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CORPORATE RESTRUCTURING OF GUJARAT STATE ROAD
TRANSPORT CORPORATION
Professor Shubhabrata Basu wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2012, Richard Ivey School of Business Foundation

Version: 2012-01-26

“All our efforts, exercises and future projections, so far, have come to not. We have to think it all over again. This new wage demand is a coup de grace for the corporation. I do not intend to preside over its demise.”
- Rajgopal
Raj Gopal (Rajgopal), IAS,1 the vice-chairman and managing director of Gujarat State Road Transport
Corporation2 (GSRTC), was leaving the Sachivalaya3 at Gandhinagar. In a rare display of solidarity, all of the registered trade unions (TU) of GSRTC gave a call for strike on August 23, 2010. For about two years, the unions were demanding wages as per the 6th Pay Commission,4 implemented by the
Government of India in 2006. The recommendations of the commission were subsequently adopted by all state governments and the majority of state-owned enterprises. Time-consuming wage negotiations began between the management and TUs but yielded no results.
The TUs broke the stalemate by calling a strike, thereby disrupting a public utility service.5 In the presence of the State’s Chief Minister (CM), Rajgopal conceded to the TU demands in principle. The CM also requested that Rajgopal present a revival plan for GSRTC reflecting the impact of the wage revision.
While this intervention by the CM averted a transport strike that would have affected about 2.2 million passengers, Rajgopal faced a larger problem. Pay Commissions had been implemented in India with retrospective effects: this implied that Rajgopal had to pay arrear wages to his present and retired

1

IAS — Indian Administrative Services — was the administrative bureaucracy of the Central Civil Services of the Union of
India. IAS officers occupied the administrative positions in the states as well as in the Central Government of India.
2
GSRTC was the state transport organization of the State of Gujarat in India.
3
Sachivalaya (Sanskrit) was the State Secretariat of Government of Gujarat, located in the state capital.
4
The Central Government of India constitutes pay commissions from time to time to revise the salaries of all Central
Government employees and offset inflationary pressures.
5
As per the Industrial Disputes Act (1947), no trade union or employer could call for a strike or a lockout of work, respectively, without serving 14 days notice. On receipt of the notice, conciliation meetings had to be called by the officials of the concerned (state or central) labour department to amicably resolve the issue(s).

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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employees, as well as pay revised salaries to his current employees. Arrears alone would translate to about Rs5 billion.6 Where would he get this money?
The state transport sector had several unique characteristics: it was prone to competition from land and air, burdened with disproportionate taxation and subjected to socio-political interference concerning route selection and concessions. Due to these difficulties, avoiding an operating loss had been a difficult task.
GSRTC had been accruing increasing losses since 2006 (see Exhibit 1), and the possibility of arrear payment through internal accrual was therefore ruled out. Even if Rajgopal managed to borrow the capital, repayment would become an issue. Conventional wisdom would have called for extensive organizational, operational and capital restructuring, but such changes were rarely welcomed by private organizations, let alone a state-run corporation. How, then, would the changes be implemented and managed so that the employee morale and reactions would not jeopardize the corporation’s functioning and eventually cause a more serious crisis? Additionally, how would Rajgopal, a career bureaucrat with a distinct set of competencies, steer the corporation through the difficult times and present a revival plan to the CM?
GSRTC: A SOCIAL SERVICE CORPORATION

GSRTC came into existence on May 1, 1960, as a result of the bifurcation of the Bombay State Road
Transport Corporation,7 which was a consequence of the State Reorganization Act (1956).8 Over the next five decades, it grew from a modest organization with seven divisions, 76 depots, seven divisional workshops and 1,767 buses to 16 divisions (one division merged subsequently), 126 depots, 226 bus stations, 1,554 pick-up stands and 7,550 buses in 2011/12. Consistent with a three-tiered administrative structure9 (see Exhibit 2), GSRTC set up a three-tier maintenance and repair facility consisting of 126 depot workshops, 16 divisional workshops and a central workshop at Naroda near Ahmedabad. It also installed seven tire-retreading plants, one bus body building plant with a capacity of 1,000 bus bodies per year and a ticket printing press. In 2011, it directly employed about 42,600 people, most of whom were in permanent roles and earned inflation-adjusted salary. The corporation, being a state undertaking, conformed to all statutory and legislative norms.
The Network and its Value

As of May 2011, GSRTC operated 6,850 schedules and 42,016 trips (38,031 ordinary and 3,985 express trips) in 14,666 routes that covered 99 per cent of the population of the state. The corporation directly connected 17,756 (98 per cent)10 of the total number of villages in the state. Further, its services reached within three kilometres (km) of 359 villages, between three to five km of 134 villages and exceeded five km for 159 villages. On average, it travelled 2.8 million km with a passenger load of 2.2 million per day.
The average vehicle utilization was 416 km/day with a mileage efficiency of 5.53 km/litre of diesel and a passenger load factor of 68.98 per cent. The yearly passenger load was around 875 million, with a gross traffic earning of Rs19.04 billion.11
6

