Is MSRTC on the path recovery?

1
Manisha Karne*
ABSTRACT

Though it is unfashionable to talk about state intervention now a day, this paper wishes to
review the role of passenger state road transportation in India with special reference to
Maharashtra State Road Transport Corporation (henceforth MSRTC). State Road
Transport corporations (henceforth SRTCs) in our country have played crucial role of
providing the most economical and reliable access to mobility to the people of India .But
currently many of these SRTCs find themselves plagued by several problems, partly
external but largely self-inflicted. The problems faced by the SRTCs were accentuated
after passing of the Motor Vehicles act, 1989, which liberalized private bus operations.
With declining financial support from both Central and State Governments after
liberalization and in the wake of intense competition from clandestine operations, these
organizations have had to largely fend for themselves.
Maharashtra State Road Transport Corporation(henceforth MSRTC) has played
crucial role in the provision of public transportation services in Maharashtra. But over the
last few years, due to a variety of factors, particularly falling load factors and competition
from the private sector; MSRTC’s financial performance has shown a marked
deterioration. Whereas in the neighboring state of Karnataka, there was dramatic
financial turnaround after KnSRTC had been split into smaller organizations2.This paper
examines whether the organizational set up needs to be reorganized and what has been
the impact of reorganization that was introduced in the recent past on the basis of the
recommendations of the Upasani Committee.

1
The author is thankful to Prof. S. Sriraman of University of Mumbai and Dr. Vijay Mudgal of MSRTC for
their suggestions and valuable help.
2
After 1996-97, KnSRTC was divided into four smaller organisations viz. North West KnSRTC, North
East KnSRTC, Banglore Metropolitan Transport Corporation and Karnataka State Road Transport
Corporation , which remained the apex body.
* Reader, Department of Economics, SNDT University Mumbai
1
1. Introduction:
Passenger road transport in India has always been predominantly under the domain of the
public sector. The Road Transport Corporation Act (henceforth known as ‘RTC Act’)
was passed by the Parliament in India in 1950. This Act advocated the nationalization of
passenger road transport services in States of the Union. Under the provisions of the
above Act, many States nationalized their passenger road transport services and thus
State Road Transport Corporations (SRTCs) came into being. Section 18 of the RTC Act
States that “it shall be general duty of the Corporation to exercise its power as
progressively to provide or secure or promote an efficient, adequate, economical and
properly co-coordinated system of road transport services”. Further Section 22 of the
same Act States that the Corporation shall act on “business principles”. Following on the
heels of the RTC Act was the Industrial Policy Resolution of 1956, which included the
passenger road transport industry in Schedule ‘B’. The industry was included in such a
category that was marked for being progressively brought under Government control
with the expectation that the States would take the initiative in establishing new
undertakings.
The process of nationalization of passenger road transport services in the State of
Maharashtra began in July 1948 when, initially, a departmental undertaking of the
Provincial Government with a fleet of 36 buses started operating on the Poona-
Ahmednagar and allied routes, which were later handed over to a Statutory Corporation
viz., Bombay State Road Transport Corporation (BSRTC).
Consequent to the bifurcation of the erstwhile Bombay State with effect from May
1, 1960, the Bombay Reorganization Act, 1960 made provision for the corresponding
bifurcation of the erstwhile Bombay State Road Transport Corporation into the
•
Maharashtra State Road Transport Corporation (MSRTC) and the Gujarat State Road
Transport Corporation (GSRTC). After bifurcation and with the approval of the Central
Government, a notification was issued in June 1961 merging the Maharashtra State Road
Transport Corporation, State Transport, Marathwada and Provincial Transport Services,


1The Section 3 of the RTC Act provides that the State Govt. can establish Road Transport Corporation.
2
Nagpur formally with effect from July 1, 1961. Simultaneously, the jurisdiction of the
Maharashtra State Transport Corporation (MSRTC) was extended to cover the entire
State of Maharashtra.The current Status of MSRTC is provided in the Appendix I

2. PROBLEMS FACED BY MSRTC

MSRTC is facing several problems like other SRTCs in the country. Due to this its
financial profitability has been adversely affected. The problems facing MSRTC are
briefly discussed below:

