With FinMin rejecting pay commission relief, Indian Railways attempts financial prudence

A new set of instructions has been passed on from the Financial Commissioner to all the zonal railway managers

The Finance Ministry’s rejection of Indian Railways’ demand for a Rs 32,000 crore revenue grant to tide over the impact of the seventh pay commission recommendations has forced the national transporter to undertake a comprehensive review of key financial numbers for the current fiscal.

The financial prudence measures come at the backdrop of a shortfall in both traffic volumes and revenue from freight and are aimed at bringing about massive expenditure cut and shoring up earnings. The new set of instructions has been passed on from the Financial Commissioner S Mookerjee to all the zonal railway managers.

In a letter written to the General Managers of all the 17 railway zones earlier this month, Mookerjee painted a bleak picture of finances. “I am writing this to you in the background of a revenue shortfall over Indian Railways on the one hand and the impending challenge thrown up by the huge additional liability of the 7th Central Pay Commission (CPC) on the other. We all have to gear up to face the unprecedented challenges that face us in 2016,” he said.

Mookerjee added the traffic and earnings have declined considerable over Budget Estimate targets and continue to do so even as fund balances have to be reworked and lease charges to be met. “The requested handholding by the ministry of finance through budgetary support for capital and financial assistance to meet the 7th CPC impact has not yet met our expectations. The situation, therefore, calls for determined steps in expenditure management,” he said.

In a communication to the railways, the finance ministry had categorically rejected the Rs 32,000 crore demand expressing its inability to provide the grant and had asked the transporter to raise its own resources to manage the finance. Earlier rail minister Suresh Prabhu had written a letter to Finance Minister Arun Jaitley seeking the grant from the exchequer for implementing the CPC recommendations and cited the difficult financial position the railways is passing through.

Currently, pay and allowances and pension account for 51 per cent of the gross receipts of railways. With the financial impact of the 7th CPC, this will increase to 68 per cent in 2016-17 at present level of growth. The annual financial impact on Railways from the pay commission works out to around Rs 28,450 crore.

The finance ministry’s rejection of the Rs 32,000 crore revenue grant has been followed by a 30 per cent cut in the rail ministry’s Gross Budgetary Support (GBS) of Rs 40,000 crore for current fiscal. With the Finance Ministry slashing the budgetary support by Rs 12,000 crore, railways is left with just Rs 1,000 crore to spend from GBS in the current quarter. It had already utilised Rs 27,000 crore GBS by end December.

Mookerjee has asked the zonal heads to enhance overall earnings target for the current fiscal by 5 per cent over the revised estimate. “There have been certain developments in November and December with measures like second charting, tatkal charges and cancellation charges apart from the fact that the Advanced Reservation Period was raised from 60 days to 120 days. These measures should significantly boost traffic earnings in last quarter of 2015-16,” he said. The measures will be coupled with cut down in fuel cost, electrical energy management and a ban on recruitment for non-safety and non-operating posts. 

Suresh Prabhu had in the last rail budget announced railways is budgeting for freight traffic to grow from 1,101 MT in 2014-15 to 1,186 MT next fiscal. Of the additional 85 MT tonnage, 42 MT was to come only from coal, the largest component of railways commodity traffic basket. Also, 9 MT extra was to come from iron ore and seven MT from cement traffic.

Railways earned Rs 80,526 crore from freight by end December in the current fiscal, Rs 2,150 crore less than the targeted Rs 82,676 crore for this period. The freight earning between April-December 2015 was, however, 6.2 per cent more than Rs 75,779 achieved in the same period last fiscal. Similarly, passenger earnings of Rs 33,105 crore for April-December 2015 period were Rs 1,937 crore less than the target of Rs 35,042 crore but 5.4 per cent more than Rs 31,406 crore earned from passenger segment in the same period last fiscal.

In a sign of worsening financial situation, Indian Railways’ Operating Ratio – money spent to earn Rs 100 – stood at 97.8 in the first half of current fiscal, the highest in more than a decade, according to a recent report. The ministry contests that figure arguing the ratio is not calculated midway in a financial year. The transporter is working on an Operating ratio target of 88.5 for the current fiscal as against 91.25 recorded last financial year.