As of June 2011, INR 5 Billion was equivalent to USD 110 million (45 INR = 1 USD).
Bombay State Road Transport Corporation was constituted under the Road Transport Corporation Act (1950).
8
In 1956, The Indian State Reorganization Act was passed. As a consequence, erstwhile British administered territories and
Princely states that joined the union were regrouped on a linguistic basis. The Maha-Gujarat State thus formed was further split into the states of Gujarat and Maharashtra in 1960.
9
The Board of Directors, the Central Office at Ahmedabad and 16 Divisional Offices across the states.
10
Information generated and provided by the officials of the corporation.
11
Data made available by the statistical department of GSRTC.
7

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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For the rural population commuting to and from cities, GSRTC was a veritable lifeline. Passengers from remote villages used the bus service to obtain their weekly provisions as well as visit markets for retail business. For those commuters, the corporation’s service was an assurance under Universal Service
Obligation (USO) norms and guaranteed by the state. This was an implicit cost borne by the corporation on behalf of the state government. A fair estimate of the opportunity cost of GSRTC could be gauged through considering that it serviced 875 million people annually and the per capita net state domestic product (NSDP) of the State was Rs33,608 in 2008/09.12
A Channel for Societal Subsidies

GSRTC had dedicated services to the less-privileged and financially weaker sections of the population.
Other than general category passengers, the corporation serviced students (including female students), 13 the socio-economically underdeveloped scheduled tribes and certain other categories. Of the 2.2 million passengers who availed themselves of the corporation’s services, about 500,000 were pass-holding daily commuters, another 500,000 were general students and 296,000 were rural female students. General passengers made up for the remaining million. In the 2008/09 fiscal year, GSRTC had issued 685,000 student concession passes, along with 217,000 passes for physically challenged individuals and around
44,525 passes for cancer patients. The opportunity cost for the corporation due to the above subsidies was around Rs6.37 billion annually (see Exhibit 3).
Besides concessions and passes, GSRTC also operated about 1,270 dedicated schedules and 10,116 trips in the predominantly tribal districts of the state. In percentage terms, this constituted about 24.09 per cent of the total trips and 20.03 per cent of the total road mileage.14 Together with the student community, about 65.58 per cent of the trips (17,426 trips for students and 10,116 in tribal areas) and 46.66 per cent of the road mileage (651,319 km for students and 561,829 km in tribal areas) covered by the GSRTC fell under dedicated concessional services.
A Revenue Contributor

Although GSRTC was a loss-making enterprise of the Government of Gujarat (GoG), (although — hence yet) it remitted significant amounts to the state’s exchequer through passenger taxes (P-tax). Until 2011,
GoG imposed a tax of 17.5 per cent on ticket income from stage carriers. Coupled with motor vehicles tax
(MVT) and toll tax, the aggregate tax was around 20 per cent of the traffic earnings of the corporation. In the 2010/11 fiscal year, the corporation remitted around Rs2.34 billion as taxes, with approximately Rs6.7 billion due as arrears.
ENCOUNTERING PROBLEMS

After the economic liberalization of India in 1991, and in line with the directives of the central government, many of the state governments began deregulating hitherto-controlled sectors including the transport sector. The objective was to mitigate government failures due to constrained resource positions

12

“Directorate of Economics and Statistics,” Government of Gujarat, http://gujecostat.gujarat.gov.in/, accessed May 21,
2011. It is assumed that transportation was vital to creation of per capita NSDP.
13
The aggregate literacy of the girls is lower than that of boys in India. Hence, the government provides inducements to girls for their education.
14
Total road mileage was the total number of kilometres traversed per day by all of the corporation’s buses.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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of existing public sector undertakings (PSUs).15 It was expected that allowing participation of private equity would enhance the resource allocation efficiency of the PSUs. With respect to public transport, the
GoG began permitting private players to operate as stage carriers16 in a few selected routes. The bulk of the licenses, however, were issued as contract carriers.17 Partial deregulation led to a range of consequences impacting GSRTC’s performance.
Disruption in Cross Subsidy

GoG’s decision to permit private enterprises in the road transport sector introduced competition for
GSRTC. This competition was limited to lucrative routes served by the corporation. Under the USO norms, GSRTC had to operate in profitable as well as lean routes. The corporation balanced the losses incurred in the lean routes with the profits made from the lucrative ones (see Exhibit 4). The introduction of competition in the lucrative routes disrupted the mechanism of cross subsidy hitherto employed by
GSRTC. The problem was aggravated by the contract carriage operators who, taking advantage of inadequate policing of the routes, began operating illegally. Their numbers proliferated greatly: from
1998 to 2008, the number of jeep18vehicles increased from 74,284 to 135,014; that of maxi-cabs from 996 to 15,878; omnibuses increased from 700 to 16,012.19 This led to a two-way loss: for GSRTC it translated to loss in passenger revenue from the profitable segments and for the GoG it meant a reduction in P-tax from the stage carriers.
Financial Disincentives

The 17.5 per cent P-tax put GSRTC at a disadvantage vis-à-vis the private operators. While GSRTC paid
Rs499,000 per bus in the express routes for the year-long obligatory service, the private stage carriers paid an aggregate tax of around Rs184,000. This difference was due to private operators under-quoting the actual number of days in operation and claiming a pro-rated tax rebate. The contract carriages, in contrast, paid a lump-sum tax of Rs90,000 per bus, despite illegally operating as stage carriages: this resulted in their significant growth between 1998 and 2008. Apart from the P-tax, MVT and toll taxes,
GSRTC also paid all the statutory employee obligations.20 Rajgopal commented on this situation:
The various taxes that are imposed on us are, in a sense, due to the single entry accounting system used by the different departments of Government. These are book transfers between the surface transport department and the finance department via our books of account. Unfortunately, it leaves us unhealthy.

