Union Budget: Railways

Off-track Budget

Print edition : February 28, 2020

Railway lines narrowing down as they proceed towards the outer signal at the Visakhapatnam railway station in Andhra Pradesh. Photo: K.R. DEEPAK

The Union Budget’s focus on the Indian Railways is cursory. An exercise in obfuscation, it reveals utter neglect of India’s largest enterprise.

ONE of the most important consequences of budget-making in the Narendra Modi years has been the exclusion of the Indian Railways’ finances from public scrutiny. It terminated the long-standing practice of presenting a separate budget for the Railways, India’s biggest enterprise whose fortunes undeniably have a major impact on the wider economy. Citizens are poorer because a wealth of information that was available earlier about Railway finances has now disappeared from the public domain. It was thus not surprising that Finance Minister Nirmala Sitharaman’s long-winded Union Budget speech on February 1 contained just a few references to the Railways. Cleverly, as elsewhere in the Budget, in the case of the Railways, too, figures were presented in a manner that prevented comparison with earlier commitments or announcements for any meaningful evaluation.

In her 2019-20 Budget speech, Nirmala Sitharaman said that the government would invest Rs.50 lakh crore over a 12-year period in the Railways, implying an average of about Rs.4 lakh crore a year, or Rs.25 lakh crore in six years. However, she actually budgeted for only Rs.1.61 lakh crore in 2019-20; the Revised Estimates reveal that an investment of only Rs.1.56 lakh crore was made. Half of this investment was to come from extra budgetary resources, chiefly through borrowings from the flotation of bonds issued by Indian Railway Finance Corporation (IRFC), from financial institutions such as Life Insurance Corporation and from investment made via public-private partnerships.

But in line with the Modi government’s penchant for abandoning grand announcements midstream and replacing them with newer and grander announcements, this 12-year plan was abandoned when Modi announced on August 15, 2019, the creation of a National Infrastructure Pipeline (NIP). The NIP scheme envisaged an investment of Rs.102 lakh crore in infrastructure projects over a six-year period starting 2019-20, of which the share of railway projects was to be 13 per cent. While the Centre would provide budgetary support to the extent of 87 per cent of the outlay under the NIP, 12 per cent was to be made by the private sector and the remaining 1 per cent by State governments. The share of railway projects in the NIP was thus to be Rs.13.69 lakh crore over six years, of which Rs.11.90 lakh crore was to come by way of budgetary support.

Going by the government’s own plans, budgetary support ought to have been Rs.1.16 lakh crore in 2019-20. However, Nirmala Sitharaman’s Budget reveals that in 2019-20, plan outlay, according to Revised Estimates, was only Rs.1.56 lakh crore, of which gross budgetary support was only Rs.52,837 crore. It is important to reiterate that gross budgetary support includes a safety fund of Rs.5,000 crore and the Railways’ share of road cess amounting to Rs.10,000 crore, both of which are meant for the Rashtriya Rail Samrakshana Kosh, a national rail safety fund created for safety-related works, primarily to clear arrears in renewal of tracks and signalling systems and construction of bridges. While the safety fund comes from the National Investment Fund, which is created from the proceeds of disinvestment of public sector undertakings, road cess comes from the cess on petroleum products. Thus, the net budget support provided by the Finance Minister in 2019-20 was only Rs.37,837 crore as against the task force promise of Rs.1.15 lakh crore, a shortfall of 68 per cent.

Undeterred by her failure in the current year, the Finance Minister promised more of the same for 2020-21. According to the grand promise, the plan outlay for 2020-21 ought to have been Rs.2.62 lakh crore, of which the budgetary support ought to have been Rs.2.28 lakh crore. Instead, the Finance Minister has provided a net budgetary support of Rs.46,750 crore, a shortfall of a whopping 80 per cent.

The task force appointed by the Finance Ministry to plan the NIP had recommended that 60 per cent of the outlay for the Railways will be for ongoing projects, 30 per cent for projects that are still in the conceptual stage, and the remaining 10 for those in the development stage. The gross underinvestment through budgetary support implies that new projects will be ignored; in fact, several ongoing projects were abandoned last September. For instance, in Tamil Nadu, ongoing projects for eight new lines have been virtually abandoned. Details of the Railways’ works and rolling stock acquisition programme, usually contained in what is known as the “Pink Book” in Railway circles, illustrate the shocking disregard for institutional integrity. The eight projects in Tamil Nadu, which ought to have been allotted a total of Rs.11,400 crore, have received a paltry allocation of Rs.1,000 each. More outrage is in store for those who have the patience to sift through the Pink Book. (The Pink Book, published every year, provides a detailed zone-wise statement of work and the machinery and rolling stock acquisition programme of the Railways.)

As many as 274 projects across 16 zones of the Railways have quietly been abandoned, indicated only by the fact that each of these has been allocated the princely sum of Rs.1,000. Of these, 132 are new line projects, 40 gauge conversion projects and 102 track doubling projects. Even if the Finance Minister wanted to reassign her priorities, did propriety not require her to state this upfront, instead of resorting to subterfuge?

