Prabhu seeks Rs32,000-cr govt support to implement pay panel award

Railway minister Suresh Prabhu has requested finance minister Arun Jaitley for financial assistance to the tune of Rs32,000 crore to absorb the impact of the 7th Pay Commission recommendations, amidst the Railways' proposed investments of Rs8,50,000 crore over the next five years.

The proposed hike in salaries would, however, upset the railway ministry's investment projections and growth expectations, the minister pointed out.

"I would therefore earnestly request you to help the ministry of Railways and hand-hold it for implementation of 7th CPC recommendations," Prabhu said in a recent letter addressed to Jaitley. "This may be done either through compensation of loss for coaching services (Rs31,727 crore in 2013-14) or directly by virtue of a revenue grant matching the amount of the 7th CPC's liability placed upon the Railways for the next three to four years."

Prabhu, however, voiced confidence that Railways would help push India's GDP by 2.5 per cent in the coming years, even as he asserted that with special focus on research and development works the national transporter would act as a growth engine.

At the same time, he said, efforts are being made at cost-cutting and possible gradual adjustment of fares and other non-tariff revenue measures to absorb the impact of the pay hike, but considering the prevailing financial position of the Railways, it needs financial support for implementation of the Commission's recommendations.

He said the Railways is making major efforts at modernisation involving research and development. The government, he pointed out, has signed agreements with 14 countries, including Japan and Korea, to undertake research and development work.

"In the coming years the Railway will contribute 2.5 per cent to the GDP growth in the country," Prabhu said at a function in Jammu.

The minister hoped that in three to four years, Railways would be able to absorb the impact of the pay hike from its own resources through gradual adjustment of fares and other non-tariff revenue measures.

However, he expressed reservation about increasing the freight rate in the given scenario.

In order to maintain wage expenses at the current proportion - at 51.5 per cent of the gross receipts - Railways' revenues will need to grow substantially by 40 per cent in 2016-17, which is considered impossible given the fact that till October 2015 growth was only 8.4 per cent, Prabhu pointed out.

"The first factor of freight earnings originating loading is demand driven and is largely not within the control of the Railways. The second factor that is freight rates, though is within Railways' competence, there is hardly any headroom available for increasing the same without affecting the Railways' competitiveness adversely," he said. "Moreover, exercising this option will have a deleterious impact on the national economy as well as on critical sectors such as coal, cement, food grains."

According to the Pay Commission report, the annual financial impact on the Railways will be approximately Rs28,450 crore in addition to the normal growth which will require to be built into the Railway Budget, 2016-17.

"Our initial assessment, however, is that this additional impact would be around Rs 30,031 crore over and above the normal assessed growth of Rs10,816 crore," the minister further pointed out in his letter to the finance minister.

Prabhu noted that the Railways bear 35.6 per cent of the total pay and allowances of the government, which is more than one-third of the Pay Commission's burden for serving staff and would be borne by the Railways. Further, nearly 28 per cent of the pension impact of the central government would be on the Railways.

"Currently, pay and allowances and pension account for 51.5 per cent of the gross receipts of the Railways. With the financial impact of the 7th CPC, this will increase to 68 per cent of the gross receipts in 2016-17 at present level of growth."

Prabhu also mentioned the details about the cost-cutting measures in the Railways. "While we have put in place serious cost-cutting measures and are focusing on fuel management and lowering of staff intake, more than 2.3rd of the railway expenditure is inelastic-staff cost, pension, lease charges, maintenance of fixed assets." The minister has sent a detailed note along with the letter on the Railways financial position vis-a-vis impact of 7th CPC's recommendation.