Rail Budget 2016: Pay panel proposals to hit operating costs

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Published: February 26, 2016 12:39:35 AM

Rail Budget 2016: Target to keep operating ratio at 92% for FY17, against 90% for FY16, is pretty ambitious: Analysts

indian railways ptiRail Budget 2016: Suresh Prabhu has pinned a lot of hopes on additional revenue generation, apart from wooing private sector investment, to turn the fortunes of railways.

Rail Budget 2016: Railway minister Suresh Prabhu needs a fair amount of luck — apart from good intentions, a tight leash on wasteful expenditure and a robust revenue mop-up from fresh avenues — to restrict the state-run behemoth’s operating costs from spiralling out of control in 2016-17, given the burden of implementing recommendations of the 7th Pay Commission.

Prabhu has targetted to keep the railways’ operating ratio for 2016-17 at 92%, just a tad worse than the revised estimate of 90% for the current fiscal, despite leaving both passenger fares and freight rates unchanged. According to railways officials, some Rs 20,500 crore has been allocated in the Budget 2016-17 to cater to the additional burden of implementing the Pay panel recommendations, which had suggested an up to 24% hike in wages of central government employees. Earlier, the railways had estimated that it needed roughly Rs 32,000 crore to completely implement the panel’s suggestions (against the finance ministry’s projection of Rs 28,450 crore). This means the outgo of roughly Rs 11,500 crore could be pushed to subsequent years.

In 2008-09, when the railways had to implement the 6th Pay Commission report, its operating ratio went haywire. From as low as 75.9% in 2007-08 (thanks to good economic growth and robust earnings from freight), the operating ratio went up to 88.3% in 2008-09 and 95.3% in the year after that. The impact of the move was to the tune of `1 lakh crore until 2012-13, which kept pressure on operational efficiency.

Since a half of the railways’ earning went towards meeting wage and pension bills of employees in normal course (in 2014-15, that is), the ratio would only worsen in the coming years due to this extra burden. Although the additional burden of the 7th Pay Commission report is much lower than the previous one, it could still potentially disrupt the railways’ calculations in the absence of a solid road map to boost earnings, given that the economy is still some distance away from a sustained recovery and traders are increasingly opting for transportation by roads to beat exorbitantly high rail freight rates.

The railways’ pension outgo is already budgetted at Rs 45,500 crore for 2016-17, up 37% from a year before, and its total expenditure has been pegged at Rs 1,71,060 crore for the next fiscal, against Rs 1,51,907 crore in 2015-16, mainly to meet additional expenses from the pay hike.

The railway minister aims to keep the rise in ordinary working expenses at just 11.6% for 2016-17, compared with a whopping 32.5% surge in 2008-09 when the implementation of the last pay panel recommendations started.

“We are faced with two headwinds, entirely beyond our control; tepid growth of our economy’s core sectors due to international slowdown and the looming impact of the 7th Pay Commission and increased productivity bonus payouts,” the minister said.

Prabhu has pinned a lot of hopes on additional revenue generation, apart from wooing private sector investment, to turn the fortunes of railways. But at the moment, analysts feel the operating ratio target looks pretty ambitious.

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