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Desperate measures show the rot in railway finances

Desperate measures show the rot in railway finances
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First Published: Thu, Feb 25 2010. 12 38 AM IST

Track record: Commuters in a suburban train in Mumbai. Passenger earnings fell short of the budget target by Rs252 crore, growing at 9.69%, and is now pegged to grow at 8.6% in 2010-11. Arko Datta/Reu
Track record: Commuters in a suburban train in Mumbai. Passenger earnings fell short of the budget target by Rs252 crore, growing at 9.69%, and is now pegged to grow at 8.6% in 2010-11. Arko Datta/Reu
Updated: Thu, Feb 25 2010. 12 38 AM IST
New Delhi: Railway minister Mamata Banerjee may be overestimating the finances of the Indian Railways, especially if the trends of the current fiscal year are any indication.
Can Pranab present a magical budget? Find out on Livemint.com’s Budget 2010 microsite. (Click here)
Freight tariff concessions coupled with higher working expenses reduced the investible surplus of the railways to Rs951 crore in 2009-10, little less than one-third of the budgeted sum of Rs2,642 crore. Despite this, Banerjee has projected investible surplus, excess after deducting for dividend pay out to the Centre, to go up to Rs3,173 crore.
Banerjee presented the Railway Budget for 2010-11 in Parliament on Wednesday.
Track record: Commuters in a suburban train in Mumbai. Passenger earnings fell short of the budget target by Rs252 crore, growing at 9.69%, and is now pegged to grow at 8.6% in 2010-11. Arko Datta/Reuters
“This is mostly because of reduction in freight tariff of iron ore, domestic container and parcels in the current year,” said R. Sivadasan, former railway finance commissioner. “The budgeted amount for next year is not enough for railways’ capital investment requirements. They should have rather gone for flexible tariffs.”
The annual plan outlay for 2010-11 has been proposed at Rs41,426 crore, its highest ever. Banerjee proposes to finance this through gross budgetary support, provided by the finance ministry, of Rs15,875 crore, diesel cess of Rs877 crore, internal resources of Rs14,523 crore and extra budgetary resources of Rs10,151 crore—including market borrowing through Indian Railway Finance Corp. of Rs9,120 crore.
Banerjee also wants to increase revenue by branding and advertising of railway properties. She is projecting earnings of Rs1,000 crore in 2010-11 from this, up from Rs150 crore in 2009-10.
Total earnings, which grew at 10.57% in 2009-10, fell marginally short of the budgeted target and is projected to grow at 7.11% in 2010-11. Freight earnings, which grew at 9.88% in 2009-10, is projected to grow at 6.42% to Rs62,489 crore in 2010-11.
The operating ratio, or the amount the railways spends to earn every Rs100, deteriorated to 94.7% in 2009-10 from 90.5% in the previous year. This would have been worse if the railways had allocated money to the various railway funds as provisioned initially in the 2009-10 budget.
For 2009-10, appropriation to the Railway Development Fund was budgeted to be Rs2,000 crore, but only Rs951 crore was appropriated. Similarly, the railways reduced appropriations into the depreciation reserve, which goes into the upkeep of aged and over-utilized assets, from Rs5,425 crore to Rs4,600 crore.
“This is creative accounting. This is a dangerous tendency. This has been done to improve operating ratio,” Sivadasan said.
As reported by Mint on 5 July, in a Railway Budget speech Banerjee didn’t give, she had admitted that to fund massive network expansion programme, completion of capacity enhancement works and timely replacement of over-aged assets, the Plan Expenditure has been sustained in the two years of 2008-09 and 2009-10 through draw-down from accumulated fund balances, holding that this may not be possible in the future.
However, Banerjee has followed the same practice. In 2009-10, she has withdrawn Rs2,927 crore from the Railway Development Fund and Rs15,000 crore from the Railway Pension Fund.
Amrit Pandurangi, executive director, PricewaterhouseCoopers, said this could be because 2009-10 was not a great year for the economy.
Sivadasan pointed out that though the average addition to freight loading has been 60 million tonnes (mt) for the last five years, including in 2009-10, Banerjee has budgeted only 54 mt for next fiscal year when the economy is going back on track, which is hard to explain.
Pandurangi said this is justified as there are only early signs of economic recovery. “The railways’ freight earnings are highly dependent on a few commodities. So, it is better to go for realistic targets and achieve them.”
Passenger earnings also fell short of the budget target by Rs252 crore, growing at 9.69%, and is now pegged to grow at 8.6% in 2010-11. Keeping in view the upward trend during the current year, the estimate for sundry earnings has been raised to Rs2,982 crore for 2009-10 from the budgeted Rs2,760 crore, and assessed at Rs3,172 crore for 2010-11.
asit.m@livemint.com
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First Published: Thu, Feb 25 2010. 12 38 AM IST