15

In India, PSUs were organizations set up by the government (central or state) either as green field ventures or through merger, acquisition and nationalization of loss-generating private enterprises.
16
Stage carriers were vehicles that stopped at intermittent locations (between two terminals) to pick up and drop off passengers. They operated on fixed routes.
17
Contract carriers were licensed to operate for specific purposes other than general passenger transportation.
18
Apart from the driver, a jeep seated nine passengers, a maxi-cab seated 19 and an omnibus seated between 39 and 52.
19
This data was supplied by the statistical department of GSRTC.
20
Private operators typically employed less than seven employees, which was the minimum number of workers required to form a trade union under the Trade Union Act (1948). Employees organized under a trade union could bargain with employers for their dues.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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New Rules of Competition — Dynamic Pricing

Besides operating illegally, the contract private operators as well as the legal stage carriers resorted to dynamic ticket pricing to maximize their revenues. Rajgopal provided some insights on this practice:
On a typical weekday the (GSRTC) fare from Ahmedabad to Mumbai, on the express routes by the private stage carriers, would be around Rs800 per head. The same would spike to around Rs1,500 per head on Friday and Sunday evenings. On the lower end of the spectrum, the illegal operators would charge a rupee or two less than what we charged. That invariably took away some of our passengers. Moreover, by paying less, these passengers would get door-step to door-step services whereas we provided access from the bus stand only. Although these operators, mostly the jeeps, compromise safety norms (see Exhibit 5), the passengers would prefer a price to safety trade-off.
GSRTC, with salaried staff and public accountability, could not delegate the decision to use dynamic ticket pricing to staff at the operating level. Being a public utility service, GSRTC’s prices required
Government approval. The ticket price was independent of the cost of the service provided by the corporation. Evolving Transportation Scenario

Rajgopal explained the traditional rationale on the choice of transport:
In the transportation industry, traditionally, the choice on the mode of travelling depended on six factors, namely a) the number of transactions involved, b) availability and accessibility of vehicular transport from origin to destination point, c) time of travel,
d) cost of travel, e) group size of commuters and f) comfort during the travel including at the stoppages. Usually, travelling for more than two hours is difficult to sustain on a daily basis. Road transportation tended to optimize on the above six parameters. Typically, road scored favourably on the number of transactions and on the availability and accessibility of transport, while rail scored high on time and cost of travel. The last two factors of the above six were more complex in nature. While capacity limitations were an upper bound consideration on the mode of journey, minimum level of comfort determines the lower bound condition. Further, Indian passengers generally trade off cost to comfort.
He felt that this rationale, of late, had experienced shifts, possibly due to the following reasons: increased economic prosperity of passengers causing personal forms of travel (four-wheelers and two-wheelers) and demand for better service, introduction of low-priced cars and growing prevalence of low-cost air travel.
Moreover, time constrained passengers were increasingly adopting a road-air combination. They would often travel by car in the opposite direction to reach an airport hub and take advantage of a price discount on a busy route. One benefit of this situation was that GSRTC had been forced to concentrate on rural areas. By providing good buses, requisite subsidies to the economically downtrodden, and an enjoyable travelling experience, GSRTC had been trying to create a loyal customer base that was less prone to attrition. However, the lower passenger density in some of the rural areas affected the aggregate load factor. This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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The Liability of Association

GSRTC’s association with the GoG exposed the corporation to rules, regulations and norms that put a premium on compliance over operational efficiencies. This affected the finances of the corporation in a number of ways: it had to adhere to procurement norms such as accepting the lowest bid/quotation, which often lead to usage of poorer quality of spare parts and therefore additional costs per bus. It had to purchase expensive compressed natural gas (CNG) powered buses as per the Indian government’s mandate to lower greenhouse gas emissions. However, their perceived benefits were later questioned within the organization as they incurred much higher total costs over the lifecycle of a bus than comparable diesel buses. Last but not least, GSRTC fell under a government-imposed hiring freeze for loss-making PSUs, despite requiring employees in critical revenue generating areas. (See Exhibit 6.)
Ambiguous Public Transport Policy

The impediments faced by GSRTC could be partly attributed to the ambiguity in public transport policy that influenced the role and functioning of GSRTC under changed economic conditions. In the preliberalization era, the corporation played a vital role in providing transportation services to the population of a newly formed state. However, the population-to-bus ratio for GSRTC decreased with each passing decade.21 This happened despite population growth, though it was also affected by increases in the number of buses. Between 2002 and 2008, the population-to-bus ratio fell despite a steady decline in the number of buses. According to GSRTC management, this happened either as a consequence of falling service quality or the availability of superior alternatives. Rajgopal commented on this trend:
Our current predicament, to a large extent, is due to lack of clearly defined public transport policy that will impart clarity to the purpose of public transport. For example,
GoG may clearly intimate its inability to promote GSRTC, write-off its services and brave the consequences. Alternatively, it may continue with GSRTC as an ad hoc solution incubating private enterprises to subsequently supplement or replace GSRTC or, recognize the importance of State Transport Undertakings (STUs) and come up with a coherent policy defining and bolstering the role of the corporation. Either way, disambiguation is required given that the ownership of the corporation vests with the
GoG.
The management believed that regulatory issues either directly affected the operational effectiveness of the corporation or acted in conjunction with other factors to impede the functioning of the corporation.
STRATEGIC INITIATIVES BY GSRTC

In response to external competitors as well as regulatory impediments, GSRTC enacted a series of initiatives aimed primarily at containing cost and enhancing productivity. Rajgopal explained the initiatives at GSRTC: “Restructuring exercises in a state-owned enterprise affect all the stakeholders.
Hence, we started with the low-hanging fruits where ripples and outcomes were more apparent.”

