The impact of the new railway catering policy on consumer consumption in the mumbai railway food catering system in maharashtra India?

The Indian railways provide service to 22 million passengers daily, with more than, 76,608 passenger coaches under its control2 . Most of these passengers traverse arduous journeys through the terrains of the country to reach destinations, raising the need for effective catering services that can supply passengers with fresh meals.

In 1955, the Indian Railways implemented departmental catering on a 'No Profit, No Loss' basis at a few key stations and train services to model the quality and service The catering policy in its earlier revisions of 2005 and 2015 looked at the distribution of duties between government-owned organizations and private licenses, to ensure the service of quality meals and implementation of cost-cutting measures, which included handing over recurring-loss units to contractors and running departmental units on a nominal profit of three to four per cent, which would be used for improving services.

The new catering policy of 2017 (Appendix 1) addresses the shortcomings of its earlier revisions and involves a clear mandate to maintain a sanitary supply of food aboard trains, a separation between food preparation and food distribution, as well as changes to running kitchen equipment. It also contradicts the 2010 catering policy and instructs the transfer of the operation of base kitchens (class B and over), static and mobile units, from under the control of the zonal railways to the control of public service undertaking, the Indian Railway Catering and Tourism Corporation (IRCTC), due to repeated complaints of low quality of food services. The policy also includes the enhancements of new initiatives like e-catering, which allows food to be delivered to travelling passengers from various restaurants' chains, and allows the IRCTC to manipulate the price of the catered meals in the Indian railway caterings system. Through the policy, the IRCTC controls the number of functioning catering units.

The 2017 policy makes IRCTC the sole entity responsible for catering services in the Indian railways. It aims to increase the demand for meals from consumers, hence, an important aspect of the efficiency of the policy relies on its effect on consumption.

This research aims to answer the question, “How does the New Railway Catering policy of 2017 impact consumer consumption in the Mumbai Railway Catering system in Maharashtra, India?” The research is related to the economic theory of the firm, theories of demand and supply, elasticities, tradeoffs and, allocative efficiency. The research will follow an analysis of consumer response to the changes brought forward by the policy which were mainly a price change, quality measures and several catering units in Mumbai to determine whether the policy was successful in ensuring an increase in consumer consumption by instilling positive consumer attitudes towards quality and hygiene.

To ensure the research question remains in the essay's scope, this research will focus on Mumbai’s central railway system and not its suburban railway system. There are t types of catering services available, the in-pantry meals, static station units and e-catering services, and this essay will focus on consumption trends of the three.

Why did you choose this topic?

This research is important considering the Indian railways operates with extensive subsidies covering the cost of supplying the railway service to India’s massive population Policies meant to increase consumption ultimately affect the railways’ ability to function efficiently at sustainable profit levels. Hence, analyzing the efficiency of the new catering policy 2017 will also ultimately allow us to examine its effect on government expenditure, and analyze the efficiency of the IRCTC as a firm.

A brief overview of related materials leads to the alternative hypothesis that - the collations of data sources should demonstrate the new catering policy of 2017 has led to an increase in consumption. Mumbai railway catering system. Whereas the null hypothesis remains, the new catering policy has no impact on consumption in the Mumbai rail food system.

The extent of the impact of the New catering policy 2017 is investigated by examining a combination of primary research and secondary sources to understand the impact of the new catering policy of 2017 on consumption, in Mumbai’s railway catering system. These are explained in detail below.

Primary research carried out in the form of a survey involved questions regarding consumer trends towards catering services, to assign numerical values that represent consumer consumption. The target population for the research remains the citizens of Mumbai - part of the population subset that uses the train service. Lockdown restrictions resulted in the survey being carried out online, which subsequently makes the target population being focussed on Mumbai train users with access to the internet and English language skills, from this target population sample size of 96 participants was acquired. The list of questions asks consumers preferences and habits in the years 2013 to 2020, this range of years was chosen to explain the changes in consumption caused by the policy by examining consumer perception before application.

