maharashtra State Road Transport Corporation (3) GSRTC : Gujarat State Road Transport Corporation (4) UPSRTC : Uttar Pradesh State Road Transport Corporation (5) KnSRTC : Karnataka State Road Transport Corporation (6) RSRTC : Rajasthan State Road Transport Corporation (7) NWKnRTC : North Western Karnataka Road Transport Corporation (8) NEKnRTC : North Eastern Karnataka Road Transport Corporation (9) PRTC : Pepsu Road Transport Corporation (10) NBSTC : North Bengal State Transport Corporation (11) BSRTC : Bihar State Road Transport Corporation (12) SBSTC : South Bengal State Transport Corporation (13) OSRTC : Orissa State Road Transport Corporation (14) HRTC : Himachal Road Transport Corporation (15) TRPTC : Tripura Road Transport Corporation (16) DTC : Delhi Transport Corporation (17) BMTC : Bangalore Metropolitan Transport Corporation (18) CSTC : Calcutta State Transport Corporation IJTM