In 2015-16, the then Railway Minister announced investments worth Rs.8.56 lakh crore in five years, inclusive of gross budgetary support and funds from internal resources and through extra budgetary resources. However, in those five years, only Rs.5.39 lakh crore was spent. The figures of private participation are doubtful because details of such investment are sketchy in the available Budget documents. Of the plan outlay of Rs.1.60 lakh crore for 2019-20, private investment was estimated to be Rs.28,100 crore, which was revised to Rs.17,761 crore, a shortfall of 36 per cent.

Clearly, the shortfall in investment has hit the Railways’ ability to expand operations or strengthen the existing system. In her Budget speech, the Finance Minister announced that the Railways would electrify 27,000 route kilometres. However, the fine print reveals that 27,000 km is what is to be undertaken in the years ahead. The target for electrification in the current year is only 6,000 route km, which is a scaled-down figure from the 7,000 route km target the Minister set last year. In effect, the Railways’ committed deadline to electrify its entire network by 2022 has been pushed back by at least two years. The limited allocation now means that this will take at least four years, provided further cuts are not made.

Following a national outcry against frequent train derailments and the backlog of track, signal and bridge renewals, a national rail safety fund was created with a corpus of Rs.1 lakh crore and an annual expenditure of Rs.20,000 crore, starting from 2017-18. In fact, this was not a newly established special fund but simply a new categorisation of existing funds. The Comptroller and Auditor General of India (CAG), in a recent report, has confirmed this. This fund is created from the Central Road and Infrastructure Fund collected from diesel cess and transferred to the Railways as their due, to the tune of Rs.10,000 crore, and additional budgetary support, of Rs.5,000 crore, transferred from the National Investment Fund, which was created from the proceeds of disinvestment. Another Rs.5,000 crore would come from the Railways’ internal resource, that is, the Depreciation Reserve Fund (DRF). All these funds were already available to the Railways. They have been regrouped under a new name so that a pretence of being serious about safety can be maintained.

According to the CAG, the reduced allocation to the DRF is to show the operating ratio in a better light. In 2017-18, the DRF allocation was reduced to Rs.1,540 crore instead of Rs.5,000 crore; in 2018-19, it was only Rs.300 crore instead of Rs.5,000 crore. In 2019-20, the allocation for the DRF was only Rs.400 crore. For 2020-21, Rs.800 crore has been earmarked. The DRF was hitherto used for the renewal of tracks, signals, and so on. The CAG has pointed out that the creation of a national safety fund has helped the Railways avoid allocation to the DRF and thereby show the operating ratio in a better light.

The Railway Minister, in his White Paper on the Railways in 2015, stated that there were 5,300 route km of track due in arrears for renewal as of July 2014. Annually 4,500 route km becomes due for renewal according to the White Paper. The annual track renewal ought to be more than 4,500 route km in order to clear the backlog of unmet targets from previous years. Instead, Budget documents reveal that track renewal has continued to miss targets (see Table 3). This has important implications for rail safety. Currently, 8,300 route km of track is due for renewal. Although the number of derailments decreased in 2017-18, the prolonged neglect of tracks remains a serious cause for worry. The CAG has sought clearance of backlog in renewals for which a sum of Rs.1.01 lakh crore will be required. On this vital issue, the Finance Minister is silent.

The Railways’ operating ratio is the ratio of expenditure to income, generally expressed as a percentage. The CAG’s study found that the operating ratio of 98.4 per cent for 2017-18 resulted from manipulation, and it ought to have been 102.66 per cent. It pointed out that the DRF had been reduced to show reduced expenditure. Its payment of lease charges to the IRFC amounting to Rs.7,979 crore, which ought to have been included as expenditure, was paid from the capital account, which resulted in investment in projects suffering to that extent.

According to the CAG’s analysis, all segments of passenger services are loss making. While freight earnings were profitable to the tune of Rs.39,956 crore, passenger services made a loss of Rs.37,936 crore in 2016-17. But these losses are not subsidised by the government, unlike in the United Kingdom, where despite privatisation, losses are underwritten by the government. Similarly, the Railway Board Chairman said recently that the pension expenditure to the tune of Rs.50,000 crore ought to be met through allocations in the general budget, just as pensions of Central government employees are, instead of burdening Railway finances. In fact, this move alone would result in the operating ratio improving by 25 percentage points. Not surprisingly, the Finance Minister avoided these issues.

Staff productivity, measured in terms of net tonne km (NTKM) per employee, increased by 9.18 per cent between 2013-14 and 2017-18. While normative standards require a staff strength of 19 lakh employees, the Railways employ only 12.10 lakh employees; in fact, the sanctioned strength is 15.09 lakh. However, the Railways also employ 2.41 lakh people on a contractual basis, apart from seven lakh people working in outsourced services contracted by the Railways. According to the Parliamentary Standing Committee, there were three lakh vacancies as on September 2019. The National Transport Policy Committee had earlier observed that a passenger-oriented service such as the Indian Railways, in which nearly two-thirds of all trains are passenger trains, would logically require a higher staff strength.

The aggressive privatisation of railway services implies that the Budget is fast-losing credibility as a reliable source of information of what the government assigns for this critical infrastructure. This year’s Budget is yet another affirmation of this reality.

R. Elangovan retired from the Indian Railways in 2009 and is vice president of the Dakshin Railway Employees Union.

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