21

In 1960, the population-to-bus ratio was 17,547:1, which progressively reduced to 9,220:1 (1970), 6,598:1 (1980), 6,134:1
(1990) and 5,911:1 in 2000. Source: GSRTC.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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Improving on Operational Parameters

One of the first initiatives taken at GSRTC involved improving on the operational parameters, namely (i) aggregate effective kilometres run by buses, (ii) percentage increase in passenger load factor, (iii) daily vehicle utilization, (iv) daily crew utilization, (v) fuel efficiency and (vi) mechanical breakdown rate per
10,000 km run. These improvements began with the re-induction of new buses in 2006/07, before
Rajgopal became managing director. Over the next five years, GSRTC made consistent improvements in the above parameters (see Exhibit 7).
When Rajgopal became managing director, he proposed additional criteria, including two additional efficiency parameters and a penal clause. He provided his rationale for these criteria:
GoG partly compensated us for the losses we made under the USO norms in serving the lean areas. But in the past the same got adjusted against other accounts payable by us.
That made the subsidy highly unreliable and given our poor performance, we could not put up a brave front to demand it. Hence, I wanted a situation where the subsidy could be demanded based on some objectively determined criteria.
With his objective clearly outlined, Rajgopal proposed a 200 per cent penalty in subsidy for one per cent
(or equivalent) slippage on any of the parameters that would eventually define GSRTC’s operational efficiencies (see Exhibit 8). Two new parameters apart from others identified were (i) fleet utilization as a percentage of total buses and (ii) non-tariff income that was a financial measure of alternative scopes of income generated by the corporation.
GSRTC set up an e-Governance system in 2009/10, with a road map towards its full implementation by
2011/12. The primary purpose of implementing the e-Governance system was to enhance efficiency and administrative control through seamless information flow and real-time data transfer. There were various initiatives under the system that would reduce paperwork and duplication, provide online ticket purchasing, introduce an easily renewable GSRTC cash card, centralize personnel management, automate driver testing, manage the bus fleet electronically and provide online surveillance. The total cost of these initiatives would be Rs201 million. Rajgopal was hopeful of the benefits that would accrue out of his IT initiatives: “Once the entire IT and ITES infrastructure is in place, it will help GSRTC to turn around and face competition. The strategic investment in ITES initiatives is likely to translate into manifold benefits and sustained sources of income, cost savings, better supervision and means to improve efficiency and effectiveness.” Improving the Bus Terminals

Along with e-infrastructure, GSRTC also focused on improving the brick and mortar infrastructure that acted as the primary interface between the customer and the corporation. The corporation built 22 new bus terminals along with 39 pick-up stands. It also upgraded some of the important existing bus terminals such as Gandhinagar terminal. The total cost of these initiatives was around Rs211.7 million. The funds for these developments were obtained from the local area development funds of members of parliament and members of legislative assemblies.22 These terminals were in addition to the existing infrastructure of
229 bus stations, 1,554 pick-up stands, 221 refreshment rooms and 621 drinking water facilities. The
22

The Government of India allocated Rs20 million per year to all members of parliament to develop their respective constituencies. Similar funds were also made available to members of legislative assemblies from their respective state governments. This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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corporation also upgraded 705 canteens and stalls, besides 48 cloak rooms and 293 parcel booking points.
It also set up 72 sulabh/NASA23 lavatories for commuter convenience. In the process of modernization,
Rajgopal felt that there was scope to further leverage the IT infrastructure for value-added services at the stations and at the divisional level. To this end, GSRTC started a pilot project at the Ahmedabad division to revamp the public address systems, public information systems and public entertainment systems at the bus stations. The corporation also applied for International Organization for Standardization (ISO) certification for its divisions.
Revenue-enhancing Initiatives

With the IT infrastructure in place, Rajgopal concentrated on increasing both the traffic and non-traffic revenue of the corporation. He developed a number of initiatives to this effect: selling scraps by reverse auctioning thereby eliminating leakages; advertising on buses and at terminals using the newly set up infrastructures; providing premium service at a higher cost, increasing bus cargo capacity and selling this space to third-parties and developing GSRTC-owned lands through public-private partnerships (PPPs) and obtaining premium income from the same. These initiatives could provide an estimated annual revenue of Rs747.4 million.
Cost-controlling Initiatives

