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Finances of the Railways were presented along with the Union Budget on February 1, 2018 (the Railways Budget was merged with the Union Budget last year). In the current Budget Session, Lok Sabha is scheduled to discuss the allocation to the Ministry of Railways. In light of this, we discuss Railways’ finances, and issues that the transporter has been facing with regard to financing.
What are the different sources of revenue for Railways?
Indian Railways has three primary sources of revenue: (i) its own internal resources (revenue from freight and passenger traffic, leasing of railway land, etc.), (ii) budgetary support from the central government, and (iii) extra budgetary resources (such as market borrowings, institutional financing).
Railways’ internal revenue for 2018-19 is estimated at Rs 2,01,090 crore which is 7% higher than the revised estimates of 2017-18. Majority of this revenue comes from traffic (both freight and passenger), and is estimated at Rs 2,00,840 crore. In the last few years, Railways has been struggling to run its transportation business, and generate its own revenue. The growth rate of Railways’ earnings from its core business of running freight and passenger trains has been declining. This is due to a decline in the growth of both freight and passenger traffic (see Figure 1). Railways is also slowly losing traffic share to other modes of transport such as roads and airlines. The share of Railways in total freight traffic has declined from 89% in 1950-51 to 30% in 2011-12.
The Committee on Restructuring Railways (2015) had observed that raising revenue for Railways is a challenge because: (i) investment is made in projects that do not have traffic and hence do not generate revenue, (ii) the efficiency improvements do not result in increasing revenue, and (iii) delays in projects results in cost escalation, which makes it difficult to recover costs. Railways also provides passenger fares that are heavily subsidised, which results in the passenger business facing losses of around Rs 33,000 crore in a year (in 2014-15). Passenger fares are also cross-subsidised by charging higher rates for freight. The consequence is that freight rates have been increasing which has resulted in freight traffic moving towards roads.
Figure 2 shows the trends in capital outlay over the last decade. A decline in internal revenue generation has meant that Railways funds its capital expenditure through budgetary support from the central government and external borrowings. While the support from central government has mostly remained consistent, Railways’ borrowings have been increasing. Various committees have noted that an increased reliance on borrowings will further exacerbate the financial situation of Railways.
The total proposed capital outlay (or capital expenditure) for 2018-19 is Rs 1,48,528 crore which is a 24% increase from the 2017-18 revised estimates (Rs 1,20,000 crore). Majority of this capital expenditure will be financed through borrowings (55%), followed by the budgetary support from the central government (37%). Railways will fund only 8% of its capital expenditure from its own internal resources.
How can Railways raise more money?
The Committee on Restructuring Railways had suggested that Railways can raise more revenue through private participation in the following ways: (i) service and management contracts, (ii) leasing to and from the private sector, (iii) joint ventures, and (iv) private ownership. However, private participation in Railways has been muted as compared to other sectors such as roads, and airports.
One of the key reasons for the failure of private participation in Railways is that policy making, the regulatory function, and operations are all vested within the same organisation, that is, the Ministry of Railways. Railways’ monopoly also discourages private sector entry into the market. The Committee on Restructuring Railways had recommended that the three roles must be separated from each other. It had also recommended setting up an independent regulator for the sector. The regulator will monitor whether tariffs are market determined and competitive.
Where does Railways spend its money?
The total expenditure for 2018-19 is projected at Rs 1,88,100 crore, which is 4% higher than 2017-18. Staff wages and pension together comprise more than half of the Railways’ expenditure. For 2018-19, the expenditure on staff is estimated at Rs 76,452 crore. Allocation to the Pension Fund is estimated at Rs 47,600 crore. These constitute about 66% of the Railways’ expenditure in 2018-19.
Railways’ primary expenditure, which is towards the payment of salaries and pension, has been gradually increasing (with a jump of around 15% each year in 2016-17 and 2017-18 due to implementation of the Seventh Pay Commission recommendations). