While increasing revenues by hiking passenger fares isn’t an option for the Indian Railways, the transporter has chalked out a plan to keep expenditure close to its budgetary target. Its financial commissioner, Pompa Babbar, shares the details with FE?s Praveen Kumar Singh. Excerpts:
How do you propose to correct the Railways? poor finances?
We have had a difficult time from the financial point of view because of the Pay Commission. We have taken on the responsibility of payment of arrears, regular salaries and pension at higher rates. All those are up-to-date. We are trying to enforce fiscal discipline in our system.
We want to conserve our finances in such a way that we are able to overcome the problems that we have been experiencing. It does not mean that we are completely out of the woods. We are still having problems, but we are taking action to ensure we maintain discipline in our financial management.
We are trying to plug leakages. Earlier, we were giving unlimited powers of re-appropriation at the zonal level. From this year, we have stopped this practice. We found that, in some cases, money was being used to fund non-priority areas. And, at the end of the year, we were being told by some zones that there is no money for salary payment. So, immediately, we had to make that money available. We have stopped that re-adjustment at the local level now. That was the first thing I did after joining. Now, we know where exactly we stand and we don’t face that kind of a situation where we did not have money for payment of salaries.
Railways was taken by surprise by the last Pay Commission award. Can you adopt a method of appropriating fund for Pay Commission every year in advance to avoid the surprise element?
What you are saying is absolutely correct. In the last two years, there has been depletion in funds because of the Pay Commission. This time, the Pay Commission has been much more liberal than in the past. We had kept money, but we didn?t know how much of that was for the Pay Commission. Our business rules don’t allow setting aside funds for the Pay Commission separately. In government accounting practice, we have only 4-5 funds with which we have to operate.
I cannot keep money aside and earn interest. I can develop fund balance to see that, yes, I have money for different work and other revenue expenditure. We pay for pay commission out of the revenue expenditure.
Your efforts of seeking exemptions from finance ministry did not generate the desired results. What?s the way ahead?
We had requested the Railway Convention Committee to give us some relief in the rate of dividend, but what we have got is only a 1% cut. Our dividend liability today is R6,700 crore. If we reduce relief of R3,000 crore, our effective dividend liability would be R3,700 crore. We had demanded a reduction of R1,800 crore, but the committee didn?t give us that much.
In addition to this, the finance ministry also wants to impose service tax on freight services. Although the proposal, which would have burdened us by R2,000 crore a year, is in abeyance till December, the sword is still hanging on my head as a fresh call will be taken in January.
The finance ministry wants service tax on auxiliary services like parking, etc, to be around R270 crore a year. We have not paid R270 crore and are asking it not to impose this tax.
In this situation, how hopeful are you of achieving operating ratio of 91.1% this year?
It?s a very tough target and is very difficult to achieve through normal means. That is why we have put a restriction on our expenditure levels and we are also reviewing our plan expenditure in a way that our earnings and expenditure match.
We are also going to the market for the first time to finance some of our projects. We will be going for tax-free bonds in the month of November to raise money through Indian Railways Finance Corporation (Railway budget pegs market borrowing at R20,594 crore).
How are you going ahead with the plan of setting up a Stations Authority of India?
We have set up a committee on modernisation of railways. The panel under Sam Pitroda is expected to give his report in three months. We have to await the report before taking any concrete action. We are also considering different models that can rationalise revenues.
When can we see public-private partnership (PPP) implemented as it was planned?
It a misnomer that we had planned PPP. It was joint venture with a long-term assured offtake as we own equity in the projects. There is no precedent for that anywhere in the world. People say the road sector is doing good in attracting private investment, while railways has not succeeded in getting private firms. But we cannot compare construction of road and manufacture of locomotives. The technical complexities are completely different. We have found loopholes in consultant?s report on locomotive projects. We can’t play with public money. We will not go ahead with these projects till the modalities are clear. It has to be a win-win situation for us and private firms.