Pay, allowances need attention

EXPERT VIEWS

S N Mathur
Director (Finance), Asian Institute of Transport Development

The financial results for 2007-08 and the budget for 2008-09 are remarkable on all counts and ensure that Indian Railways will continue to move on a high-growth trajectory. In fact, the past three years have marked a watershed in the fortunes of the railways.

Before, it was grappling with a financial crisis. Since then, it has staged a dramatic turnaround, registering a cash surplus of over Rs 20,000 crore in 2006-07, and now increasing it even further to Rs 25,000 crore in 2007-08. As a result, it has been able to meet a very large portion of its Plan outlay of Rs 31,000 crore for 2007-08 from its own internal generation.

Some credit for these excellent financial results during the past two years must be attributed to the dynamic pricing policy adopted by the railways. The market-oriented approach by the railway minister has resulted in a year-on-year increase in passenger earnings of 15 per cent in 2006-07 and 14 per cent in 2007-08.

One area which would demand railways' urgent attention is the growing expenditure on pay and allowances of its employees. While the staff strength has not reduced substantially, the number of retired persons has been growing steadily, largely on account of the improvement in the life expectancy in the country.

Thus, in addition to its over 1.4 million working employees, the railways have to set apart funds for meeting the pension liabilities of nearly 1.2 retired personnel. Rightsizing its staff strength will, therefore, be a major task before the railways.

The railways are required to perform the dual role of a commercial organisation and a public service. It has fulfilled both these obligations admirably.

In the process, it has also wiped out its arrears of deferred dividend liability to the central exchequer.

Basically, what the railway minister has done is varying prices throughout the year as needed, just as any other commercial organisation does.

(This is a step in the right direction, not least because it has freed the railways from the strait-jacket of Parliamentary control in the matter of freight rates and passenger fares.)

(Since the optimism in growth of traffic and revenue earnings is maintained in the budget for 2008-09 also, it is hoped that this sound commercial practice of constantly adjusting prices remains in place.)

(The current annual expenditure on pensions alone is in excess of Rs 8,000 crore, and taken together with expenses on staff wages and allowances, it consumes over 40 per cent of the railway's revenues. The recommendations of the Sixth Pay Commission are likely to inflate expenditure on this account further, in turn, calling for even higher generation of internal resources to meet this liability.)

(if it wishes to ensure that the rewards of the good work done so far do not get frittered away, and investments in developmental works do not suffer on that account.)