While his IT initiatives served the dual purpose of generating new sources of revenue and containing costs and pilferages, Rajgopal felt this was not enough. More structural changes were needed in the administrative and human resource domains. Rajgopal adopted a cautious approach. In order to reduce costs, Rajgopal considered the following: outsourcing buses and drivers, renting repair and maintenance facilities to third-party private operators, merging divisions and depots to reallocate manpower and reduce administrative costs, hiring additional employees on a contractual basis and setting up electronic ticketing machines. These initiatives could free up approximately Rs1.38 billion. However some of these initiatives, such as engaging contract workers in permanent roles, were a departure from the GoG norms.
Consequently, they were perceived as an existential threat by the TUs.
THE GAME CHANGER

On August 9, 2010, all the TUs of GSRTC staged a deputation24 to the managing director. They started with the demand to abandon various initiatives undertaken by the management to reduce the employee relevance and culminated with the demand to implement provisions of the 6th Pay Commission. The unions called for a strike to force their demands on the management of GSRTC. The immediate issue of the strike was resolved through the intervention of the chief minister. But for GSRTC, it meant increased employee salaries and arrear wages for current and retired employees, besides the host of other remaining problems. 23

Sulabh/NASA were washroom facilities offered for a nominal charge.
Staging a deputation involved an intimation to the management of the organization followed by the representatives of the
TU meeting the management on the pre-arranged date and airing their grievances to force an outcome.

24

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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NEW OPTIONS

Thwarted in his attempt to improve GSRTC’s situation, Rajgopal took stock of the changed realities.
Looking at the past financial statements and the projections for the following five years (see Exhibit 9), it was evident that his efforts would not bear fruit in his tenure.25 The corporation simply could not absorb the additional liability of Rs5 billion in arrear payments in addition to the increased recurring salary liabilities. Rajgopal had to come up with a feasible plan that would be accepted at various administrative levels, including the state assembly. Rajgopal began exploring a fresh set of options for the revival. radical for the current scenario.
Reduction of passenger tax: The corporation paid a 17.5 per cent P-tax to the state exchequer from its ticket revenue. The P-tax for STUs of other states varied from 0 to 12.5 per cent.26 The corresponding Ptax for city buses under private operators in Gujarat was around 1 per cent. Reduction of the P-tax from
17.5 to 7.5 per cent would significantly ease the cash position.
Government debt-equity swap: GSRTC paid a significant amount of money to the GoG as interest payment to loans. The loan obtained in a phased manner from 2005/06 onwards was used to purchase new buses. The gross loan amount in 2010/11 stood at Rs13.82 billion. On an annual basis the corporation paid around Rs740 million as interest payment alone, besides repayment of the principal. This loan also came at the cost of complying with the directive to purchase CNG buses. Given that the corporation had a significant debt portfolio, GSRTC could propose that the GoG consider converting the debt to promoter equity. Examples of such practices are not uncommon. The Government of India converted the loan (for working capital) to promoter equity during the corporatization of Bharat Sanchar Nigam Limited.27
Similarly, the State Government of Maharashtra converted the outstanding loans given to MSRTC to promoter equity. As a result, MSRTC made profits and the Maharashtra State Government was receiving dividend income.
GoG grant towards arrear payment and five year moratorium therefrom: Although the management of
GSRTC had agreed to pay the revised wages, it was primarily due to the interventions of the government.
Therefore, the GoG should be morally obliged to shoulder the burden with GSRTC. As such, the management could seek a grant in advance of Rs5 billion for the payment of arrears with a moratorium on repayment for the following five years. This would mitigate the immediate working capital problem. With improved financial health the corporation could pay back the advance.
Prior permission for tariff revision: GSRTC routinely sought GoG approval every time it revised the fare, and this procedural delay caused revenue loss. Therefore, GSRTC could move to a system of in-principle approval for fare revision at 5.5 per cent on a yearly basis. This fare revision could be easily justified, given the historic annual inflation rate and the annual rise in diesel prices by the same percentage in India.
However, fare revisions were associated with temporary loss in the numbers of commuters, which could offset the desired rise in financial efficiency through the passenger load factor.
Enhance capacity utilization: With the increase in tariff rates, GSRTC would have to revisit its efficiency norms to achieve its desired growth rate. It would have to improve the load factor by 2 per cent on a yearover-year basis to reach 74 per cent by 2016, from curent 68.98 per cent in 2010. A load factor of 75 per
25

