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Earlier today, the Union Cabinet announced the merger of the Railways Budget with the Union Budget. All proposals under the Railways Budget will now be a part of the Union Budget. However, to ensure detailed scrutiny, the Ministry’s expenditure will be discussed in Parliament. Further, Railways will continue to maintain its autonomy and financial decision making powers. In light of this, this post discusses some of the ways in which Railways is financed, and issues it faces with regard to financing. Separation of Railways Budget and its financial implications The Railways Budget was separated from the Union Budget in 1924. While the Union Budget looks at the overall revenue and expenditure of the central government, the Railways Budget looks at the revenue and expenditure of the Ministry of Railways. At that time, the proportion of Railways Budget was much higher as compared to the Union Budget. The separation of the Budgets was done to ensure that the central government receives an assured contribution from the Railways revenues. However, in the last few years, Railways’ finances have deteriorated and it has been struggling to generate enough surplus to invest in improving its infrastructure. Indian Railways is primarily financed through budgetary support from the central government, its own internal resources (freight and passenger revenue, leasing of railway land, etc.), and external resources (market borrowings, public private partnerships, joint ventures, or market financing). Every year, all ministries, except Railways, get support from the central government based on their estimated revenue and expenditure for the year. The Railways Ministry is provided with a gross budgetary support from the central government in order to expand its network. However, unlike other Ministries, Railways pays a return on this investment every year, known as dividend. The rate of this dividend is currently at around 5%, and also includes the interest on government budgetary support received in the previous years. Various Committees have observed that the system of receiving support from the government and then paying back dividend is counter-productive. It was recommended that the practice of paying dividend can be avoided until the financial health of Railways improves. In the announcement made today, the requirement to pay dividend to the central government has been removed. This would save the Ministry from the liability of paying around Rs 9,700 crore as dividend to the central government every year. However, Railways will continue to get gross budgetary support from the central government. Declining internal revenue In addition to its core business of providing transportation, Railways also has several social obligations such as: (i) providing certain passenger and coaching services at below cost fares, (ii) running uneconomic branch lines (connectivity to remote areas), and (iii) granting concessions to various categories of people (like senior citizens, children, etc.). All these add up to about Rs 30,000 crore. Other inelastic expenses of Railways include pension charges, fuel expenses, lease payments, etc. Such expenses do not leave any financial room for the Railways to make any infrastructure investments. 
In the last few years, Railways has been struggling due to a decline in its revenue from passenger and freight traffic. In addition, the support from the central government has broadly remained constant. In 2015-16, the gross budgetary support and internal revenue saw a decline, while there was some increase in the extra budgetary resources (shown in Figure 1). Railways’ internal revenue primarily comes from freight traffic (about 65%), followed by passenger traffic (about 25%). About one-third of the passenger revenue comes from first class passenger traffic and the remaining two-third comes from second class passenger traffic. In 2015-16, Railways passenger traffic decreased by 4% and total passenger revenue decreased by 10% from the budget estimates. While revenue from second class saw a decrease of 13%, revenue from first class traffic decreased by 3%. In the last few years, Railways’ internal sources have been declining, primarily due to a decline in both passenger as well as freight traffic. Freight traffic 
The share of Railways in total freight traffic has declined from 89% to 30% over the last 60 years, with most of the share moving towards roads (see Figure 2). With regard to freight traffic, Railways generates most of its revenue from the transportation of coal (about 44%), followed by cement (8%), iron ore (7%), and food-grains (7%). In 2015-16, freight traffic decreased by 10%, and freight earnings reduced by 5% from the budget estimates. The Railways Budget for 2016-17 estimates an increase of 12% in passenger revenue and a 0.26% increase in passenger traffic. Achieving a 12% increase in revenue without a corresponding increase in traffic will require an increase in fares. Flexi fares and passenger traffic A few days ago, the Ministry of Railways introduced a flexi-fare system for certain categories of trains. Under this system, the base fare for Rajdhani, Duronto and Shatabdi trains will increase by 10% with every 10% of berths sold, subject to a ceiling of up to 1.5 times the base fare. While this could also be a way for Railways to improve its revenue, it has raised concerns about train fares becoming more expensive. Note that the flexi-fare system will apply only to first class passenger traffic, which contributes to about 8% of the total Railways revenue. It remains to be seen if the new system increases Railways revenue, or further decreases passenger traffic (people choosing other modes of travel, such as airways, if fares increase significantly). While the Railways is trying to improve revenue by raising fares, this may increase the financial burden on passengers. In the past, various Parliamentary Committees have observed that the investment planning in Railways from the government’s side is politically driven rather than need driven. This has resulted in the extension of uneconomic, un-remunerative, yet socially desirable projects in every budget. It has been recommended that projects based on social and commercial considerations must be categorised separately in the Railways accounts, and funding for the former must come from the central or state governments. It has also been recommended that Railways should bring in more accuracy in determining its public service obligations. The decision to merge the Railways Budget with the Union Budget seems to be on the lines of several of these recommendations. However, it remains to be seen whether merging the Railway Budget with the Union Budget will improve the transporter’s finances or if it would require bringing in more reforms.
Presently, there are around 40 state and central laws regulating different aspects of labour, such as resolution of industrial disputes, working conditions in factories, and wage and bonus payments. Over the years, some experts have recommended that these laws should be consolidated for easier compliance.[1] Since the current laws vary in their applicability, consolidation would also allow for greater coverage.
Following these recommendations, the Code on Wages was introduced in the Lok Sabha in August 2017. The Code consolidates four laws related to minimum wages, payment of wages and bonus, and a law prohibiting discrimination between men and women during recruitment promotion and wage payment.
