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  1. Indian Railways ministry asks finmin to share public service obligations cost

Indian Railways ministry asks finmin to share public service obligations cost

The railway ministry has asked the finance ministry to share the cost of its Public Service Obligations (PSO) in 2016-17 till a permanent mechanism is devised for accounting the PSO without undue onus on the transporter.

By: | Updated: February 9, 2016 2:47 AM

The railway ministry has asked the finance ministry to share the cost of its Public Service Obligations (PSO) in 2016-17 till a permanent mechanism is devised for accounting the PSO without undue onus on the transporter. The transporter’s demand that the central Budget bear the PSO cost is in the wake of the finance ministry’s reluctance to foot the `40,000-crore bill from Indian Railways (IR) after the 7th Pay Commission awards.

Even as experts call for an overhaul of the operations of the Indian Railways and its corporatisation, the transporter’s public service obligations are rising relentlessly and so are its losses from the passenger segment.

Sources in the ministry of railways told FE that IR’s social obligation cost would be around `34,000 crore this financial year, steeply higher than about `25,000 crore in FY14. The figure is believed to have stood at over `30,000 crore last financial year, although no official estimate is still out.

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The railways carries out numerous transport activities which are uneconomical in nature but are considered to be in the larger interest of the society. The items which fall under PSOs and are making losses, include transport of essential commodities carried below cost, subsidies and concessions on passenger fares and other coaching services, operation of uneconomic branch lines and new lines opened for traffic during the last 15 years.

The transporter gives as many as 53 types of concessions in passenger fares. Because of the various subsidises and concessions the transporter provides, IR had to bear an overall loss of `32,000 core in FY14 for running passenger operations. All of passenger categories except AC three-tier are making loss for the transporter.

The PSO, sources said, includes a part of passenger subsidies but not all of it, as the railways is still to figure out what PSO is.

“There is no clarity on whether the Indian railways is a commercial entity or a tool to meet social service obligations. As the transporter needs to invest a lot of money for the expansion and up keep of its infrastructure, there needs to be a proper framework to compensate the IR on the losses it makes on running passenger operations and the cost it incurs for meeting its public service obligations,” said Abhay Krishna Agarwal, Partner Infrastructure & PPP at EY LLP.

Sources said even the Standing Committee on Railways has recommended the government to work out a procedure on the basis of which the public service obligation costs are reimbursed to the railways. Documents accessed by FE reveal that the finance ministry wants an independent body to evaluate and define what qualifies under ‘public service obligation’ for railways and also decide on the extent of relief which can be claimed from the government under it.

“Indian railways will to have a very robust accounting system in order to state with authority what their public service obligation cost is,” Abhay Krishna Agarwal said.

“Utilising your track for providing compensations and subsidises and running below cost operations is not a prudent way of running operations, who is stopping you from increasing passenger fares, political compulsions should not be factored into while deciding fares,” Raghvan Sivadasan, former railway board member said.

While the finance ministry wants an independent body to evaluate and decide on the quantum of burden to be shared, the ministry of railways has proposed an Inter-Ministerial Committee to be set-up for evaluating the impact and the framework of sharing the public service obligation cost borne by the railways. As an interim measure the transporter wants the general revenue to bear a certain percentage losses incurred by the transporter in FY16.

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