The survey was made using the google forms software and circulated with the use of WhatsApp groups' messages, tweets, Facebook posts and Reddit community posts (Appendix 1). Personal data from all survey participants were not stored and kept anonymous. Data obtained from the survey are included through Appendices 2 to 8

Firstly to determine the validity and reliability of data obtained from the survey, its results were collated with academic journal articles that explore investigations regarding consumer perception of Indian railway catering services. These were the Passenger Satisfaction on Catering Services of Indian Railway Catering and Tourism Corporation Ltd, Study (2018) and the Hospitality & Public Health, Case Study of Indian Railway Catering of 2016. Both of which provided a similar distribution of data.

To understand the trends of shifting demand and supply of catering services, the price changes of pantry catering services in the year 2013 and 2019 and for the Rajdhani/Shatabdi/Dulonto trains was also researched (Appendix 9). The price change and menu change for the catering services on station-specific static and mobile units, in the years 2013 and 2019, was also researched (Appendix 10). Lastly, for analysis regarding the efficiency of policy, the f financial data regarding expenditure, operating revenue, production assets via IRCTC Corporate Portal Annual reports were utilized.

This section of the essay will focus on analyzing the data gathered to be able to articulate economic arguments and gain perspective to ultimately understand - How does the New Railway Catering policy of 2017, impact consumer consumption in the Mumbai Railway Catering system, in Maharashtra, India, by analysing consumer behaviour and the rationale behind the organisation of the catering system.

a. Theory of Demand - Consumer Behavior within the Mumbai Catering system

Demand for a good is defined as the “quantity of goods and services consumers are willing and able to buy at various prices in a given period of time.” , governed by the law of demand which states that “as price of a good falls its quantity demanded increases, ceteris paribus.” Demand at the foremost is consumer behaviour and reaction to changes in the market. Both definitions emphasize the importance of price change in consumers response to goods, yet it can be noted through data collected through the survey (Appendix 3) and secondary research regarding price changes (Appendix 9 and 10), the Mumbai catering system sees a continuous upward shift of demand against a price hike.

The other variables which remain rather than a change in quantity demand there has rather been a change or shift in demand for catering services in Mumbai. Shifts in demand are attributed to the effect of Non-price determinants of demand, such as the price of substitute goods and supplementary goods, Advertising and preferences. The Demand and Supply of a good are part of an interdependent relationship governing market forces. “Supply is the quantity of good firms are willing and able to produce at different prices in a given period and is governed by the law of supply that states that as the price of a good increase, its quantity supplied subsequently increases, ceteris paribus''

The shift in demand is represented in Figure 3. To ensure the diagram remains easy to understand, only the price of lunch meal was taken for 2/3AC category, as the results of the survey classify it the most popular train class (Appendix 8) to delineate changes in demand over the years for the pantry meal system (Diagram 1). The quantity demanded in the Diagram, incurred using the indicators of very likely and likely in question number 2 of the survey (Appendix 3), and price of lunch (Appendix 9) has been transcribed into a demand scheduled in Figure 2.

This diagram is drawn with the assumption that the system works in perfect efficiency at equilibrium, which in real life is highly unlikely, but it does represent how a price increase has given the firm IRCTC incentives to increase market size and then ultimately increase demand.

In Figure 3, there is an outward shift of Demand - an increase in demand from the year 2013 to 2019, for lunch at a price that has increased from R.s 125 to R.s 185. The quantity demanded increases from 59 (2013) to 62 (2015), to 66 (2017) at price R.s 125, then increases to 71 (2019) and then falls to 21 (2019) at price R.s 185. We see how a price increase has allowed the Mumbai catering system to increase the supply of products, as per the law of supply. This is because the firm uses the extra income from increased prices to expand its production. The costs of production must be covered by total output which is why the Mumbai catering system increases the price to be able to better support consumer consumption. However, the shift in supply is mainly attributed to the mandate of increasing access to meals and therefore driven strongly by non-price/revenue factors.

