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Thursday, December 26, 2013

Railways introduce Dynamic Pricing of Tickets

A little more than two years ago, I wrote a blog article on Dynamic Pricing of Tickets in Railways. I argued that this is a fairer system public, generates higher revenues for Railways, and is basically a win-win situation for all stake holders.

I was extremely happy to see the news paper article a few days ago that the Railways is introducing Dynamic Fares on a Rajdhani like train between New Delhi and Mumbai. Here are links to news articles in Times of India, Mint, and Outlook. And an even better news is that the public seems to be lapping up all the seats available on these special trains. Read the articles in Times of India, DNA, and Business Standard.

As I had said in my earlier blog, the public has gotten very used to the idea of dynamic pricing because of the low cost airlines, and they will be happy to pay the premium to Indian Railways that they currently pay to a tout.

This is a very limited experiment. Just one train. And with a lot of unnecessarily harsh rules, which will not be in the interest of either passengers or railways. But a first step is essential to cover any distance. As of now, the Railways have announced only a few journeys on a special Rajdhani type train, like a holiday special. I hope the success of the experiment will encourage them to keep this train running and extend the scheme to more trains.

The scheme has been kept simple - only end to end tickets, no discounts of any kind, no waiting list tickets, and the fare starts from the Tatkal fares of other Rajdhanis, and keep going up as the seats get filled. All Tatkal rules are applicable, including no refund on cancellation. It is the last rule, which I find strange. Who does it help. In my opinion, no one. If there is to be no refund, then why have RAC at all. After all RAC is supposed to be Reservations against Cancellation. You are not allowing cancellations. Does RAC make sense.

If Railways were to allow cancellations albeit with higher charges than usual (say, Rs. 200 per passenger), then they would be able to sell more tickets, and generate more revenues on most days. I hope that IR only wanted to have very simple rules in the beginning, and soon would introduce cancellation on such fares. These fares are different from Tatkal in the sense that in Tatkal, you buy the ticket only one day in advance, but here you could buy tickets up to 15 days in advance. One could argue that cancellation of trip in the last 1 day is rare, and it will be difficult to sell that seat at the last minute, but cancellation of the trip in the last 15 days is not rare, and hence a lot more people will wait till the last day to purchase tickets, causing uncertainties to passengers, but also, Railways would not be able to guess the demand till late and hence unable to increase the prices to the extent it could otherwise, thus losing revenue.

Also, they can be a bit more aggressive in pricing than what they have been for the first train. That the whole train was sold out about a day before the departure time means that there would have been people willing to pay even higher price than the 35% or so premium they could charge. My goal would be that anyone should be able to travel in a train with just 8-10 hour notice at a price less than what one currently pays to the touts. If a train is getting fully booked 24 hours in advance, it means that pricing was not right.

How do we move forward from here.

First, as I already said above, they need to fine tune their algorithm. And remember, that this would become lot more complex when they introduce in more trains, introduce it for tickets booked from intermediate stations, in different classes, and so on.

Two, reconsider the refund policy. Railways will have to do it at some point in time. They can not have a zero refund policy even politically when dynamic fares get extended to many trains and many classes. So they better rethink this now, before the parliament forces them to do so.

Three, introduce it in AC-1, AC-2, Executive class in all trains. Don't have to start with Tatkal fares. Start with regular fares. And slowly increase based on seats sold and the rate of selling those tickets, and also the history of those trains on certain days of the week and holidays, etc.

Then introduce in AC-3 class in all trains. When it comes to SL and sitting classes, may be they should first introduce them in holiday specials (but then they better run on time), then on superfast trains, and then slowly on trains which are always in demand, and then all other trains.

Another excellent idea that Railways have introduced is that dynamic fares will be allowed only on IRCTC website, and not available through PRS terminals. This would ensure that there are no fights at the ticket windows, where the clerk tells the price to a customer, and by the time he types in all the names and other details, the fare has gone up. Given that they are only available online, you can only fight with your PC. In the beginning, protecting their clerks from people who don't understand dynamic pricing was very important. But also, we all know that the cost of booking tickets through PRS is much higher for Railways than through IRCTC, but we pay more for IRCTC and less for PRS booking. There is a need to move passengers to online booking, simply because it costs less to the railways. Such moves will definitely make online booking more popular, though eventually, Railways would have to start charging a surcharge for PRS booking and remove surcharge for online booking.

Overall, a great beginning and I hope this will be extended to all trains.

Saturday, November 16, 2013

Bharat Ratna

I am not a sports person. The highest level that I could ever achieve was to play in Inter-IIT. And I won't call myself a cricket enthusiast, though I have a son who is crazy about it. I have watched exactly one ODI, World Cup Quarter final in March 2011 at Ahmedabad, where Sachin scored a half century, though I am looking forward to the ODI in Kanpur later this month. And yet, I felt nice when the Government announced a Bharat Ratna for Sachin Ramesh Tendulkar. Nice enough that I looked up some information about the awards on wikipedia.