• Falling load factor: Even though MSRTC operates along 100% nationalized
routes in Maharashtra state; it faces competition from private bus and maxi-
cab operators who operate stage carriage services in a clandestine manner
posing as contract carriage operators. Since these operators compete with
MSRTC only along its high density routes, MSRTC’s load factors have fallen
along these routes thereby affecting its financial performance. As can be seen
from Table 1, there has been a steep decline in load factor for MSRTC, from
around 70% in 1994-95 to nearly 56 percent in 2005-06.
Table 1: Decline in load factors in MSRTC
LF in LF in
Year Year
MSRTC MSRTC
1994-95 70.35 2000-01 59.76
1995-95 73.09 2001-02 60.05
1996-97 72.77 2002-03 58.99
1997-98 67.55 2003-04 55.98
1998-99 65.63 2004-05 56.20
1999-2000 63.55 2005-06 56.69
Source: MSRTC

As per Profit and Loss Statement

• Excessive Governmental Control: In the RTC Act (1950), guidelines were laid
for the control mechanism between the Road Transport Corporations (RTCs) and

3
 the Government. While RTCs were allowed to tap various avenues of finance to
fulfill their investment requirements, the same required approval from the
respective State Governments. A major problem with this clause was that State
Governments were keen to use RTCs as a tool to further their political interests
rather than facilitate their financial autonomy. Moreover, the Act stipulated that
even in matters related to recruitment, State Governments would have a major
say. Most significantly RTCs did not even possess pricing autonomy. Failure to
comply with Government orders meant heavy penalties to the RTCs. Thus, this
flawed control mechanism between State Governments and RTCs was, to a large
extent, responsible for the deteriorating financial health of these RTCs.

• Uneconomic and regulated fare structure: Pricing or fare fixation is a method

of resource allocation. There is no such thing as the right price but rather there are
optimal pricing strategies with specific goals to be achieved (Button, 1993). The
problem with the SRTCs is that there is no economic rationale for determination
of the fare structure. In practice, the organizations have attempted to determine
tariffs based on so-called fully distributed (allocated) costs. However, since fully
distributed costs bear no relationship to marginal costs, there is no basis for
efficiency considerations in this method of pricing. Further, another defect of this
method is its complete neglect of any demand data. In MSRTC, the level and
structure of fares are also determined this way- at least, in theory. In practice,
State Government approval is necessary before tariffs can be implemented. The
Government has the power to modify the recommended tariffs and even if no
modifications are made, their approval, it is normally observed, is accorded after a
long delay. Further, there is also a delay in implementation due to cumbersome
procedures for revision of fares. The delays in approval and implementation have
often meant that the relationship between costs and tariffs on which the
recommendations were made are no longer valid. Thus, the absence of an
economic rationale for the fare structure and the excessive regulation of fares by
the Government have been one of the important causes for the rapid deterioration
in the financial condition of MSRTC during the last few decades which has
adversely affected the capacity of the organization to deliver efficient services.
4
 Other implications have been inadequate fleet augmentation, inability to induct
new technology etc., which have also resulted in increasing the costs of service
provision by MSRTC.

• Heavy Tax burden: Since RTCs were corporations; they were required to pay
tax to the state in form of passenger tax, motor vehicle tax and so forth. The
MSRTC pays Passenger Tax for Mofussil services is 17.5@ and for City services
@ 3.5%. The rate of passenger taxation in Maharashtra is highest as indicated in
the Table no. 2 which gives the comparative picture for passenger taxation in
some other states. The rate of passenger taxation in Maharashtra is highest and
this has impacted MSRTC’s supply, both quantitatively as well as qualitatively.
The burden of Passenger taxation is indicated in Table 3 below.

