Macro Economy

Certain issues need clarity as govt decides to merge Railway, General Budgets

Mamuni Das New Delhi | Updated on January 16, 2018

Long way to go Going by the present trend, the Railways is unlikely to generate enough revenues to meet the additional salary expenditure this fiscal.

After 92 years, the Centre’s decision to do away with a separate Rail Budget and merge it with the General Budget is being hailed as “path-breaking”. However, a few issues require clarity.

What will be the additional cost outgo for the Centre due to the implementation of the Seventh Pay Commission, who will offer the provision of a comfort letter to the Indian Railways Finance Corporation, and how will the Railways’ ‘social burden’ of about ₹32,0000 crore be managed? These are a few questions that need to be answered.

Railway Minister Suresh Prabhu has said that the fate of social obligation/subsidy will be dealt with separately. However, this amount (₹32,000 crore) may turn out to become a subsidy for the government, unless the Railways’ passenger or freight revenues move up sharply.

Similarly, the Seventh Pay Commission means an additional outgo of ₹28,000-30,000 crore for the Railways, which is the largest employer with 13 lakh employees and 11 lakh pensioners who, at present, are paid from the Railways’ own earnings. But, going by the present trend of revenues, the Railways is unlikely to generate enough to meet the additional salary expenditure this fiscal, unless its earnings shoot up sharply or costs are controlled. How it plans to go about this remains to be seen.

Also, the fate of Indian Railway Finance Corporation (IRFC) bonds need clarity with the Finance Ministry not making it clear whether it will provide a letter of comfort to IRFC. At present, IRFC gets a letter from the Railway Ministry (a sort of guarantee for borrowers) stating that the future lease receivables of IRFC would be met by Railway revenues and from the Railway Ministry in case there is a shortfall. In the new circumstances, it is not clear whether the Finance Ministry will now offer the letter of comfort to IRFC.

“If the Railways borrow from IRFC, it is not a debt, it is a kind of lease financing arrangement whereby Railways pay back a certain amount on annuity basis every year. Therefore, it will not add to government debt,” Shaktikanta Das, Secretary, Department of Economic Affairs, said in response to a BusinessLine query on the quantum of debt that will be added to the government’s balance sheet on account of Railways’ and IRFC’s borrowings.

Das said that since Railway borrowings were already part of government of India’s borrowings, the balance sheet would not be impacted.

“Unfortunately, we are pre-empting a story for you! You (are likely to) say that Railways are debt-trapped…the debt is already a part of the government of India,” Suresh Prabhu, Minister of Railways, added.

The Cabinet decision may also see the winding up of a Parliamentary Committee — the Railway Convention Committee — which defines the rate of dividend that Railways pay to the Centre, as indicated by the Finance Minister Arun Jaitley, who will now be presenting the Rail Budget as part of the Union Budget to Parliament.

Meanwhile, Railway officials said all the financial statements, including explanatory memorandum, expenditure book, operating ratio, will be presented in the same manner as has been done till now. “Only the speech of Railway Minister in Parliament will not be there,” he said. The project approval powers will remain the same, they added.

Published on September 21, 2016

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