Merger of Rail Budget with General Budget

The government in July 2016 announced the merger of Railway Budget with the Union Budget. During British era, the Railway Budget was part of the General Budget initially. On the basis of Acworth Committee, the Rail Budget was separated in 1924 and this system was followed till now. The recommendation of merging the two budgets had come from Bibek Debroy Committee. Two more significant decisions came – abolishing the classification of Plan and non-Plan expenditure; and advancing the dates of budget presentation.

Implications of merger of Rail Budget with General Budget

No other ministry has separate budget and practice of presenting separate budget does not exist in any other country at present. Scrapping of Railway Budget will have several implications. Firstly, it would save the Indian Railways to pay the annual dividend to the Government on the budgetary support given each year. It will help the financially stressed railways to save about Rs 10,000 crore annually. Already the Railways has to bear an additional burden of about Rs. 40,000 crore for implementing the awards of 7th Pay Commission besides an annual spending to the tune of Rs. 32,000 crore on subsidies. Secondly, Railway Budget has been used over the years as an opportunity to introduce populist measures for political gains. Thirdly,  merging of the two budgets would lead to passage of a single appropriation bill in the Parliament. Thus, it will save the time and cost of the Parliament.

The Railway budget was separately presented during British era since Railway’s entailed more funds than British India’s expenditure on all other aspects of administration combined. But now, outlay of Railways is just 6% of the total expenditure proposed in the Union Budget. In fact, revenues earned from domestic aviation business are estimated to be higher than Railway’s traffic earnings.

Key changes to the budget presenting process

The key changes in the budget presentation are as follows: The Railway minister will not present the railway budget in the Parliament. Both the railway budget and the general budget will be presented by the finance minister in the parliament. The process of preparing the budget will remain the same and the functional autonomy of Railway budget will be maintained. The presentation of annual Budget would be advanced by a month. Accordingly, the budget will be presented before January 25 and the budget preparation will begin from early October.  The classification of expenditures into Plan and Non-Plan has also been scrapped as the classification results in excessive focus to the plan expenditure and neglects items such as maintenance which are classified as non-Plan. Plan expenditure was presented separately for the first time in 1959-60.

The issue of raising passenger fares and other unpopular decisions will be hereafter taken by the Finance minister. The government has also scrapped the Railway Convention Committee (RCC), whose job is to determine the rate of dividend to be paid by the Railway ministry to the Finance Ministry. According to the Railways minister Suresh Prabhu, the merger of rail and general budgets would not impact financial autonomy of the railways but instead will help in raising extra capital expenditure that tends to improve connectivity and boost economic growth.

Early presentation of Budget

As of now, the Budget is presented on the last day of February and Parliament approves the budget only in the middle of May. With the arrival of the monsoon in June, most states start spending only in October. This results in leaving just half a year for the effective implementation of schemes. On the other hand, early presentation of budget will ensure that the entire exercise would get over by March 31 and the entire tax proposals and expenditure would come into effect right from the beginning of the new fiscal year. It will lead to better implementation of the budgetary provisions. It will also ensure that funds are allocated to various ministries from the first quarter.

Criticisms for the move

All India Railwaymen’s Federation has said that the Railway Ministry’s autonomy would be lost in the merger.  The former Railway Ministers like Nitish Kumar and Dinesh Trivedi feel that the move is taken towards privatization of the Railways. Critics opine that it is possible to introduce populist measures outside a separate budget. They cite the recent populist measure of setting up a new Railway Zone to placate a state government.

Some argue that separate budget for Railways is necessary as it is an operational ministry with gross earnings of around Rs 1.68 lakh crore in 2015-16, which is considered as one of the highest for any organization. It also has staff strength of 13.2 lakh which is one of the largest in the world. Also, unlike other ministries it fully meets the pension liabilities of its retired employees (around 13.8 lakhs) from its own earnings.

Some also opine that Bibek Deberoy committee did not suggest scrapping of railway budget as a standalone step but as a part of other measures some of which are politically sensitive. The other measures recommended by the committee includes complete overhaul of the project financing architecture; weeding out of unviable/long-pending projects; comprehensive accounting reforms; separation of infrastructure and operations; and setting up of a rail regulatory authority. Critics opine that it is an ill-conceived decision to scrap the railway budget wthout implementing the other recommendations.

Suggestions and Way Forward

It would be wise on the part of the government to table an annual “Indian Railways Report” in Parliament similar to the Economic Survey prepared by the Chief Economic Advisor to ensure transparency and accountability over the happenings in the Railways ministry Further, the government can also set up an independent tariff regulator to avoid depoliticizing train fares. Similarly, government should introduce new trains and routes keeping in mind only its utility and economic viability. Scrapping of a railway budget may be a good starting point but lot more needs to be done to clean the accounts of railways.