Merger of budgets not to ease Railways’ financial and social costs

A merger of the railway budget with the union budget will not relieve the Indian Railways from paying dividend to the government and bearing the cost of social obligations and pension liabilities.

On the contrary, say commentatore, the railways will increasingly be seen as a cash cow to derive revenues for the union government. The new status will further aggravate the financial woes of Indian Railways, which has been losing both freight and passenger revenues.

Indian Railways pays around Rs10,000 crore a year to the finance ministry as dividend. Also, there are around 1.4 million pensioners under the railways who draw Rs8,000 crore per year. To top it all, the Railways will have to bear an increased financial burden of Rs40,000 crore per annum once the 7th Pay Commission recommendations are implemented.

The railway ministry might have thought of unburdening itself from social obligations, except perhaps for corporate social responsibility, but a joint committee set up by the new planning body NITI Aayog says Indian Railways may have to continue paying dividend to the ministry of finance, bear its social obligation cost and pension liabilities even after the rail and the union budgets are merged.

A joint committee comprising members of the National Institution for Transforming India (Niti) Aayog and the finance ministry to look into the modalities of the budget merger, has submitted a 20-page note titled 'Dispensing with the Rail Budget'.

The committee has two members from the railway ministry and three members from the finance ministry.

The note jointly authored by Niti Aayog members Bibek Debroy and Kishore Desai, has recommended against dividend waiver and concessions on social obligations.

''Though we have not received any official report, the finance ministry officials in the joint committee have discussed that they are not in favour of giving waiver on dividend. They have also discussed that they are not in favour of paying for the railways' social obligation costs and pension liabilities,'' reports quoting a railway ministry official as saying.

The joint committee is reported to have submitted detailed recommendations on the merger to the finance ministry on 9 September and the ministry will give nod to the final report submitted by the joint committee.

The railway ministry, however, has not much say in the recommendations with the finance ministry members outnumbering railway representatives in the panel.

The railways will now have to make good the Rs33,000-crore loss incurred in its passenger business in 2014-15 on account of its social service costs. The pension outgo in the current financial year has been pegged at Rs45,500 crore.

Social obligation cost includes the losses incurred by the railways due to running services below operating cost, as in the case of suburban services, where the operating cost is as high as 750 per cent.

The social obligation cost also includes staff welfare and law and order costs.

Railways will now have to concentrate on increasing its revenue as that is the only way it will be able to make up for costs of taking care of its social obligation cost, pension liabilities and dividend payout.

Passenger earnings of the Railways is expected to grow at 12.4 per cent under an earnings target of Rs51,012 crore for financial year 2016-17. It plans to invest Rs8,500,000 crore in the next five years with a total capital for infrastructure for the current financial year set at Rs.1,210,000 crore.

The rail ministry will have autonomy on fares, tariff revision and market borrowing.

This week's cabinet meeting will decide on the merger of the two budgets and advance the date of its presentation in Parliament. Besides, the cabinet has circulated a note with proposals, including elimination of the classification of expenditure as Plan and non-Plan and a shift to outcome-based budgeting, has been circulated for inter-ministerial consultations.