Fuel adjustment component would avoid further deterioration in railways' fiscal health: Vinay Mittal & Vijaya Kanth

Interview with, Chairman & Financial Commissioner, Railway Board

While no rise in fares was announced in the railway budget today, the ministry sought to offset the impact of the recent rise in diesel prices by increased supplementary charges and linking freight costs with fuel charges, Railway Board Chairman Vinay Mittal and Financial Commissioner Vijaya Kanth told Business Standard in an interview. Edited excerpts:

The railways’ operating ratio is seen falling from 95 per cent in 2011-12 to 88 per cent this financial year. What is the secret behind this improvement?
The secret is fiscal discipline. The idea is not to waste money at all. We began the year on a very sad note — we borrowed Rs 3,000 crore from the finance ministry. As we were committed to repaying the loan, we set this money aside. Second, for the first time in 25 years, we didn’t present any supplementary demand —neither in the monsoon session, nor in the winter session of Parliament. Third, our actual requirement under ordinary working expenses was about Rs 1,700 crore. But we regulated the commitments. We did not stop contractual bills and ensured liabilities were not entered into. Fourth, we kept a close watch on our income and expenditure. When the passenger fare rise was rolled back in May, we regulated the annual plan by Rs 4,000 crore. Our earnings also improved. As loading fell short, we cut the plan expenditure further. This is how Rs 8,000 crore of expenditure was cut from the Rs 60,100-crore plan. It was a difficult decision but we did it.

While base fares have not been touched, the railways has announced an increase in supplementary charges. How much additional revenue would be generated?
The fares have been rationalised. Only five per cent of the passengers travelling in our system are reserved passengers; the impact would only be to that extent. The unreserved passenger would be out of the ambit, except for the increase in clerkage charges (cancellation of unreserved tickets).

The unreserved passenger segment accounts for 45 per cent of the earnings. We would be able to generate Rs 881 crore from the increase in supplementary charges for super-fast trains, reservation fees, clerkage charges, cancellation charges and tatkal charges. The increase in tatkal charges would affect 15 per cent of the five per cent reserved passenger traffic. So, the impact would be miniscule. This would fetch us Rs 400 crore.

The increase in cancellation charges would accrue an additional Rs 73 crore. Super-fast train charges have been increased only for 472 super-fast trains of the 1,560 trains. This would fetch us Rs 200 crore. Clerkage charges would give us another Rs 143 crore. The increased reservation fee would fetch us Rs 65 crore.

What would be the overall rise in freight charges, owing to the linking of the fuel adjustment component (FAC)?
We will not make any money as a result of this decision. The FAC will only avoid further deterioration in the railways’ financial health. We have kept passenger fares insulated from the fuel component and absorbed Rs 850 crore on that account. The total burden on us due to the rise in fuel costs in 2013-14 would have been Rs 5,100 crore.

However, we are recovering Rs 4,200 crore from the freight segment. In 2011-12, the total cost of providing coaches for this was Rs 57,104 crore. The cost of diesel for these services was 10.37 per cent, while electricity accounted for 7.04 per cent.

The cost of providing freight services was Rs 46,494 crore. Of this, the diesel component was 10.5 per cent, while 5.64 per cent went towards electricity charges. So far this financial year, diesel charges have risen 39 per cent and electricity eight per cent. The impact of the rise in diesel prices would be reviewed every six months.

What would be the additional outgo on wages, owing to the proposed addition of 1,50,000 staff this financial year?
This is the railways’ largest recruitment drive in a single year.

However, there would be corresponding retirements, too. The net impact would be Rs 1,500 crore. By next year, our employee count would stand at only 14,00,000. Staff costs have stabilised after the impact of the Sixth Pay Commission in 2007-08. These have fallen from 55 per cent to 49 per cent of the total ordinary expenses. But this excludes the Rs 22,000 crore we would have to spend for the pension bill in FY14.

What is the idea behind the debt service fund?
Annually, we would appropriate 15-20 per cent of the internal resources to this fund. In a very good year, one has the tendency to spend more money. So, as a measure of fiscal prudence, we are keeping this fund to take care of our future fund requirements; profligacy would decline.

We have got loans for the Dedicated Freight Corridor Corporation, the Japan International Cooperation Agency and the World Bank. We have to meet the requirements of the Seventh Pay Commission, too. Instead of battling these year-on-year, we are keeping the debt service fund aside.