The ministries of finance and railways are set for a showdown soon over the issue of dividend transfer following the historic merger of the Union and Railway Budgets in 2017-18. Despite resistance by the railways so far, the finance ministry insists that the state-run transporter transfer the dividend—around Rs 1,050 crore in 2016-17 — it receives from the dozen-odd public-sector units under it to the consolidated funds of India following the merger of the two Budgets, sources told FE.
While a final decision will likely be made soon, any such move would further strain the finances of railways that would have run into an operational deficit had the transporter’s obligation to pay dividend not been waived — on a permanent basis — by the government last fiscal. In the absence of the waiver, the railways’ dividend obligation in 2016-17 would have been Rs 9,731 crore.
The finance ministry argues that since the railways’ ‘capital-at-charge’ on which the transporter pays annual dividend to the government has been wiped off following the budgets merger, the investment being made in the PSUs under the railways would be considered as having come from the centre’s accounts. The ‘capital-at-charge’ is the government’s investment in the railways, which was treated as loan in perpetuity. Such transfer of PSU dividend is integral to the process of budget-making, stresses the finance ministry, which has now taken the responsibility of presenting the annual accounts of the railways as well.
However, the railways argue that waiver from dividend payment and financial autonomy were part of the agreement to scrap the decades-old practice of presenting the Railway Budget separately. Any condition to force it to transfer such dividend, which is a part of its overall traffic earning projections for 2017-18, will hit its earnings, said an official with the railways.
However, a senior finance ministry official said: “After the Budget merger, railways are not going to give dividend that they used to pay on ‘Capital-at-charge’. We are also not asking for that. But if they are given an exemption from transferring dividend they get from the PSUs under them, it could set a bad precedent. Using this logic, the petroleum ministry, for instance, may ask for the same exemption tomorrow. How can we deny it to them if we are giving such a relaxation to the railways”?
In fact, had Railway’s obligation to pay dividend on capital-at-charge not been waived by the government, the transporter’s operating ratio would have touched as much as 100.4 in 2016-17—much above the all-time high 97 reported by it for the last fiscal, thanks to the implementation of the pay panel hikes and low earnings from the passenger segments. OR is defined as the paise spent by the transporter to earn a rupee; the higher the OR, the lower its operational surplus and an OR above 100 indicates deficit.
If funds commensurate with demand were provided for essential replenishment of the railways’ physical assets like tracks and rolling stock, the ratio would have a reached as much as 111.
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The railway ministry has said it agreed to the merger on the premise that, besides maintaining its distinct entity as a departmental commercial undertaking, it would also “retain its functional and financial autonomy”. “The existing financial arrangements with regard to railway revenue and expenditure has thus to continue even after merger,” it had communicated to the finance ministry in February.
The Railway Board members were also not amused when the Budget 2017-18 proposed listing some of the profitable PSUs–IRCTC, Indian Railway Finance Corporation and IRCON–on the stock markets, as the railways had suggested setting up a holding company for its stakes in its PSUs.