Table No.2: Rates of Passenger Tax in Some SRTCs

MSRTC KSRTC APSRTC Kerala RSRTC UPSRTC
Name of
SRTC
the
STU
Rate of 17.50% 7.70% 7.00% Rs. 46 Above 17.5%(5%
Passenger lacs 10% concession)
Tax per
year
Source: MSRTC
Table 3: Passenger tax paid by MSRTC in the past 6 years

2000-01 2001- 2002-03 2003- 2004- 2005-

Year
2002 04 05 06
Rs. 359.06 377.89 392.07 393.1 429.3 455.63
Crores 7 1
Source: MSRTC
The burden of Toll tax which MSRTC pays at various entry points in the city area has
also increased substantially in past four years as shown in the table no 4 below.
Table no. 4: Toll Tax paid by MSRTC

5
 2002-03 2003- 2004- 2005-
Year
04 05 06
Rs. 17.05 21.50 26.46 34.91
Crores

Even the Motor Vehicle Tax paid by the corporation is higher than the private
operators. The tax disparity is not only burdensome but it is unjust from the point of
view of the services given by MSRTC. This tax disparity is indicated in the Table no. 5
below.
Table 5: Motor vehicle tax paid by the MSRTC and Private Operators
Type of Bus Tax paid by MSRTC per Tax paid by Private
bus per Year (in Rs. operatorsper bus per Year
Lakhs) (in Rs. Lakhs)
Ordinary Bus 2.51 1.40
Deluxe Bus 8.66 1.40
Air- conditioned bus 16.89 2.25

• Burden of social obligations. We have already pointed out in the context of fare
fixation that there are optimal pricing strategies. The optimal price to achieve profit
maximization will differ from that needed to maximize social welfare or sales
revenue. Whenever there is more than one objective to attain, some of these are
treated as goals while the others are treated as constraints. Section 22 of the RTC Act
stipulates that RTCs shall act on ‘business principles’. At the same time, it stipulates
that they function in public interest as well. Thus, the problem of SRTCs is one of
constrained maximization where the objective function is the revenue maximization
function based on fares while the constraints spell out the social obligations. This
inherent dichotomy in the act has led to a lot of ambiguity and confusion in
interpreting the roles and functions of RTCs.
Social obligations as far as MSRTC is concerned have basically been in terms
of provision of routes that are un-remunerative as well as concessions in fares to be
offered to certain Sections of the society. In the case of un-remunerative routes (which
are categorized as ‘B’ and ’C’ routes) in regard to MSRTC, it has normally been
6
observed that these constitute more than 60% of the total number of routes. For instance
the yearly loss of “C” type operation is to the tune of Rs.224.39 crores (approx) during
2005-06. As MSRTC is guided by the service motive these routes are operated with a
view to provide minimum transport facilities to remote rural and backward areas often on
social and political grounds. Though this approach has earned MSRTC the credit of being
the ‘Lifeline’ of rural Maharashtra, there are significant implications. For example, ‘B’
routes are defined as ones where the variable costs are covered and only a part of the
fixed costs are recovered. This situation is just the reverse of that which occurs in
economic theory literature to explain the idea of a firm continuing to be in operation
when a part of the variable costs are covered in addition to fixed costs. In reality, an
organization cannot afford not to take care of variable costs only – a situation that occurs
at the expense of fixed costs, the consequence being running down of fixed assets. The
result is that there is little provision for replacement of the fleet let alone its expansion.
Further, there is no mechanism to find out the social cost that is incurred and to provide
clear guidelines as to who would bear the costs when such new routes are suggested.

As pointed out earlier, MSRTC too has to offer concessions in fares to various
Sections of the society. Generally it is observed that in MSRTC almost 72% of the
concessions are given to the students in different categories whereas 25% are given to
senior citizens. This provision by way of cross subsidization has imposed a heavy burden
on MSRTC over a period of time. Till very recently, the non-plan support (i.e.
compensation for subsidies) was arbitrary and minimal. However, an encouraging trend
has been that since 2000-01, MSRTC have quantified the costs of providing these social
obligatory services and the State Government is reimbursing the amount that MSRTC
incurs as a cost of fare concessions. The State Government has started giving explicit
subsidy for these social obligations. But it must be noted that the assistance does not
seem to be conditional upon the achievement of any measures of efficiency or
productivity earlier or even in the recent past. The fare concessions given in 2001-02 was
218.58 and in 2005-06 it amounted to 372.99 crore causing additional burden.