Figure 4 shows the number of participants that indicated ‘Excellent’ and ‘Good’ for their perception of Mumbai catering services in terms of Health and quality, the data used for this was obtained via the primary research(Appendix 6).

The graph shows that there has been a significant positive shift in consumer perception, till the year 2020 where similar to demand, positive perception falls lower. Positive consumer perception means consumers are more likely to buy the product due lower anticipated opportunity costs. Other than the year 2015, which presents as an anomaly, the data for demand directly coincides with the trends of consumer perception.

The non price determinant of Demand in question is advertisement, through the 2017 policy there was an introduction of live streaming of base kitchens preparing meals for pantry train cars and some static units. Advertisement actively tries to control public narrative regarding the product, this live s allows consumers the to analyze the preparation of meals that they pay for, increasing the confidence of consumers in food preparation, and making them more likely to buy from the Mumbai catering services.

Another important aspect while considering the trends of demands are the subsequent trade offs participants face while making a decision regarding catering services. The survey participants regarded Heath and Hygiene - 42% and quality - 27% concerns, as major reasons for avoidance (if applicable) of Mumbai Catering Service. Participants feel that there is an associated opportunity cost that they sacrifice by consuming pantry meals.T hroughout the years, there have been multiple reports of violation of basic hygiene protocols set by the IRCTC, or Indian Railways, for example in 2019 there was mass circulation of a vendor using contaminated water from public bathrooms to prepare food on a Mumbai city railway station, this coupled with similar vidoes circulated throughout the years in various parts of the country are responsible for the formation of high anticipated opportunity cost in regards to health and hygiene associated with railway meals. The 2017 policy follows similarly to change the public narrative around catering system meals to ultimately increase their demand.

Through previous analysis we see that the price of catering system meals is not correlated to its consequent demand. It is assumed then - demand for catering system meals is price inelastic, because price for lunch meals in 2/3AC in 2019 increased from R.s 125 to R.s 185, 48% and demand increase from 66 units to 71 units. This is further supported by the primary research here: only 6% of passengers indicated the meals as too expensive and 15% preferred substituting with home packed meals (Appendix 4). Most passengers will end up buying train meals if they are traveling. The price inelasticity of catering system meals further adds to the argument that demand for catering meals is determined by non-price determinants.

Therefore through the 2017 catering policy, there has been an increase in demand for catering service meals, by factors such as positive advertising and increasing scale of production that is supplied.

B. Theory of the Firm - Monopolization of Catering Services and its Social Efficiency.

To understand consumption trends in the Mumbai catering services, it is important to demarcate the market structure they abide by. “A market structure describes the characteristics of a market organization that influence the behaviour of firms within an industry'' The Mumbai catering services by the effect of the 2017 policy undertakes the previously used licensing system to make IRCTC the only firm responsible for the organization of catering all major train services, including the 2 major Mumbai city stations, Chhatrapati Shivaji Terminus, and Mumbai Central. There is a strict legal barrier to entry, protected by legislation among the railway catering sector, that prevents other firms from operating by the effect of the New catering policy 2017, which results in IRCTC owning 100% of the Mumbai railway catering market share on its two main stations, which also subsequently results in it having no major substitutes other than passengers who wish to carry packed food from outside, as indicated by 15 per cent of survey participants (Appendix 4). Hence it the Mumbai railway catering systems functions within the parameters of a monopolistic market structure, and the market structure can be labelled as a Legal Monopoly.

Subsequently, here the concept of natural monopolies can be incorporated, the 2017 policy argues that the operation of Indian railway catering services is most efficient when the catering services are managed by a single operating firm, the IRCTC, as earlier management of catering services, characterized by increased private licensing led to subpar standards, and an increased grey area in terms of monitoring quality, which remains the key aims for the 2017 policy. The IRCTC catering segment has witnessed a significant rise in its operating revenue all over India post introduction of the new railway catering policy (Appendix 11). The increase then staggering fall in revenue is annotated in Figure 5.

