Paras Jain/Mint

Paras Jain/Mint

Railways had surplus of Rs1 cr in FY10

Railways had surplus of Rs1 cr in FY10

New Delhi: The deterioration in the finances of the Indian Railways is far worse than what the government has let on.

A review of provisional data for 2009-10 shows that its revenue surplus has dropped to a low of Rs1 crore, compared with Rs4,456.78 crore in 2008-09. In the Budget presented on 24 February, the government had pegged the revised estimate of revenue surplus at Rs951.03 crore.

Paras Jain/Mint

The marginal revenue surplus is the result of a significant reduction in the amount Indian Railways has put into its depreciation reserve fund, which is used to replace aging assets. In 2009-10, the railways put in around Rs2,300 crore into the fund—much less than the Rs4,500 crore it had originally claimed it would—while withdrawing in excess of Rs5,000 crore from its accumulated reserves (which includes funds in the depreciation reserve fund), leaving a balance of less than Rs10 crore.

This is the worst performance since the last financial crisis in the railways in 2000-01, which forced it to default on dividend payments to the Centre. The Indian Railways doesn’t follow commercial accounting norms followed by firms in India.

A spokesperson for the railways declined to divulge details on the revenue surplus or the current fund balances, but conceded that fund balances had taken a hit in 2009-10.

“Now that the arrears of pay commission are behind us and the economy looking up, the fund balances will again be built up," he said.

To be sure, rail minister Mamata Banerjee had in her very first budget flagged the fact that the finances of the railways were in distress. She commissioned and released a white paper on the finances that argued that accounting tweaks had masked the true status of the railways’ finances.

The latest revelations have surfaced during the compilation of the final estimates for 2009-10. It showed that the ministry’s earnings in 2009-10 are, at Rs86,963 crore, marginally lower than that reported in the revised estimates issued this year. After accounting for operating costs, other expenses and an estimated dividend payout of Rs5,543 crore, this should leave a surplus of about Rs1 crore.

The Indian Railways, which has steadily increased its freight business over the past six years, has been affected in the last two years by factors beyond its control, such as vastly increased pay scales for its 1.4 million employees (mandated by the Sixth Central Pay Commission) and a global economic downturn. The year 2009-10 was particularly hard on the railways. In an internal meeting of the rail board staff in March this year, senior railway officials said the national transporter’s earnings till February had grown by 9.3% (down from the 13% average of the previous five years) while working expenses went up by 25% over 2008-09.

A former railway official said the national transporter has in the past resorted to decreasing the amount of money it flows into its various funds to shore its surplus. In lean years, the railways would put less money into the funds while drawing on the accumulated reserves and the reverse when revenues were buoyant.

“The severe drawdown of fund balance only means that adequate appreciations to the funds will have to be provided in the next budget," the spokesperson said, adding that final accounts for 2009-10 have been sent to the Comptroller and Auditor General.

Analysts say the railways will have to initiate radical measures to cut costs while growing freight business. “They will have to do some significant cost cutting. For example, on the manpower side, they are very proud of the fact that they are the largest employer. They will have to look at cost reductions," said Amrit Pandurangi, who heads the infrastructure and transport practice at consulting firm PricewaterhouseCoopers.