IAS officers on deputation to public sector commercial enterprises normally had tenure of three years before they reverted to their parent cadre for new roles. However, this was not mandatory.
26
P-tax for other STUs were as follows: MSRTC (Maharashtra) = 12.5 per cent, APSRTC (Andhra Pradesh) = 7.5 per cent,
KSRTC (Karnataka) = 7 per cent, UPSRTC (Uttar Pradesh) = 6 per cent and others less than/equal to 5 per cent.
27
Bharat Sanchar Nigam Limited was a public sector enterprise of the Government of India that provided voice and data service. This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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cent had been the historical benchmark for the corporation as well as for the STU industry. Coupled with improvements in load factor, GSRTC would have to increase its fleet utilization from 88 per cent to 94 per cent, marking an improvement of 1.5 per cent on a year-over-year basis. This would be done in conjunction with a reduction in spare vehicles from 9 per cent (2011/12) to 6.5 (2015/16) without disturbing the RTO norms.
Charging of depot (bus adda) fees: To augment revenue, GSRTC could extend its bus station facilities to private stage carriers for fee-based berthing and parking purposes. In the STU circle, this was termed
‘adda fee’ and was charged at Rs50/trip/bus. Assuming 1,000 buses used five stations per day on longhauls including the two termini, the corporation could earn revenue of Rs91.2 million annually.
Recovery of 1 per cent cess28 for MACT fund and toll tax: On a yearly basis, GSRTC had to pay around
Rs200 million to the Motor Accident Claim Tribunal (MACT). This unwanted expense could be mitigated through awareness on the part of the drivers. In addition to this awareness, a cess of 1 per cent on ticket prices would cover the MACT liability.
Similarly, for the toll tax paid by the corporation, the benefit of a smooth ride accrued to the passengers.
Over the past seven years, toll tax increased by 14 per cent on an average year-over-year. For GSRTC, this cost translated to an increase to around Rs320 million (2010/11) from Rs84 million in 2003/04.
Although the GoG had allowed GSRTC to charge Rs1 per ticket towards the toll tax, this additional charge only covered 40 per cent of the total cost. Therefore, the corporation could consider passing on the entire burden of the tax to the passenger and clean its balance sheet from that effect.
Revenue from market survey: Another potential source of revenue could be attained from market survey.
With its 2.2 million passengers forming random (casual commuters) and assorted (regular passengers) clusters, market research companies could leverage this opportunity for a fee. Similarly, by paying a fee insurance and other financial service providers could leverage the service of the corporation.
Outsourcing operations in tribal areas: The operations of GSRTC in tribal areas had always been a lossmaking service. Even the subsidy by the GoG had been inadequate given the low traffic volumes.
Therefore, one way to solve this issue would be to give the buses operated by GSRTC to unemployed scheduled tribe youths. The operators would bear the operating expenses and charge flexible tariffs within the designated areas and routes. GSRTC would obtain rent of Rs1.5/km that would translate to Rs150 million in net income. Additionally, GSRTC would charge the price for spare parts along with a 10 per cent service charge. Another benefit that could accrue from this plan would be a net savings of Rs1.2 billion on staff wages. Care would be taken so that the operators fulfilled the community obligations of
GSRTC without becoming financially unviable.
Partial deregulation of routes: Although Rajgopal would prefer complete privatization of the corporation, this was unlikely due to the other stake holders. In place of full privatization, a modified proposal encouraging private participation through route auction could be considered. Some of the routes (a combination of lucrative and less remunerative) could be put up for auction and sold to the highest bidder.
In this process, the corporation could earn an income of Rs526.8 million with the government’s earnings through P-tax remaining unaltered. This arrangement could also lead to prevention of illegal activities and losses of revenues through community monitoring.
Writing off depreciation account: The GoG had funded the acquisition of new buses through loans given to the corporation. The amount was sufficient to completely revamp the fleet with no additional
28

Cesses are excess payables imposed by government on a temporary basis.

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Singh from August 2012 to February 2013.

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requirements between 2012 and 2016. Given this scenario, the corporation could consider freezing the contribution to the depreciation fund for a period of five years. After five years GSRTC would have sufficient reserves to restart allocation.
TOWARDS A NEW DEAL

Looking at the options and their various combinations, Rajgopal could not suppress his anxiety. His efforts at reducing the dependency on the government were fading fast. It appeared that turning around
GSRTC without active government support was simply not possible. But would the GoG agree to support the corporation? Even if the government agreed to some of these options, would an optimal combination be reached? And if the solution turned out to be sub-optimal from the corporation’s perspective, would
Rajgopal be able to garner sufficient support from the administrative bureaucracy and the political leadership to ride out a sub-optimal combination? Already the commissioner of Transport, a fellow IAS officer, had expressed a difference in opinion. He had vociferously advocated the replacement of GSRTC with private operators. He stated that his department would be able to handle any exigency that might arise if GSRTC stopped functioning. The principle secretary of Economic Affairs, another senior IAS officer and a supporter of GSRTC, had expressed doubts regarding GSRTC’s ability to continue operating without GoG subsidies even if all its current proposals were approved. The additional chief secretary of the Transport Department (and the former chairman of the GSRTC) had been sympathetic to GSRTC and a constant source of support for Rajgopal. The additional chief secretary of the Finance Department, the second-most important bureaucrat of the state, had reluctantly agreed to some of the proposals. He appeared to prefer a status quo.
How would Rajgopal present his case to restructure and turnaround GSRTC before the CM? Would the
CM, the final arbitrator of GSRTC, agree to support the corporation?

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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Exhibit 1
FIVE-YEAR FINANCIAL DATA OF GSRTC (IN MILLIONS OF RS.)
Particulars