7
 • Inadequate Replacement of Fleet: Due to the inability of MSRTC to raise
timely finances, its replacement of fleet has been woefully inadequate. This has
further worsened its position in an intense competitive environment. MSRTC is
thus forced to operate with a fleet whose age is sub-optimally high thereby
resulting in frequent breakdowns. As pointed out in the Upasani committee report
the average age of MSRTC fleet is 6.7 laks kms as against stipulated life of
5.5lakh kms. The non-replacement of overage buses is a cause of concern as it
increases repairs and maintenance costs and reduces productivity

Vertically Integrated Organization: Like most of the other RTCs, MSRTC chose
to operate as a vertically integrated enterprise by owning and managing all allied
activities apart from its core activity of providing public passenger bus transportation.
Over a period of time it owned and operated a large number of depots, workshops,
terminals, bus body building units, tyre retreading plants and so forth. The weak
financial situation of MSRTC made the maintenance of these assets all the more
difficult. Owning and operating these allied activities, which had been justified on the
grounds of lack of specialisation in the country, no longer has any economic rationale
in the post liberalisation era of specialisation. However, the strong labour unions of
MSRTC, apart from a general reluctance to outsourcing has resulted in MSRTC
concentrating its attention needlessly on activities it could have outsourced at a lower
cost and hence reduced its operating cost, particularly personnel cost which
constitutes a relatively large share of 42% in total costs. This would have also
reduced the Staff Bus ratio, which currently stands at a relatively high level of 6.28 in
2002-03 and 6.67 in 2006 for MSRTC.
Thus the end result of all these problems was the MSRTC’s financial health
deteriorated year after year. The MSRTC has often pointed out to the burden of social
obligations, the existing organizational structure and the fare structure (controlled) as
being important reasons for their poor physical and financial performance. Further, the
growth in parallel operations of private vehicles in an unregulated environment that was
encouraged by a policy of liberalization appearing as amendments to the Motor Vehicles
Act, 1989 aggravated the problem as the MSRTC was not able to compete effectively

8
with these parallel operations. This was due to the absence of a level playing field
considering the fare flexibility of the private operators and higher taxes paid by the
MSRTC which resulted in the poor financial situation that they are placed in today. The
financial performance of MSRTC for the period of 93-94 to 2005-06 is shown in the
Appendix No II

3. Organizational Structure of MSRTC

Road transport activities have been found to need more complex organizational
arrangements to deal with complex non-routine events/ operations. Accordingly, the
institutional arrangement for organizing public road transport in Maharashtra is broadly
based on the RTC Act of 1950. In this Act, guidelines were laid out for the control
mechanism between the Road Transport Corporations (RTCs) and State the
Governments. Most SRTCs opted for a hierarchical organizational structure of
operations. The tiers of operations have varied from two to four in different SRTCs.
GSRTC, APSRTC and KnSRTC opted for a three-tier structure of operation. Some have
been organized with only two tiers- a branch / a depot and the head office headed by the
Managing Director (as in Tamilnadu). We now examine the organizational set up in
regard to MSRTC.
The MSRTC is the only organization that adopted a four-tier organization structure
since 1976, where the first tier was the Corporation’s head office consisting of the
Chairman, the Managing Director and departmental chiefs (Executive Directors and
General Managers). The second tier consisted of the Regions, which are now six in
number, namely, Aurangabad, Mumbai, Pune, Nashik, Nagpur and Amravati that vary
quite a bit in terms of the fleet size. The third tier consists of the Divisions, which are
thirty in number, headed by a Divisional Controller titled as Deputy General Manager
and each controlling, on an average of seven to eight depots, At the fourth tier are the
Depots which are currently 247 in number and are supposedly the real operating units
levels headed by Assistant Divisional Managers / Depot Managers who implement
management decisions made at higher levels.
The general feeling in the 70s was that the linkage between the head office and the
division was not strong and delegation of authority at the divisional level was found to be

9
inadequate. Therefore, MSRTC in February 1973 constituted the Administrative Set-up
committee under the Chairmanship of Mr. N.S. Pardasani mainly to examine whether
decentralization of day- to- day functions to appropriate regional set up would be
desirable and, if so, to indicate duties of such authorities to achieve optimum efficiency.

