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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.
Compulsory voting at elections to local bodies in Gujarat Last week, the Gujarat Local Authorities Laws (Amendment) Act, 2009 received the Governor’s assent. The Act introduces an ‘obligation to vote’ at the municipal corporation, municipality and Panchayat levels in the state of Gujarat. To this end, the Act amends three laws related to administration at the local bodies- the Bombay Provincial Municipal Corporation Act, 1949; the Gujarat Municipalities Act, 1963 and; the Gujarat Panchayats Act, 1993. Following the amendments, it shall now be the duty of a qualified voter to cast his vote at elections to each of these bodies. This includes the right to exercise the NOTA option. The Act empowers an election officer to serve a voter notice on the grounds that he appears to have failed to vote at the election. The voter is then required to provide sufficient reasons within a period of one month, failing which he is declared as a “defaulter voter” by an order. The defaulter voter has the option of challenging this order before a designated appellate officer, whose decision will be final. At this stage, it is unclear what the consequences for being a default voter may be, as the penalties for the same are to be prescribed in the Rules. Typically, any disadvantage or penalty to be suffered by an individual for violating a provision of law is prescribed in the parent act itself, and not left to delegated legislation. The Act carves out exemptions for certain individuals from voting if (i) he is rendered physically incapable due to illness etc.; (ii) he is not present in the state of Gujarat on the date of election; or (iii) for any other reasons to be laid down in the Rules. The previous Governor had withheld her assent on the Bill for several reasons. The Governor had stated that compulsory voting violated Article 21 of the Constitution and the principles of individual liberty that permits an individual not to vote. She had also pointed out that the Bill was silent on the government’s duty to create an enabling environment for the voter to cast his vote. This included updating of electoral rolls, timely distribution of voter ID cards to all individuals and ensuring easy access to polling stations. Right to vote in India Many democratic governments consider participating in national elections a right of citizenship. In India, the right to vote is provided by the Constitution and the Representation of People’s Act, 1951, subject to certain disqualifications. Article 326 of the Constitution guarantees the right to vote to every citizen above the age of 18. Further, Section 62 of the Representation of Peoples Act (RoPA), 1951 states that every person who is in the electoral roll of that constituency will be entitled to vote. Thus, the Constitution and the RoPA make it clear that every individual above the age of 18, whose name is in the electoral rolls, and does not attract any of the disqualifications under the Act, may cast his vote. This is a non discriminatory, voluntary system of voting. In1951, during the discussion on the People’s Representation Bill in Parliament, the idea of including compulsory voting was mooted by a Member. However, it was rejected by Dr. B.R. Ambedkar on account of practical difficulties. Over the decades, of the various committees that have discussed electoral reforms, the Dinesh Goswami Committee (1990) briefly examined the issue of compulsory voting. One of the members of the committee had suggested that the only effective remedy for low voter turn outs was introducing the system of compulsory voting. This idea was rejected on the grounds that there were practical difficulties involved in its implementation. In July 2004, the Compulsory Voting Bill, 2004 was introduced as a Private Member Bill by Mr. Bachi Singh Rawat, a Member of Parliament in the Lok Sabha. The Bill proposed to make it compulsory for every eligible voter to vote and provided for exemption only in certain cases, like that of illness etc. Arguments mooted against the Bill included that of remoteness of polling booths, difficulties faced by certain classes of people like daily wage labourers, nomadic groups, disabled, pregnant women etc. in casting their vote. The Bill did not receive the support of the House and was not passed. Another Private Member Bill related to Compulsory Voting was introduced by Mr. JP Agarwal, Member of Parliament, in 2009. Besides making voting mandatory, this Bill also cast the duty upon the state to ensure large number of polling booths at convenient places, and special arrangements for senior citizens, persons with physical disability and pregnant women. The then Law Minister, Mr. Moily argued that if compulsory voting was introduced, Parliament would reflect, more accurately, the will of the electorate. However, he also stated that active participation in a democratic set up must be voluntary, and not coerced. Compulsory voting in other countries A number of countries around the world make it mandatory for citizens to vote. For example, Australia mandates compulsory voting at the national level. The penalty for violation includes an explanation for not voting and a fine. It may be noted that the voter turnout in Australia has usually been above 90%, since 1924. Several countries in South America including Brazil, Argentina and Bolivia also have a provision for compulsory voting. Certain other countries like The Netherlands in 1970 and Austria more recently, repealed such legal requirements after they had been in force for decades. Other democracies like the UK, USA, Germany, Italy and France have a system of voluntary voting. Typically, over the last few elections, Italy has had a voter turnout of over 80%, while the USA has a voter turnout of about 50%. What compulsory voting would mean Those in favour of compulsory voting assert that a high turnout is important for a proper democratic mandate and the functioning of democracy. They also argue that people who know they will have to vote will take politics more seriously and start to take a more active role. Further, citizens who live in a democratic state have a duty to vote, which is an essential part of that democracy. However, some others have argued that compulsory voting may be in violation of the fundamental rights of liberty and expression that are guaranteed to citizens in a democratic state. In this context, it has been stated that every individual should be able to choose whether or not he or she wants to vote. It is unclear whether the constitutional right to vote may be interpreted to include the right to not vote. If challenged, it will up to the superior courts to examine whether compulsory voting violates the Constitution. [A version of this post appeared in the Sakal Times on November 16, 2014]