All the media is full of reports that Sachin is the youngest recipient. Actually, he is the ONLY recipient born in independent India. In terms of birth year, the next one would be Rajeev Gandhi, who was born in 1944. And if exclude posthumous awards, the next year of birth would be 1934. Yes, we are referring to Prof. C N R Rao. The youngest recipient living at the time of award was Indira Gandhi who received it in her 54th year (as opposed to 41st year for Sachin).

The oldest recipient was Maharishi Karve who received it in his centenary year, and if we include posthumous awards (and consider the gap between birth year and year of award), the oldest would be Sardar Patel (b. 1875, awarded, 1991). Out of 43 recipients (including the two announced today), 22 were born in 19th century.

Mostly the award is given at an advanced age. Besides Indira Gandhi and Sachin (and Rajeev Gandhi, if you include posthumous awards), there is no other recipient who was younger than 65 years at the time of award. Infact, out of 30 awards to living individuals prior to this announcement, 7 passed away in the year of the award or the next, and 15 passed away within 5 years. The longest survivor is Nelson Mandela, who already has enjoyed the award for 23 years. The next best was Sarvepalli Radhakrishnan who lived for 21 years after the award.

Sachin should have got it two years ago, just after the World Cup victory in 2011. However, there was a technical problem. The award criteria said that it is only for highest achievements in arts, literature, science and public life. But after the world cup, the government decided to change the criteria and made it for highest achievements in any field. Interestingly, it was almost never given for literature (in the sense that people like Dr. Kane also had a significant impact in public life). And in Science, we have had C V Raman, Amartya Sen, and now C N R Rao. The only engineer to have received it was Visvesvarayya, unless you wish to include Kalam as Scientist or Engineer. The only industrialist has been J R D Tata.

With so many voices asking the government to confer Bharat Ratna on Sachin, I have been thinking of others who could be considered. I was really hoping that whenever Government announces Bharat Ratna (was expecting the announcement in January, not now), it would include Ratan Tata and N R Narayana Murthy. And when V Anand retires from Chess, he too would be given the same honor.

Tuesday, November 12, 2013

Hiring of Foreign Faculty by IITs

Today, I came across this Telegraph news item.

This telegraph story suggests that what is limiting the growth of IIT faculty (and that of other central universities) is the rule that no one can get a work permit in India unless his/her salary is at least US$ 25,000 per annum. Wow. I did not know that there is a queue of foreigners lining up to join Indian universities, and if only we are allowed to pay them less than 25K USD, they will fill up all the vacancies, and we can grow and all that.

I would have ignored the article and what it says, if I hadn't heard from some IIT Directors in the past the same lament that if the government could give some foreign professors work visa even if they are paid less than 25K USD, then they can attract foreign faculty to their campuses.

Why does government have this 25K US$ limit. The answer is obvious. The Government wants to protect Indian jobs, and does not want companies in India to hire a whole lot of Chinese and Bangladeshis. It is assumed that the number of jobs at the middle level and higher levels are few. Not many foreigners are interested in coming to India at those levels, and in any case, there is enough competitive talent at that level in the country that one does not expect foreigners to be all over the place.

Is 25K US$ too high, and indeed so high that IITs can not pay this much to their faculty. Let us look at the salary of an assistant professor who is regular employee, that is s/he has completed 3 years of experience after PhD, and completed the contract. The minimum basic will be Rs. 30,000, AGP is Rs. 8,000, DA is Rs. 34,200, HRA (assuming 30%) is 11,400, Transport allowance (including DA) is 6080, contribution to NPS is 7,220, that is Rs. 96,900 per month. Remember, this is the MINIMUM and selection committees can allow a somewhat higher payment. Also, the DA will increase from 1st Jan. 2014 and hopefully the dollar value will remain stable. But let us look at the current figures only. In addition, many IITs pay Rs. 25,000 per month of joining bonus or initial settling down bonus, or whatever you call it. We then have many perks, not the least of which is earned leave, which can be encashed when you resign and go back. The bottom line is that the salary of a young assistant professor with just 3 years of experience after PhD is more than 25,000 US$ a year (and if you feel that the numbers add up to 24,999 $ and not 25,000 $, let me also point out that our boards are allowed to offer higher payments, and we have used this flexibility to offer 25,000 rupees per month to new faculty members, and this number could very well be 25,100 for the foreigners).

I can see that there might be issues in recruiting a foreigner who has just completed his/her PhD, but not others. Also note that these issues have come about only in the last one year with value of rupee vis-a-vis US$ going on a free fall. The issue wasn't there a year ago, and yet our performance in recruiting foreigners last year wasn't quite spectacular.

So the only thing that an IIT needs to do to take care of this lower limit of US$25,000 per annum salary is to give details of all components of the compensation in the appointment letter, monetize the perks, and then offer the total compensation package on so-called cost-to-the-institute basis.

But this will require hard work. One will have to design a new appointment letter, which might take an hour or two of someone's time, and we are all busy doing research.

Even now, if we do not want to do any of this cost-to-the-company stuff, the problem will still be only for people with less than 6-8 years of experience after PhD. How many faculty members have we been able to recruit who have more than 8 years of experience. I must say that the number is close to zero.
Excuses, excuses and more excuses.