This Pardasani Committee pointed out certain weaknesses of the organizational

structure of MSRTC. To tackle these problems, the Committee made the following
recommendations:

 Decentralization of functions and powers at the level of Depot manager should be

progressively undertaken.

 Since the Depot is a vital profit centre, it should become the “unit of accounting”
and should function as autonomously as possible. The Pardasani Committee
strongly opposed the introduction of a regional set-up in the structure since they
believed that this would lead to problems. But despite this view, the regional set –
up was introduced in the MSRTC thereby making it a four-tier organization.
Thus, an important recommendation of the Pardasani Committee i.e. of
decentralization of functions and powers to lower levels was not adopted by
MSRTC and it continued to be a highly centralized organization.
In September 1985, the Government of Maharashtra constituted another
Committee of experts under the chairmanship of Dr. P.G. Patankar to study, in depth, the
present organization structure of MSRTC with a view to streamlining it so as to ensure
effective decision-making and also monitoring of organization of operational efficiency.
In the view of the committee, the centralized and tall organization structure with four
hierarchical tiers in management without adequate and uniform decentralization of
powers could be ineffective and costly.
After taking a comprehensive overview and making a comparative analysis of
productivity levels in different SRTCs vis-à-vis relative positions of the four regions of
MSRTC, the Patankar Committee recommended that MSRTC should resort to
decentralization of authority- delegating more and more powers for operational activity at
the divisional and depot levels. But such decentralization, it was suggested, should be
10
within the framework of the centralized policy making body, and a centralized
administrative set-up with minimum number of operational tiers for effective line of
control. The Committee based its recommendations on the basis of its conclusion that
breaking a single Corporation for the entire State between two or more Corporations on a
regional basis will not necessarily give desired improvement in the quality of
management.
Both Paradasani Committee and Dr Patankar Committee did not recommend division
of the Corporation in to smaller corporations. Their emphasis was mainly on up-gradation
of skills, decentralization of administrative work, delegation of powers and authority to
strengthen depots and divisions, improving quality of recruitment, proper planning,
and appointments of Professionals on board including that of Chairman and Managing
Director and non-interference by the Government etc. It should be noted that like
Paradasani Committee Dr. Patankar Committee had felt that once Depots and Divisions
were strengthened, the regional set up should be redundant and can be done away without
any disadvantage whatsoever. It was felt that the posts of
Regional Managers who are not accountable to Corporate Office for profit or loss should
be abolished as their duties being only supervisory and advisory.

4. Review of MSRTC by Upasani Committee (2002-03)

The Upasani Committee was set up in 2002 to review restructuring in MSRTC. It made
exhaustive review of MSRTC’s financial performance and organizational structure of
MSRTC. In view of the above, the Upasani committee made certain recommendations
which could be divided in the following two categories.

Recommendations on Financial Restructuring:

The committee noted that financial position of the MSRTC is precarious and there have
been accumulated losses in the past few years. The reasons for financial losses are mainly
clandestine operations, cost of uneconomic trips, social obligations, heavy tax burden city
service operations and overage buses. For improving this condition the MSRTC and the

11
State has to take immediate action. The main highlights of the recommendations made by
the committee on this issue are as under.
• Control on clandestine operations

• Creating awareness among people regarding the dangers of using clandestine

operations.
• Regulatory framework to control illegal operations of contract carriage buses
which operate as stage carriage buses should be made stricter by enhancing
penalties and setting up of an independent machinery to implement this policy
• In the competitive environment any fare revision to absorb rise input prices results
in to decline in the load factor, MSRTC should try to absorb some part of increase
in input price by increasing productivity.

• Due to the growing urbanization and the competition from other modes of
transport, there is an urgent need for MSRTC to revamp its operations.