This Data was collected via the IRCTC corporate portal reports and represents an increase in revenue in the catering sector of the Indian railway in 2017 to R.s 1044 cr. in 2019 to finally falling to its lowest in 2020 to R.s 227.08. The data from before 2017 is not relevant to analysis as the IRCTC was not responsible for catering in the Mumbai catering system before that.Following the explanation of the Mumbai catering Industry as a monopoly, a diagram can be drawn in the form of a monopoly graph that represents the outcomes on price and output following the monopolization of the Mumbai catering services.

Prior to the introduction of the monopoly in 2013, we see at a price of R.s 125, 59 units of goods were produced, where Average cost = Marginal cost = Price, following the assumption of a perfect competition model where different licenses competed for market share. Through the introduction of the monopoly in 2017, there is an increase in price to R.s 185 following the assumption of profit maximization the output should fall to Q’m where Marginal cost = Marginal revenue. However, that is not the case, through the survey 2019’s output is placed at 71 (Appendix 3)

The catering system is a government-owned monopoly, and hence it does not function with the purpose of profit maximization. The increased prices are not used to fuel profit but to rather increase the efficiency of production. The IRCTC unique position in the market and its government ownership results in the usual assumption of the monopoly of price increasing and output decreasing do not hold true, as there is a subsequent increase in total output as the price of a good increase. The increased prices are given back to the consumers in the form of external benefits such as quality meals, more accessibility etc.

This data taken from the IRCTC corporate annual reports represents constant effort to increase output. Since the IRCTC is the sole producer, it does enjoy abnormal profits, but due to its government management, these abnormal profits are given back to the people in the form of social benefits. This social benefit is explicitly analyzed in the opening of new Jan haars all over India, “The Jan Aahar scheme was launched by the Government under which poor and low-income group people will be offered nutritious and delicious meal twice a day at a low price of Rs 15/-” 

In combination with increasing production and persistent increase in demand for catering services, the IRCTC has been able to successfully expand without imposing on the social benefit by not enforcing steep prices. This is achieved by functioning at economies of scale that reduce the average cost per meal, therefore allowing IRCTC to be able to increase revenues.

Subsequently, monopolization increases social allocative efficiency as it ensures there is no underconsumption of railway meals due to its unavailability or due to competing wants of a commercialized firm.

“Merit goods are goods that carry strong positive externalities, which are benefits enjoyed by a third party by consumption of a good.” The Mumbai catering system monopoly functions to maximize social benefit. Therefore the consumption of a chosen Lunch meal in the 2/3AC category functions as a positive externality of consumption, as it allows for nutritious meals to be provided to people at low prices to be people who otherwise may not be able to afford them. This is seen as an external social benefit as access to healthy meals, in the long run, is economically beneficial. This can be visualized in Figure 8, where the Lunch meal prices and their subsequent demand and supply have been taken for the years 2013 and 2019.

In the diagram we see how through the efforts of the 2017 catering policy the demand for catering services increases from D1=MPB (Marginal Private Benefit) in the year 2013 to slowly D2=MSB (Marginal Social Benefit), meaning now there is the creation of external benefit that can be used by the IRCTC to make meals more accessible for the poor. Hence, R.s 185, is the socially optimal price that allows the Mumbai catering sector to operate to production and socially optimal output level. Subsequently, monopolization increases social allocative efficiency as it ensures there is no underconsumption of railway meals due to its unavailability or due to competing wants of a commercialized firm.

The Mumbai catering service system, therefore, utilizes its abnormal profits to maintain the Economic well-being of society by ensuring accessibility of nutritious food across lower-income groups. Therefore the Mumbai catering through the 2017 policy underwent monopolization, ultimately resulting in a net positive social benefit gain for consumers, in terms of quality meals that are widely accessible.

