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Narendra Modi govt bids goodbye to Rail Budget, ends 92-yr old practice

No rail budget from FY18; Budget in early February

By: | New Delhi | Updated: September 22, 2016 7:03 AM
Also, with the railways increasing its reliance on extra-budgetary resources (EBR), the Centre expects to have some leeway in GBS allocations in future. Also, with the railways increasing its reliance on extra-budgetary resources (EBR), the Centre expects to have some leeway in GBS allocations in future.

The government will not present a railway budget starting FY18, dispensing with an annual practice that started 92 years ago in the British era. The transporter’s finances, according to finance minister Arun Jaitley, who announced this after a Cabinet meeting, will now be amalgamated with the Union Budget. The Cabinet also decided to supplant the Plan/non-Plan division of expenditure in the Budget while retaining the more universally understood capital-revenue distinction.

Further, it gave an in-principle nod for advancing the Budget presentation with a view to completing the parliamentary and administrative processes by March 31 each year and implementing the Budget from the start of the fiscal concerned, rather than practically from mid-May now. Jaitley, however, added that the exact date for Budget FY18 would be fixed only after the Election Commission announced the schedule for assembly polls in five states, Uttar Pradesh, Uttarakhand, Punjab, Goa and Manipur. However, a PIB statement said the Budget would be advanced from the last day of February to the first day of the month.

Quoting the Bibek Debroy panel’s report that said the railways remained hugely under-invested and failed to assume the character of a commercial enterprise despite separate budgeting, Jaitley said the merged Budget won’t deprive the entity of its functional autonomy. Railway minister Suresh Prabhu said the railways would benefit from the integrated approach that would help the government in allocating resources to transportation sectors in a more informed manner.

Though railway finances are weak and it increasingly looks outward to find capex resources, the merger of the two budgets won’t add much to the Centre’s fiscal deficit as the transporter’s revenue more than takes care of its ordinary working expenses. The railways will continue to receive gross budgetary support (GBS) from the Centre (Rs 45,000 crore or 37% of capex in FY17) but won’t need to pay dividend (the interest it pays on GBS, a soft loan in perpetuity), estimated at Rs 9,700 crore. By forgoing the dividend, the Centre is not going to take a big hit — even now, a part of the burden arising from subsidising “national rail projects” is waived on a routine basis; for instance, the actual dividend outgo after the waiver will be around Rs 4,100 crore only in FY17.

Also, with the railways increasing its reliance on extra-budgetary resources (EBR), the Centre expects to have some leeway in GBS allocations in future. The Debroy panel had suggested that capital-at-charge (Plan outlay which includes GBS and part of railways’ surplus) be wiped off, the GBS be net off dividend.

The EBR (excluding public private partnership funds) for this year is estimated at Rs 40,985 crore, up 90% over last year. The Centre’s fiscal position won’t be impacted by the railways’ market borrowings following the merger of budgets either, as funds are raised by it through a lease arrangement with IRFC, which owns the rolling stocks procured and receive rentals from the transporter. Even the institutional loans being raised via Life Insurance Corporation — pegged at an all-time high Rs 21,000 crore for FY17 and estimated at Rs 1.5 lakh crore between FY16 and FY21 — is being routed through IRFC and won’t have a direct bearing on the Budget.

As suggested by the Debroy panel, the proposed railway development authority might work out a subsidy sharing mechanism that would reduce the burden on the railways and let it operate practically in a more commercial environment, sources said. Another rationale for ending the convention of a separate rail budget is that its size relative to the general Budget has declined steeply over the last few decades. While then railway budget once equalled or surpassed the general Budget, the transporter’s gross revenues are estimated to be just 9.5% of the Centre’s gross revenues in FY17 and its net revenues just 5% of the Centre’s. Even after the merger of the two budgets, there will be a separate discussion on the railways’ expenditure each year to ensure detailed parliamentary scrutiny and accountability, the finance minister said.

In the current system, the general Budget exercise usually gets over by May and the government departments start spending based on the Budget only from June, thereby losing two crucial months. Outlays as per a new Budget are allocated to states even later. “Advancing the Budget will help spending on projects in states from April itself instead of September-October (as the monsoon kicks in by the time Budget approved in May),” Jaitley said. Analysts reckon that implementation of the Budget announcements from April 1 would also help individuals and corporates do their tax planning better for the full year. Tax proposals contained in the Finance Bill often undergo significant revisions when Parliament finally gives its nod in May.

With Plan or non-Plan spending losing clarity, several expert panels had recommended the abolition of the distinction. The abolition of the Planning Commission and the emergence of the NITI Aayog as a think tank without financial allocation powers has further buttressed the case. The Constitution mandates distinguishing between revenue and capital expenditure; Plan and non-Plan was adopted by the government for superficial functional classification later.

Economic affairs secretary Shaktikanta Das said the Central Statistical Organisation would provide provisional advance estimates of national income or GDP by January 7 to aid the preparation of the Budget. The government would issue the Budget circular in a day or two and inter-ministerial consultations would commence by early October, he added.

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