With no separate announcement for the railways budget
this year, budget
2017 marks a new era for the sector. Since 1924, the railway budget
has always been separate from the broader union budget
announcement. In this article, we attempt to analyse why the railway budget
was announced separately so far and why has it been merged now with the union budget
this year. The Graph 1 can help us understand one of the key reasons.
As can be seen in Graph 1, in FY1950-51, revenue from railways was substantial as compared to the central tax revenue. While central tax revenue was Rs 405 crore, gross traffic receipts from railways was Rs 263 crore, as much as two-thirds. In this situation, having a separate budget
for the Ministry of Railways probably was more meaningful. Over the years, the relative size of the railway
revenue decreased and in FY2010-11, the gross traffic receipts from railways was around one-tenth the size of the central tax revenues.
The comparison of expenditure by the Ministry of Railways and other two ministries of the central government as indicated in Graph 2 is also interesting to note.
As can be seen, the total expenditure in the Ministry of Defence is around 40 percent higher than the total expenditure in the Ministry of Railways. The expenditure under roads and surface transport has also been steadily rising over the years.
Graph 1: Comparison of central govt's tax revenues & railway's gross traffic receipts
Thus, both, on account of a relatively lower share in the central government’s revenue pie over the years and also a progressive increase in the expenditure of other ministries, it is perhaps logical to merge the railway budget
with the general budget.
However, this is a major change for the philosophy under which the Ministry of Railways has worked so far. There has been a major change in the philosophy under which the Ministry of Railways was functioning.
The Ministry of Railways is the only ministry in the Central Government which in a way earns its own salary. Meeting the expenditure of running the large railway
system in our country was earlier the responsibility of the Ministry and this led to decisions related to hikes in freight and passenger tariffs every year, either during the railway budget
or at interim periods in the financial year.
Graph 2: Expenditure by ministry in '000 Rs Cr
The Ministry of Finance gave no assistance to the Ministry of Railways for meeting its ‘operational’ expenditure. In the Expenditure Budget
(Volume I) document, released by (name of the ministry) while for all Ministries there are allocation both under ’Revenue’ and ’Capital’ heads, for Ministry of Railways, the allocation has always been under ’Capital’. However, it will now change. This has implications on railway
tariffs and the level of cross subsidisation of passenger fares.
While the merger of the railway budget
with the general budget
is an important change, the pattern of allocation of funds, revenue and expenditure profiles is expected to follow the trend of the previous two railway
India's Rajaji Meshram
Capital expenditure is expected to be in the range of Rs 1 lakh crore. With the recent spate of derailments, the allocations to railway
safety are expected to be higher. As of November 2016, as per the Monthly Evaluation Report published by the Ministry of Railways, the freight earnings is lower than budget
estimates by 13.4 percent and lower by 7.2 percent as compared to last year.
At the same time, the working expenses of the railways is actually slightly higher than budget
estimates as on November 2016. This will put pressure on the railways operating ratio. The budget
is therefore expected to lay emphasis on non-fare box revenue initiatives.
In summary, this year’s budget
is a marque year for the railways sector and is expected to usher in a new era of working. While there are challenges in the sector, the merger with the general Budget
is overall a good and logical move and can lead to an ability to address important issues such as cross subsidisation of passenger fares, rationalisation of railway
tariffs, and enhancement of non-fare box revenues.
Rajaji Meshram is the director (infrastructure and government services), KPMG in India