The Code was subsequently referred to the Standing Committee on Labour for examination. The Committee has met some experts and stakeholders to hear their views. In this context, we explain the current laws, key provisions of the Code, and some issues to consider.
Who will be entitled to minimum wages?
Currently, the Minimum Wages Act, 1948 lists the employments where employers are required to pay minimum wages to workers. The Act applies to the organised sector as well as certain workers in the unorganised sector such as agricultural workers. The centre and states may add more employments to this list and mandate that minimum wages be paid for those jobs as well.[2] At present, there are more than 1700 employments notified by the central and state governments.[3]
The Code proposes to do away with the concept of bringing specific jobs under the Act, and mandates that minimum wages be paid for all types of employment – irrespective of whether they are in the organised or the unorganised sector.
The unorganised sector comprises 92% of the total workforce in the country.1 A large proportion of these workers are currently not covered by the Minimum Wages Act, 1948. Experts have noted that over 90% of the workers in the unorganised sector do not have a written contract, which hampers the enforcement of various labour laws.[4]
Will minimum wages be uniform across the country?
No, different states will set their respective minimum wages. In addition, the Code introduces a national minimum wage which will be set by the central government. This will act as a floor for state governments to set their respective minimum wages. The central government may set different national minimum wages for different states or regions. For example, the centre can set a national minimum wage of Rs 10,000 for Uttar Pradesh and Rs 12,000 for Tamil Nadu. Both of these states would then have to set their minimum wages either equal to or more than the national minimum wage applicable in that state.
The manner in which the Code proposes to implement the national minimum wage is different from how it has been thought about in the past. Earlier, experts had suggested that a single national minimum wage should be introduced for the entire country.1,[5] This would help in bringing uniformity in minimum wages across states and industries. In addition, it would ensure that workers receive a minimum income regardless of the region or sector in which they are employed.
The concept of setting a national minimum wage exists in various countries across the world. For instance, in the United Kingdom one wage rate is set by the central government for the entire country.[6] On the other hand, in the United States of America, the central government sets a single minimum wage and states are free to set a minimum wage equal to or above this floor.[7]
On what basis will the minimum wages be calculated and fixed?
Currently, the central government sets the minimum wage for certain employments, such as mines, railways or ports among others. The state governments set the minimum wage for all other employments. These minimum wages can be fixed based on the basis of different criteria such as type of industry or skill level of the worker. For example, Kerala mandates that workers in oil mills be paid minimum wages at the rate of Rs 370 per day if they are unskilled, Rs 400 if they are semi-skilled and Rs 430 if they are skilled.[8]
The Code also specifies that the centre or states will fix minimum wages taking into account factors such as skills required and difficulty of work. In addition, they will also consider price variations while determining the appropriate minimum wage. This process of fixing minimum wages is similar to the current law.
Will workers be entitled to an overtime for working beyond regular hours?
Currently, the central or state government define the number of hours that constitute a normal working day. In case an employee works beyond these hours, he is entitled to an overtime rate which is fixed by the government. As of today, the central government has fixed the overtime rate at 1.5 times normal wages in agriculture and double the normal wages for other employments.[9]
The Code proposes to fix this overtime rate at twice the prevailing wage rate. International organisations have recommended that overtime should be 1.25 times the regular wage.[10]
Does the Code prohibit gender discrimination between workers?
Currently, the Equal Remuneration Act, 1976 prohibits employers from discriminating in wage payments as well as recruitment of workers on the basis of gender. The Code subsumes the 1976 Act, and contains specific provisions which prohibit gender discrimination in matters related to wages. However, unlike in the 1976 Act, the Code does not explicitly prohibit gender discrimination at the stage of recruitment.
How is the Code going to be enforced?
The four Acts being subsumed under the Code specify that inspectors will be appointed to ensure that the laws are being enforced properly. These inspectors may carry out surprise checks, examine persons, and require them to give information.
The Code introduces the concept of a ‘facilitator’ who will carry out inspections and also provide employers and workers with information on how to improve their compliance with the law. Inspections will be carried out on the basis of a web-based inspection schedule that will be decided by the central or state government.
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[1]. Report of the National Commission on Labour, Ministry of Labour and Employment, 2002, http://www.prsindia.org/uploads/media/1237548159/NLCII-report.pdf.
[2]. Entries 22, 23 and 24, List III, Seventh Schedule, Constitution of India.
[3]. Report on the Working of the Minimum Wages Act, 1948, Ministry of Labour and Employment, 2013, http://labourbureaunew.gov.in/UserContent/MW_2013_final_revised_web.pdf.
[4]. Report on Conditions of Work and Promotions of Livelihood in the Unorganised Sector, National Commission for Enterprises in the Unorganised Sector, 2007, http://nceuis.nic.in/Condition_of_workers_sep_2007.pdf.
[5]. Report of the Working Group on Labour Laws and other regulations for the Twelfth five-year plan, Ministry of Labour and Employment, 2011, http://planningcommission.gov.in/aboutus/committee/wrkgrp12/wg_labour_laws.pdf.
[6]. Section 1(3), National Minimum Wage Act, 1998, http://www.legislation.gov.uk/ukpga/1998/39/pdfs/ukpga_19980039_en.pdf.
[7]. Section 206(a)(1), The Fair Labour Standards Act, 1938, https://www.dol.gov/whd/regs/statutes/FairLaborStandAct.pdf.
[8]. G.O. (P) No.36/2017/LBR, Labour and Skills Department, Government of Kerala, 2017, https://kerala.gov.in/documents/10180/547ca516-c104-4b31-8ce7-f55c2de8b7ec.
[9]. Section 25(1), Minimum Wages (Central) Rules, 1950
[10]. C030-Hours of Work (Commerce and Offices) Convention (No. 30), 1930,http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_INSTRUMENT_ID:312175.