The data collected through the primary and secondary research presented a clear downward trend of demand revenue in the 2020 system, the data for 2020 was not used to make economic assumptions for demand behaviour and the effects of monopolization. The Covid-19 pandemic provided unprecedented situations which resulted in the creation of unique consumption trends, which while providing an intricate understanding of the complexity and interdependence of various tourism and hospitality industries, makes analysis too broad for the scope of this essay.

However, economic it is important to the fall in demand for catering services in Mumbai and fall in revenue of the IRCTC catering segment all over India in 2020 provides further context to the effects of present real-world situations and non-price factors on consumer consumption.

One of the weaknesses of the essay remains the absence of publicly available empirical evidence regarding consumer behaviour in the Mumbai catering system, which was overcome by surveying with a sample that hoped to replicate its target population.

However as mentioned earlier the survey suffered from a major flaw, the inaccessibility of perspective on consumer trends among the lower economically backward population subsets of Mumbai, which mostly reside in slum-like communities; due to ongoing challenges of the Covid-19 pandemic. The target population thus is not representative of all of Mumbai, but the population with access to a mobile device and the internet, that is those with an upper standard for quality of life. It can be anticipated the results of Demand and price sensitivity analysis would have been more severe if the survey accessed 100 per cent of the consumer population within the Mumbai catering service.

Diagrams 1 and 3, do not also account for potential surplus or wastage of product, due to the unavailability of anticipated supply statistics. There have been several efforts over the years by the Indian railways to reduce the quantity of food waste, yet because of the absence of its Data, the effect of possible surplus cannot be seen on the social benefit expedited by the IRCTC.

However, the research does utilize a range of sources to ensure its credibility and achieve efficient triangulation. It provides exact answers to the questions at hand, by differing to different aspects of consumer consumption. It looks at a range of questions initially and narrows down to comprehensible arguments.

Lastly, the finding of this essay may prove to be redundant in a post-covid-19 economy and varied consumer behaviour. Considering these critical points, its important to understand the real-world implications of the essay are still limited. In future extensions, detailed analyses could be conducted regarding the implications of the covid-19 pandemic, on tourism and hospitality sectors like the catering system. Surveys could be conducted with higher and varied samples and should there be the availability of detailed analysis of data regarding Indian railway catering segment focussed balance sheets.

The research attempts to triangulate data, to be able to answer the research question “How does the New Catering policy of 2017, impact the Mumbai catering system, in Maharashtra India” by the use of a survey and secondary data regarding the price of catered meals and assets of the IRCTC. The analysis of consumer trends from the survey and their collation with secondary sources allows the formation of a considered response to the hypothesis of the essay. To reinstate, the alternative hypothesis was - the collations and processing of primary and secondary data sources should demonstrate the new catering policy of 2017 has a positive impact on consumer consumption in the Mumbai railway catering system i.e. leads to an increase in consumption. Whereas the null hypothesis remains, the new catering policy has no impact on consumption in the Mumbai rail food system.

The research carried out has shown that there has been a significant increase in the demand for catering services in Mumbai, positive consumer perception and an increase in qualitative and quantitative consumer social benefit, as seen by the efforts of the monopolizing the Mumbai catering services, and hence the alternate hypothesis is accepted. Therefore to conclude, the 2017 catering policy positively impacts consumer consumption in the Mumbai catering system.

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Appendix 1 - Copy of survey invitation message.

Hello!, As a part of the International Baccalaureate Diploma course, Extended Essay, I am required to write an independent research paper. The paper investigates the impact of the new catering policy 2017, on the Mumbai railway catering system, and to do so it analyzes consumer trends over the years in regards to the catering system.

If you’re an inhabitant of Mumbai and have travelled utilizing its western and central railway system please fill out the survey link attached, as the earliest.

Privacy - Your data will be stored anonymously and deleted post the completion of the paper. If you wish for your data to be withdrawn, from the research, please reach out via the contact mentioned.