Railways escapes dividend burden as govt merges budgets

21 Sep 2016


The union cabinet today approved the merger of Rail Budget with the General Budget besides advancement of budget presentation and merger of plan and non-plan classification in budget and accounts.

Since the Railway Budget will be subsumed in the General Budget, it will no longer have to pay annual dividends to the exchequer while maintain its functional autonomy post merger of budgets.

Railways will continue to pay regular salary and pension for its present and ex-employees, besides bearing the burden of 7th Pay Commission.

At present, the wage bill of railways is around Rs70,125 crore and pension bill is about Rs45,500 crore while the annual fuel bill is more than Rs23,000 crore.

Railways has to also bear an additional burden of around Rs30,000 crore on account of implementation of the 7th Pay Commission awards, besides an annual outgo of Rs33,000 crore on subsidies for passenger service.

All these changes will be put into effect simultaneously from the Budget 2017-18.

The arrangements for merger of Railway Budget with the General Budget have been approved by the cabinet with the following administrative and financial arrangements-

  • Railways will continue to maintain its distinct entity as a departmentally run commercial undertaking as at present;
  • Will retain their functional autonomy and delegation of financial powers etc as per the existing guidelines;
  • The existing financial arrangements will continue wherein Railways will meet all their revenue expenditure, including ordinary working expenses, pay and allowances and pensions etc from their revenue receipts;
  • The capital at charge of the Railways estimated at Rs2,27,000 crore on which annual dividend is paid by the Railways will be wiped off. Consequently, there will be no dividend liability for Railways from 2017-18 and the ministry of railways will get gross budgetary support. This will also save Railways from the liability of payment of approximately Rs9,700 crore annual dividend to the Government of India;

The presentation of separate Railway budget started in the year 1924, and has continued after independence as a convention rather than under Constitutional provisions.

The presentation of a unified budget will bring the affairs of the Railways to centre stage and present a holistic picture of the financial position of the government.

The merger is also expected to reduce the procedural requirements and instead bring into focus, the aspects of delivery and good governance.

Consequent to the merger, the appropriations for Railways will form part of the main Appropriation Bill.

The cabinet also approved, in principle, another reform relating to budgetary process, for advancement of the date of budget presentation from the last day of February to a suitable date. The exact date of presentation of Budget for 2017-18 would be decided keeping in view the date of assembly elections to be held in states.

The advancement of budget presentation by a month and completion of Budget related legislative business before 31 March would pave the way for early completion of budget cycle and enable ministries and departments to ensure better planning and execution of schemes from the beginning of the financial year and utilization of the full working seasons, including the first quarter.

This will also preclude the need for seeking appropriation through 'Vote on Account' and enable implementation of the legislative changes in tax; laws for new taxation measures from the beginning of the financial year.

The third proposal approved by the cabinet relates to the merger of Plan and Non Plan classification in budget and accounts from 2017-18, with continuance of earmarking of funds for Scheduled Castes Sub-Plan/Tribal Sub-Plan. Similarly, the allocations for North Eastern States will also continue.

The Plan/Non-Plan bifurcation of expenditure has led to a fragmented view of resource allocation to various schemes, making it difficult not only to ascertain cost of delivering a service but also to link outlays to outcomes.

he bias in favour of Plan expenditure by the centre as well as the state governments has led to a neglect of essential expenditures on maintenance of assets and other establishment related expenditures for providing essential social services.

The merger of plan and non-plan in the budget is expected to provide appropriate budgetary framework having focus on the revenue, and capital expenditure, according to the finance ministry.

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