2006/07

2007/08

2008/09

2009/10

2010/11

Income
Traffic income

15,050.5

16,263.5

17,081.2

16,997.4

19,036.3

1,070.4

878.9

652.2

525

643.5

16,120.9

17,142.4

17,733.4

17,522.4

19,679.8

4,810.6

5,071.8

5,503.3

6,397.6

6,667.8

Welfare and superannuation

903.3

1,320.1

1,380.6

1,312.7

1,900.7

Stores

995.2

982.3

950.7

788

1,114.7

6,207.5

6,317.1

6,592.1

6,425.6

6,988.2

2,108.1

2,299.6

2,161.1

2,565.6

2,337.7

695.3

917.2

1,392.9

927.1

993.1

Lease rent

147.8

79.6

39.8

0

0

Depreciation

470.8

839.9

1,110.6

857.6

1,130.9

Interest and debt charges

443.3

260.4

185.1

687.6

152.2

16,781.9

18,088

19,316.2

19,961.8

21,285.3

-661.4

-1,233.6

-1,582.8

-2,439.4

-1,605.5

-14,207.1

-15,440.7

-17,023.5

-19,462.9

-21,068.4

Non-traffic income
Total income
Expenditure
Salaries and allowances

Diesel
Taxes (P-tax, motor vehicle, etc.) Other Exp. (MACT, repair etc.) Total expenditure
Profit/loss
Accumulated loss
Source: Statistical Department of GSRTC.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

Rajgopal,
IAS

Rajgopal,
IAS

VC & MD

Chairman

B.H.
Ghodasara

Chairman

Executive director (Vigilance)

Dr. K.L.N.
Rao, IPS30

Director

Principal secretary (Expenditure)
Finance
Department,
Govt. of
Gujarat

GM
(Operation)

Director
Director
Central office
S. L.
V. V.
Armani,
Nagvadiya
GAS

Board of directors
Dy. secretary,
Chief
Ministry of commercial Road, manager, Transport &
Western
Highways,
Railway,
Transport
Bhavan,
(Mumbai)
(New Delhi)

R. B. Shah

Director

J.P. Gupta, IAS
Commissioner
of Transport,
Transport
Department,
Govt. of Gujarat

Chief
Chief traffic and accountant & commercial financial manager advisor
Officers at the divisional level
Senior divisional mechanical engineer / divisional mechanical engineer GM
(Admin.)

B. M.
Parmar,
GAS31

Director

Director,
Central
Institute of
Road
Transport,
(Pune)

ORGANIZATIONAL STRUCTURE OF GSRTC

Exhibit 2

Senior divisional traffic officer/divisional traffic officer

A. J. Rawal, H. J. Parmar, M. T.
Saiyed, P.D. Patel, S. P.
Pandaya, V.S. Hazare, A. K.
Parmar, H.D. Buddhbhatti, H. N.
Kawta, R.D. Galchar, K. K.
Trivedi, N. F. Parmar
Functional heads at central office

Rameshbhai Mungara,
Thakorbhai Patel,
K.C.Patel,
Arjanbhai Rabari,
Bhagavandas Panchal,
Abhesinh Pratapsinh Patel,
Kantibhai Gamit,
Jashubhai Bhil,
Kaushlya Kunvarba Parmar
All directors

9B11M113

Nominee of the ruling political alliance of the State of Gujarat. He took charge in September, 2010, from B. K. Singh, IAS, additional chief secretary, Transport
Department, Govt. of Gujarat. B. K. Singh was the chairman of GSRTC before the present incumbent.
30
IPS — Indian Police Service — officers from the Central Civil Services Cadre for the Police Service.
31
GAS — Gujarat Administrative Service — the IAS equivalent from the state cadre.

29

Source: “Administration,” Gujarat State Road Transport Corporation, www.gsrtc.in/site/administration.html, accessed May 21.

Divisional controllers

VC & MD

B.H.
Ghodasara29

Page 13

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9B11M113

Exhibit 3
GSRTC CONCESSIONS BY SEGMENT
Segment
description
Students

Relief
%
82.50

Daily passengers

50.00

Rural female students Visually impaired

100.00

Full exemption

100.00

With one assistant With one assistant Cancer patient

50.00

Physically challenged 100.00

Freedom fighter & their widows

100.00

Monthly/quarterly pass scheme

100.00

Press/radio/television
Reporter

Remarks

Opportunity cost of GSRTC per month (in
Rs.)
529,000 (no. of students) x Rs10 (base fare) x
2 (back and forth journey) x 22 (days travelled in a month) x 0.825 = Rs192,027,000/425,000 (daily passengers) x Rs10 (base fare) x 2 (two-way journey) x 22 x 0.5 =
Rs93,500,000/296,000 (no. of female students) x 10 x 2 x 22 x 1 = Rs130,240,000/44,525 (number of patients) x Rs10 x 2 twoway journey) x 22 (days travelled) x 0.5 x 2
(assistant) = Rs19,591,000/217,000 (number of patients) x Rs10 x 2 (twoway journey) x 22 (days travelled) x 1 =
Rs95,480,000/-

Unlimited mileage in
Gujarat
With one assistant Source: Statistical Department of GSRTC, adapted by the case authors.

Exhibit 4
COST STRUCTURE BY TRIP TYPE
Financial parameters
Not covering diesel cost
Not covering operational cost
Not covering divisional cost
Earning above divisional cost
Total trips

Trip description (absolute numbers)
Ordinary
Express
Total
11,212
339
11,551
17,723
250
17,973
2,239
1,394
3,633
6,857
2,002
8,859
42,016

Percentage
27%
43%
9%
21%
100%

Source: Operations and Statistical Departments of GSRTC, adapted by the case authors.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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9B11M113

Exhibit 5
VEHICLE OVERLOADING

Source: Case authors’ field book.