• To reduce the burden of social obligations MSRTC should be entitled to

automatic reimbursement of losses and a mechanism could be worked out as its
reimbursement out of passenger tax payable by the MSRTC.
• Need for stricter definition of Parallel operations and measures to control such
operations.
• The function of line checking and traffic management could be separated to make
it more effective.
• A shorter business plan for replacing overage buses and considering the option of
hiring of new buses from private operators.
• State government should consider special funding for overage buses.

• Review of losses made by some depots and to avoid further losses operations with
the help of hire –purchase agreement for operation can be considered.

Recommendations on organizational Restructuring

As said earlier, MSRTC is the only Public Sector Transport Undertaking in India
having a 4-tier organisation. Most of the other organisations have either 2-tier or 3-

12
tier organisational structure. Karnataka has four Corporations, while in Tamilnadu,
there is a separate company for each district to manage transport services.
The experience of MSRTC of working of a 4-tier organisational set up shows
that in initial stages the Regional set up having considerable delegated powers of the
Central Office functioned very well. Later on number of restrictions was placed on
the exercise of these powers either by the Central Office or by the Board or because
of the general policy instructions given by the State Government. One of the main
reasons why the decentralized set up could not achieve expected results was because
of the existence of the Central Office manned by officers of higher rank who
continued to call for information and issue directions on matters which were
delegated exclusively to the Regional offices. Even the matters, which are within the
scope of day to day management like framing timetables, appointment of personnel,
transfers of unit cadre staff etc. were interfered with. All this resulted in reduced
responsibility of the Regional office and diluted the authority given to the Divisional
Office and resulted in lack of control and indiscipline. It was strongly felt that
the Regional set up has failed to serve the purpose for which it was created. For
instance in the year 2001-02 the MSRTC has spent a sum of Rs 8.37 crores on six
regional offices. Reduction of one tier could be achieved either by eliminating
regional offices and retaining one single large corporation or by eliminating Central
office and its associate offices and creating three separate Corporations by suitably
combining the operations of contiguous geographical areas. There was also a feeling
that the advantages of a large single corporation far outweigh the likely advantages in
splitting the operations in three corporations. It was also felt that establishment of
independent regional corporations or district wise companies or corporations or
subsidiary corporations would not only result in increase in overheads and
administrative costs without any commensurate operational benefits but also the
financial viability of such companies or corporations was doubtful.
The Karnataka‘s experience needs to be noted here. After splitting of the
KnSRTC, there has been a spectacular improvement in its performance. However the
improvement was also due to other factors like the full support extended by the
government in handling the labour relations, 14% reduction in passenger tax,

13
charging a concessional sales tax at the rate of 5% on all purchases except oil, cement
and steel, made by Karnataka Corporation. This experience brings out clearly that
organizational restructuring if supported by other relevant steps can lead to positive
changes in the organization’s performance. So after taking into considerations
different aspects related to organizational structure, Upasani committee made certain
recommendations for organizational restructuring of MSRTC.

• The Committee recommended that as a first step MSRTC should eliminate the
Regional se up and Central Units like Kurla Stores, Central Stores Purchase
Organisation and to empower all Divisions and Central Workshops and make
them accountable for financial results also. Such an exercise would result
reduction in staff and staff cost as well as down sizing of administrative and
workshop organization structures.

• The committee strongly recommended decentralization of power by way of

empowering 30 divisions and 3 central workshops and holding them fully
accountable and responsible for physical performance and financial results. In
organisation like MSRTC where operations ought to be conducted on business
principles, it was believed that authority also ought to be
accompanied with financial accountability and responsibility. It also recommends
that all operating managers are held fully responsible and accountable for the
financial results as well as physical performance. Along with eliminating and
trimming administrative tiers, management at all levels from Corporation Board
to Depot should be held accountable for financial performance. At the Head
office, Monitoring Committees should be constituted to
supervise financial performance of the divisions. Along with the abolition of
Regional Office, MSRTC should also introduce a system of Transfer of funds
from head office to thirty divisions and three central workshops on the basis of
approved budget of the division/ workshops and shortfall in performance, if any,
will have to explained to the Monitoring committee and its sanction will have to
be obtained before any extra funds are released by Head Office. Such a system
will make Divisional Management cost conscious and drive them
to perform better. The Divisions should function as if they are independent units
14
 without separate corporate legal status and bound by the guidelines of the Central
Office. The empowered divisions should prepare their own budgets and get them
approved from Central Office. Similar modifications should be made in the set up
of three Central workshops, and the Divisions as well as Central
Workshops should also prepare their own profit and loss account and balance
sheet.

