If the railways don't watch out, the growing pension burden will cripple their finances.
According to an independent study by the Asian Institute of Transport Development (AITD), the number of railway pensioners has gone up from 1,06,299 in 1975 to 9,17,844 in 1995, and appropriation to the pension fund has gone up from about 5 per cent of working expenses in 1985-86 to 13 per cent in 1996-97.
The study says that in spite of this alarming trend, the railways have taken no corrective measures.
To meet the challenge of ever-increasing liabilities, the study recommends that the railways should ask for a complete segregation of their pension fund accumulations from the Consolidated Fund of India. At present, the study suggests obliquely, the government is short-changing the railways.
Had the entire balance of Rs 713 crore during 1995-96 been invested in 364-days treasury bills, the study points out, it would have earned a return of 13.2 per cent and the interest would have been Rs 94.15 crore. Instead, the actual interest earned was Rs 51 crore, or 6.5 per cent.
The study has recommended that the Railway Pension Fund should be allowed to invest in designated securities just like provident funds.
It also recommends that the railways operate an independent pension fund to even out its pension outgo over the years.
The annual contribution made by the railways could then earn interest at prevailing market rates. At present, the pension fund holds cash balances and receives a credit of about 7 per cent from the central government.
The increase in the number of pensioners is partly because of the increase in life expectancy and partly because of the increase in railway employment during 1951-75. As a result, the ratio of pensioners to the number of total employees has gone up from 17 per cent in 1980-81 to 58 per cent in 1995-96. Also, total pension contributions as a ratio of total wages and allowances has gone up from 7 per cent in 1980 to 29 per cent in 1995.
The net result of all this, says the study, is that unless the railways wake up to the developing crisis they will find themselves in serious financial trouble.
As a first step, the study suggests the railways must reflect the accrued pension liabilities of the previous years in their accounting statements so that the implicit debt is formally recognised. This will present a truer picture of railway finances.
The next step should be to opt either for a scheme that allows full funding of pension for new entrants or for partial funding for all employees. If partial funding is introduced, the pay-as-you-go liabilities will show a gradual reduction.