Exhibit 6
MANPOWER POSITION IN VARIOUS CATEGORIES AT GSRTC
Category

Officers
Admin
Traffic
Mechanic
Driver
Conductor
Total

Sanction

467
7,224
1,681
12,778
16,289
16,224
54,663

Working

198
4,113
1,386
5,941
15,196
14,540
41,374

Short fall 269
3,111
295
6,837
1,093
1,684
13,289

%
Shortf
all

Year of retirement

Total strength by
2012 (% shortfall)

2009

2010

2011

2012

58
43
18
54
7
10
24

19
201
92
657
1,030
1,137
3,136

20
362
70
629
1,168
1,086
3,335

16
328
70
503
1,061
1,092
3,070

16
334
38
464
1,130
1,059
3,041

127 (73%)
2,888 (60%)
1,116 (34%)
3,688 (71%)
10,807 (34%)
10,166 (37%)
28,792 (47%)

Source: Statistical Department of GSRTC.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

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9B11M113

Exhibit 7
IMPROVEMENTS IN EFFICIENCY PARAMETERS
Particulars
Effective km (in 10^7 km)
Percentage load factor
Daily vehicle utilization (kmbd)
Daily crew utilization (kmbd)
Diesel kmpl
Mechanical breakdown rate/10,000 km

2006/07
93.57
61.19
377
209
5.25

2007/08
99.70
63.00
396
229
5.37

2008/09
101.07
66.50
417
247
5.53

2009/10
97.86
67.35
416
252
5.55

2010/11
94.85
68.98
416
254
5.53

0.53

0.31

0.17

0.18

0.16

Note: kmpl = kilometres per litre; kmbd = kilometre per bus per day.
Source: Courtesy, Chief Traffic and Commercial Manager of GSRTC.

Exhibit 8
NEW MEASURES OF OPERATIONAL EFFICIENCIES AND RELATED PENALTIES
FOR DIESEL BUSES
Item description

Industry average Fuel efficiency
Vehicle productivity
Crew productivity
Bus breakdown

5.15 kmpl
373 kmbd
178 kmbd
0.15/10000
km

Fleet utilization

Non-tariff income
(in Millions of Rs.)

Proposed standard of
GSRTC
5.40 kmpl
390 kmbd
173 kmbd
0.32/10000 km

Current status Penalty for unit slippage from target

5.39 kmpl
389 kmbd
173 kmbd
0.33/1000
0 km

Rs22.17 million
Rs64 million
Rs27.6 million
Rs3.674 million per 0.01 additional breakdown over
10,000 km.
GSRTC plans to increase fleet utilization by 2% yearover-year for five years.
Penalty to be imposed after fifth year @ Rs7.6 million per slippage percentage.
Rs27 million per % slippage from target

95.01%

85.23%

83.23%

Rs123.1 mil.
(2009/10)

Rs135.4 mil. (10% increase per annum, year over year) Rs121.9 million Source: Statistical Department of GSRTC.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.

Page 17

9B11M113
Exhibit 9
FINANCIAL PROJECTION FOR 2011 TO 2016
Items/years

2011/12

2012/13

2013/14

2014/15

2015/16

Earnings (In millions of Rs.)
Total traffic earnings

16,673.4

18,103.7

20,555.9

23,278.4

25,946.3

5,000
147.5

5,250
162.2

5,500
178.5

5,750
196.3

6,000
210.3

PPP premium

900

0

250

250

250

Sale of scrap

150

150

150

150

150

22,870.9

23,665.9

26,634.4

29,624.7

32,556.6

Gov. subsidy (offsetting concessions & USO)
Non-traffic income

Total income (at status quo)

Expenditure (In millions of Rs.)
Salary & allowances

7,484.7

7,859

8,251.9

8,664.5

9,097.7

Welfare and superannuation

1,809.3

1,854.5

1,900.8

1,948.4

1,997.1

1,000

1,000

1,000

1,000

1,000

980

1,029

1,080.45

1,134.47

1,190.12

Diesel + CNG cost

7,858.8

8,794.4

9,839.5

10,973.9

12,243.9

Taxes ( P-tax @ 17.5%, toll & motor vehicle)
Contingency expenses (legal fees, stationary, electricity, telephone)

2,973.3

3,299.88

3,647.16

4,036.02

4,431.43

545.7

633

650.6

668.7

687

MACT awards
Leave salary arrears (retired) up to March 31,
2011
Leave Salary Arrears (regular) up to March
31, 2010

1,020

250

250

250

250

303.4

0

0

0

0

382.6

0

0

0

0

DA arrears (July 2009 to December 2010)

493.9

0

0

0

0

Gratuity differential

479.4

0

0

0

0

120

120

80

0

0

1,253.8

1,284.5

1,385.9

1,491.2

1,600.5

525.4

779.2

899.1

1,099.6

1,001.8

27,230.3

26,903.5

28,985.4

31,266.8

33,500.6

-4,359.4

-3,237.6

-2,351

-1,642.1

-944.0

Arrear payments (spread over five years)
Stores (including tires)

Pension demurrage
Depreciation cost
Interest on loan repayment
Total cost (at status quo)
Margin at status quo

Source: Finance & Accounts and Statistical Department of GSRTC.

This document is authorized for use only in PGP 1st Year- 0828 by Ms. Sujata Shahi, Ms. Anisha rani, Ms. Sunaina
Singh from August 2012 to February 2013.