• The role of Central Office would under go a change because of empowerment of

Divisions and Central Workshops and should also result in reduction of staff.
Thus without the splitting of MSRTC in to different legally constituted corporate
units as done in case of KnSRTC, it is possible for the Head Office to
treat each of the 33 Units of MSRTC (30 divisions and 3 Central Workshops) as
an independent unit with full powers for all practical purposes preparing it's own
budget, profit and loss account, balance sheet, managing it's finances and taking
full financial responsibility, subject to certain conditions.

• It is important for MSRTC to evolve a system of evaluation of performance of

each of these 33 units and a scientifically evolved scoring system can be
implemented to assess the physical and financial performance of these units. This
will motivate the staff and incentives could be given to better performance.

• A long term plan has to be made for establishing new system and procedures and
modification of some of the existing systems and procedures in view of the
decentralization and organizational restructuring.

Is MSRTC on the path of recovery?

The recommendations of Upasani Committee mainly aimed at improving the financial
performance by way cost minimization and revenue maximization by reducing the
clandestine operations. The major focus was on organizational restructuring which has
been partially implemented in MSRTC. The powers at the Regional set up were diluted
and currently though the regional set up still exists with Regional managers and Regional
Engineers there has been substantial staff reduction at the regional offices. The divisions
are strengthened and empowered by way transfer of funds and decision making autonomy

15
as indicated by Upasani committee. This organizational restructuring though only
partially has been accompanied by number of measures to raise revenue were also taken
by MSRTC. Some of the new services started were introduction of Air-conditioned
Deluxe Buses on high density routes, introduction of Mini buses and Midi Buses to curb
the clandestine operations, Annual concession travel card system, Janata Bus service,
improved passenger amenities, Travel as you like scheme etc. Along with this certain
supplementary measures such as computerisation in Reservations, Accounting and
computer training for employees were introduce to improve the operational
administrative efficiency of MSRTC. The Corporation has taken measures to improve
fuel efficiency and there is encouraging outcome as the KPTL and KPL shows
improvement as shown in the table 6 below.

The Corporation has decided to computerise working of the depots in phased

manner. The wireless communication has been upgraded so that in case of emergencies
the remedial and rescue operations could be carried out immediately. The corporation has
introduced VHF Communication system at important places of three National Highways.
Special wireless wing headed by Wireless planning and co-ordinated officer in the
organization has been created. Wireless system at 13 divisions made operational and will
be extended to others in near future. The proposal of hiring buses is also under
consideration which may further help in cost cutting.
The combined effect of all these measure has been positive. Though no financial
turn around is seen in MSRTC like that of KnSRTC, there are certain positive signs of
improvement in performance of MSRTC as indicated in the table 6 below3.

Table No. 6: Physical and financial performance of MSRTC (2001 to 2005-06)

Sr. Particulars 2005-06 2004-05 2003-04 2002-03 2001-02

3
The Upasani committee(2003) was of the view that the results of reorganization will begin to appear only
in the third year.
16
No
1 % Fleet Utilization 93.16 95.47 94.16 93.96 94.11
2 % load Factor 56.59 56.20 55.98 58.99 60.05
3 Vehicle Utilization 321.30 323.45 317.73 311.85 308.20
4 Effective Kms (In 172.14 179.76 176.52 176.56 178.27
Crores)
5 KPTL (HSD) 48.93 48.54 48.07 47.63 47.02
6 KPL(Engine oil) 928 874 788 724 660
7 Gross Revenue (Rs. In 3295.30 3263.45 2747.07 2727.51 2641.49
Crores)
Paise per km(EPKM) 1914.43 1315.45 1556.23 1544.77 1481.76
7 Total Expenditure 3329.93 3396.63 2927.11 2808.81 2711.02
in(Rs. Crores)
8 CPKM (in paise) 1914.54 1889.54 1658.23 1590.86 1520.77
9 Profit/Loss Excl. prior -34.63 -133.18 -180.04 -81.30 -69.53
period adjustment(Rs
crores)
10 Profit/Loss Incl. prior -37.29 -129.37 -205.07 -71.91 -55.38
period adjustment(Rs
crores)

