1. Merger of Rail, general budgets allowed Indian Railways to hide deficit in FY17

Merger of Rail, general budgets allowed Indian Railways to hide deficit in FY17

Had Indian Railways (IR) not got a waiver from dividend obligation thanks to the merger of the rail and general budgets, the transporter's operating ratio (OR) would have crossed 100 in 2016-17, 100.36 to be precise.

New Delhi | Published: February 21, 2017 8:27 AM
It is noteworthy that this was the first year when the decades-old practice of presenting a separate railway budget was discontinued and was merged with the Union Budget. (PTI)

Saurabh Kumar

Had Indian Railways (IR) not got a waiver from dividend obligation thanks to the merger of the rail and general budgets, the transporter’s operating ratio (OR) would have crossed 100 in 2016-17, 100.36 to be precise. An OR above 100 indicates an operational deficit. And if funds commensurate with demand were provided for essential replenishment of the railways’ physical assets like tracks and rolling stock, the OR would have a touched a deplorable 111.

While that’s how the transporter’s claim of running an internal surplus will fall flat, it is an admitted fact that whatever pittance it shows as excess of net revenue over operational expenditure is a far cry from what’s needed to fund its massive expansion plans. The ambitious expansion-cum-modernisation programme, now sought to be largely funded through off-budget means, are required to improve efficiency, ensure safety, boost revenue streams and regain the market share lost to trucks and airlines in recent years.

In the recent Budget, IR’s operating ratio for 2016-17 was revised from the initially budgeted 92 to 94.9, with the gross traffic revenue (GTR) falling far short of expectations; the GTR for the current year is now pegged at R1.72 lakh crore. The OR for 2017-18 is fixed at 94.57. Even though there is some pick-up in non-fare box revenue, these are still only a small part of the overall receipts.

It is noteworthy that this was the first year when the decades-old practice of presenting a separate railway budget was discontinued and was merged with the Union Budget. This means the railways will not have to pay dividend or the interest on capital-at-charge (mainly a loan in perpetuity from the government as gross budget support), starting this year. The budget estimate for dividend was R9,731.29 crore for FY17 but was made nil in the revised estimate. Had that not been the case, the railways would have a shortfall of R2,036.29 crore. The finance ministry would now want the rail PSUs like Concor, Ircon, IFRC and IRCTC to pay dividends to the exchequer like any other PSU, partly negating the benefit of dividend waiver at the IR level.

Taking note of the situation, the standing committee on railways recently asked some obvious questions to the ministry of railways — reasons for the poor state of finances wherein working expense is going up and net revenue is falling, in turn worsening the OR. Also, given the deterioration of OR, the committee has remarked that it reflects negatively on the efficiency of the railways and has for a asked response on measures taken to prevent the rise.
However, according to a person tracking the railways, the OR itself is being shown better than it really is. “Numbers till December 16, 2016, show that the operating ratio is 109.60 instead of 94 as projected for the current financial year,” added the person, requesting not to be named.

According to the person, the maths will be even worse if the essential funds had not been starved. “The railways requires around R25,000 crore for depreciation reserve fund (DRF) whereas it provided a mere R3,200 crore last year and R5,000 crore this year,” said the person, adding that if adequate funds were allocated under DRF for upkeep of assets, there would have been no requirement for a railway safety fund. The government this year created a Rashtriya Rail Sanraksha Kosh, or safety fund, with a corpus of R1 lakh crore over the next five years.

The railways’ revised net revenue estimate stands at R7,695 crore compared with the budget estimate of R18,210.64 crore, a decline of 58%. The budget estimate for 2017-18 has been kept at R8,948.37 crore. In fact, for 2015-16, net revenue has been R5,847.97 crore, less than the budget estimate for FY16, a shortfall of 23%.

The railways has been witnessing a fall in its freight revenue — the backbone of its receipts — due to reduced movement of coal, which constitutes 50% of the goods basket. The budget estimate from goods earnings for 2016-17 of R1,07,653.40 crore has been revised to R99,555 crore. At the same time, the ordinary working expense of the railways has been increasing. From actual expense of R1,47,835.93 crore for FY16, the budget estimate for FY17 was fixed at R1,69,260 crore and is expected to be R1,78,350 crore at budget estimate for FY18, R30,514.07 crore higher than the actual of 2015-16.

A government official, who did not want to be identified, said the finances of the railways are under stress and it is time “spade is called a spade”.

 

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