Railways weighed down by pension burden

TS Ramakrishnan | Updated on December 24, 2019 Published on December 24, 2019

Successive Pay Commissions have given rise to this situation, raising the operating ratio of the Railways

The report submitted by the Comptroller and Auditor General of India (CAG) in December 2019 underscored that the operating ratio (ratio of operating expenses to operating revenue) of Indian Railways (IR) has been continuously increasing.

After scrutinising the financial parameters of IR in FY 2017-18, the CAG report mentioned that the operating ratio of 98.44 per cent would have increased to 102.66 per cent had IR not received advance receipts from NTPC and IRCON to the tune of ₹7,342 crore. It also highlighted that IR decreased the allocation of Depreciation Reserve Fund by 68 per cent, which would result in piling up of “throw forward” of works to the tune of about ₹1 lakh crore.

There are essentially two components that contribute significantly to the operating expenses. The first one is salary and other allowances, including bonus given to the employees on the roll. The second one is the pension and family pension paid to the pensioners and their spouses respectively till they live, which includes pensioners after superannuation and those who opted for voluntary retirement. Even in the 1950s, the share of salary and pension was about 53 per cent of the total operating expenses and it remained about the same level with smaller variations till the implementation of the Sixth Pay Commission in August 2008.

The committee of professors from Xavier Labour Relations Institute (XLRI) Jamshedpur helped the Sixth Pay Commission to arrive at the true remuneration of government employees considering all the benefits they get during service and during their retirement in comparison to the gross salary they get every month, and estimated that the true salary is 2.25 times of that gross salary. However, India witnessed a surge in the salary of private sector employees in the first decade of 21st century till the global economic slowdown in 2008 followed by moderate Indian growth story.

Ignoring the findings of the XLRI committee, and to offset the disparity between government and private sector salaries, the Sixth Pay Commission revised the scales with the huge hike. As a result, when the Commission’s recommendations were fully implemented, the share of salary and pension in the total operating expenses shot up to about 57 per cent in 2010-11 and further to 62 per cent in 2015-16.

Relentless hike

After sensing the global slowdown in 2008 and thereafter and reduced economic growth of India during UPA-2 tenure, the private sector scaled down the remuneration of their employees. However, when the Seventh Pay Commission introduced revised pay scales for Central government employees without considering the scaling down of the remuneration by the private sector — that was the last straw that broke the Railways’ back.

In FY 2017-18, the salary and pension component increased to 41 per cent and 26 per cent of the total operating expenses of IR. In other words, for every ticket purchased for ₹1,000 in FY 2017-18, ₹410 went for the salary of IR employees and ₹260 went for the pension of retirees. This is despite the moderate increase in Dearness Allowance (DA) as Modi-1.0 regime maintained the yearly inflation at about 4 per cent during its tenure.

Even in FY 2008-09, the share of pension in the total operating expenses was 14 per cent. Then the moot question is how the share of pension almost doubled within a decade. There are two reasons for this. The first one is that each Pay Commission not only increases the salary of employees but also the pension/family pension of retirees. On average, an employee gets the benefits of pay hike by three Pay Commissions during his employment.

As the life span has been increasing with better medical facilities, a retiree or his/her spouse may get the benefit of about three Pay Commissions. In 2016, the statistics showed that among the total pensioners of 13.75 lakh, 2.86 lakh were of 80 years of age or more. The Railway Ministry then carried out an exercise to check whether there was any fraud in the number of pensioners above 80 years and it was found that there was no fraud and all of them were hale and healthy.

The above analysis shows that although the operating ratio invariably exceeded 90 per cent since 1980, the lopsided increase in salary and pension has been the reason for the increased operating ratio since the implementation of Sixth Pay Commission, unlike the previous times. Since the Sixth Pay Commission, the share of salary of working employees and pension of retirees in the total operating expenses have started to increase exponentially and there is no valid reason to believe that this trend would stop. Given this, the share of pension alone in the total operating expenses of IR may reach 40 per cent or even higher between 2030 and 2050.

No inclination to learn

Despite being paid more during their employment and retirement, the inclination and initiative to learn the latest technological and service-orientation developments to take IR to the next level even incrementally, is conspicuously absent, both among employees and officers. The share of electric locomotives was about 35 per cent in 2000-01 and in 2017-18, it increased to about 50 per cent.

With IR planning to electrify all its routes in a time-bound manner, electric locomotives for hauling will become a norm. However, it has been reported that the staff allocated for maintaining diesel locomotives have not been shifting towards maintaining electric locomotives at the rate at which electric locomotives have been deployed in IR.

As the technology and service-orientation have been changing every few years and to learn and practice the changes fast, the private sector has been keen that average age of its employees is below 30, whereas the average age of IR employee is about 45. Unless there is a mindset to learn and practice new things fast, the training programmes conducted for weeks and months for employees and officers will be of no avail for IR.

Even if IR deploys the latest technological advancements for operation and maintenance on a large scale, which has already been happening in dribs and drabs, the share of salary and pension expenses in the total operating expenses may not decrease. Instead of learning and adapting to newer technologies and business practices, a section of IR employees, who worked with old technology and callous service-orientation, may prefer voluntary retirement as the pension amount is substantial. Even if a few lakh employees decided to opt for voluntary retirement, IR may end up spending a little less on salary and substantially more on pension, thereby the share of salary and pension in the total operating expenses may not go down.

The New Pension Scheme, which reduces the burden for governments, is applicable only for the employees who joined the services from January 1, 2004. Those who have joined IR in 2004 and thereafter will retire only by about 2040. The financial burden on pension would start reducing after 2040 and IR would be freed from pension burden completely by 2080. IR would require at least 30 more years to start offloading its pension burden imposed by the Sixth and Seventh Pay Commissions.

The writer is Member, Pursuitex LLP

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Published on December 24, 2019
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