CA Institute preparing concept paper on ‘outcome budgeting’ for Railways

The Railways may adopt ‘activity based costing’ in a big way as part of the proposed overhaul of the existing accounting system.

Helping the Railways on this front is the CA Institute which has embarked on an initiative to prepare a concept paper on ‘outcome budgeting’.

“We are preparing a concept paper on outcome budgeting for the Railways. The idea is to help it drill down on as many elements of costs as possible,” Manoj Fadnis, President, Institute of Chartered Accountants of India (ICAI), told BusinessLine .

Fadnis said that the Accounting Research Foundation of the CA Institute was preparing the concept paper.

The intent is to bring about a paradigm shift and move the budgeting process of the Railways from decision on inputs to decision on output and outcomes.

Under the current budgeting system, the aspect of final outcomes expected to be achieved is never considered. The present system only consists of comparison of expenditure incurred vis-à-vis Budget estimates.

“There has to be activity based costing (as part of outcome budgeting). This will help arrive at the per unit cost of service provided/output delivered,” Fadnis said.

He also clarified that the CA Institute’s efforts is in addition to the support being provided for accrual based accounting.

Productivity of operations Activity based unit costing (ABUC) could help in outcomes such as achieving operational improvements or elimination of operational constraints which pull down the productivity of rail operations.

The improvements could include increase in average speed of train, removal of speed restrictions, higher freight loading from a good shed and reduced detention time of a rake.

In this process, the non-value adding infructuous costs, wastages and systemic inefficiencies can be identified for elimination in a planned way.

In this year’s Railway Budget speech, the Railways Minister Suresh Prabhu had highlighted the “limited resources” and underscored the need to ensure that all public expenditure results in an optimal outcome.

Meanwhile, sources said that the objectives of the proposed accounting system reform would include linking and tracking of expenditure incurred by Railway units, under various revenue and capital heads of accounts with desired outcomes to be specified during budget formulation in quantified terms (equated track kilometre, Gross Tonne Kilometre, Net Tonne Kilometre, Passenger Kilometre) for responsibility accounting and management accounting.

Also, efforts will be taken to ensure availability of cost data considered necessary for costing/pricing of rail transport services, section and route-wise across the Railways’ network and ascertain profitability of respective lines of business (passenger, freight and parcel etc).

COMMENT NOW