CAG report supports Trivedi's observation of under-provisioning for depreciation

Trivedi is the head of the Parliamentary Standing Committee on Railways

In its report on Indian Railways’ finances, the Comptroller and Auditor General (CAG) has supported former railway minister Dinesh Trivedi’s recent observation that under-provisioning for depreciation is resulting in piling up of works for the entity.

It maintains a depreciation reserve fund (DRF) for replacement and renewal of assets. Contributions to the DRF weren’t made on the basis of historical costs, the expected useful life and the residual life of the assets, but were dependent on the working expenditure, the CAG has said in its report, tabled in Parliament on Friday.

“As a result, there was a huge backlog of over-aged assets amounting to Rs 47,310 crore as of April 1, 2013, of which Indian Railways had spent Rs 7,119 crore in 2013-14 on replacement and renewal.

The remaining over-aged assets in the railway system were required to be replaced for safe running of trains,” it added.

Trivedi, as head of the Parliamentary Standing Committee on Railways, had earlier this month said the railways Operating Ratio, which came down from 93.6 per cent in 2013-14 to 91.8 in 2014-15, would have been close to 100 per cent had the transporter made adequate provision for depreciation based on the actual requirement of replacement of over-aged assets.

"This under-provisioning is resulting in piling up of delayed works concerning renewal of assets of the order of Rs 41,871 crore," Trivedi had said in his report as part of his arguments to highlight how the railways is in a "severe financial crisis". The scope of the CAG's report, however, is limited to the financial year 2013-14.

The auditor also pointed out that railways Capital Fund, which is appropriated from Revenue Surplus, closed with balance of Rs 557 crore as on March 2014. Railways borrows money through Indian Railway Finance Corporation (IRFC) for acquiring rolling stock by the Financial Lease Route. As per accounting policy of IR, repayment of Principal component of borrowing is done from the Capital Fund (internal source).

"However, due to insufficient fund in Capital Fund, IR made payment of Rs 12,629 crore to IRFC during the period 2011-14 from the General Budgetary Support (GBS) received from the government. This was in violation of its own accounting policy. This also made the borrowing from IRFC more expensive as dividend is required to be paid to government on the amount advanced as GBS to finance Capital Expenditure," the CAG said in its report.

The CAG said that during 2013-14, Gross Traffic Receipts of railways increased by 12.79 per cent while Ordinary Working Expenses grew by 16.14 per cent over the previous year. Hence, Operating Ratio (percentage of working expenses to traffic earnings) deteriorated to 93.60 in 2013-14 from 90.19 in 2012-13.

The auditor also pointed out railways Net Surplus after meeting dividend liability decreased to Rs 3,740.40 crore in 2013-14 as compared to Rs 8,266.25 crore in 2012-13. It was less than the budget estimates by 71.55 per cent. The shortfall in the Budgeted Net Surplus was due to decrease in Net Traffic Receipt by 47.93 per cent and excess payment of dividend by 28.16 per cent over the budget estimate.