One has to take note of the fact that there have been only partial efforts of
reorganization and the regional set up though now have become non-operational, the
regional offices still exists. The control of clandestine operations requires stringent policy
interventions and involvement of various authorities like the Road Transport Authority,
MSRTC and the State government. Hence controlling the clandestine operations is the
issue which remains unresolved. But despite of theses constraints, the efforts of cost
cutting through organizational restructuring, improving operational efficiency and
modernization has certainly helped in improving the EPKM, controlling falling load
factor and reducing losses over the last 2-3 years i.e. the period after Upasani
Committee’s recommendations have been partially implemented. In RSRTC, which too
had a highly centralized organizational structure like MSRTC earlier, there was
progressive improvement in physical parameters when re-organization was introduced in
1990. There was devolution of power to depot level and due to this novel scheme of

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designating each depot as a ‘profit centre’, which were given incentives for successful
achievements of the physical and financial targets set for the depots, the performance of
RSRTC improved substantially thereafter.
There is research finding which supports the need for implementing organizational
restructuring. This finding about the measurement of Technical Efficiency score by
using Malmquist Data Envelopment Analysis technique indicated that all the regions of
MSRTC are operating either on or very close to the production frontier.(Karne,
2004).Our findings indicate that though technical efficiency scores for the regions are
high, under a centralized framework for decision making, the imposition of targets,
financial constraints and the burden of social obligations have created distortions in the
functioning of these regions. Thus, a centralized framework is recognized as the major
cause of poor performance of this organization, which further implies this organization
requires restructuring.
The efforts of reorganisation will fail to bring desired results unless there is an
environment in which professional and competent managers are able to exercise
delegated authority and could be held responsible for the physical as well as financial
performance. Such structure can be created only if there is no state government
interference in day today operations. Hence, MSRTC needs to be given full autonomy
within the framework of RTC Act. If Memorandum of Understanding can be prepared
between MSRTC and State government it will give clarity to the mission and objectives
of MSRTC and targets to be achieved in performance and at the same time it will also
regulate the relationship between the government and the Corporation. To conclude ,If
MSRTC wishes the to maintain its status of life line of Maharashtra then there is an
urgent need to implement reforms in the near future and this would also set an example
for other SRTCs facing similar problems.
Appendix I
MSRTC at a glance
Established on 1st June 1948.

Owns 1379 hectares of land

No. of regions 6

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No. of divisions 30
No. of depots 247
No/ of buses held 15445
Average No. of routes 16640
Average no. of schedules operated 13930
No. of villages served (directly) 41418
Total population served 1009.78 Lakhs (99.77% of total population) as on 31-03-2005
Daily Effective kms operated 48.36 Lakhs
Average daily passengers traveled 62.10 Lakhs
No. of central workshops 3
No. of divisional workshops 32
No of employees (including staff at central units) 102818 as on 31-3-06

Appendix No. II: Profit /Loss during 1993-94 to 2001-2002.

MSRTC 1993-94 1994-95 1995-96 1996-97 1997- 1998-99 1999- 2000- 2001-
98 2000 2001 2002
Profit/loss 43.92 3.51 -3.17 -136.24 -88.37 -142.93 -156.31 -22.97 -69.53
(Rr. crores)

MSRTC 2002-03 2003-04 2004-05 2005-06

Profit/loss -81. 30 -180.04 -133.18 -34.63
(Rr.
crores)
Source: Annual Administrative Report of MSRTC, several years
As per profit and loss statement.
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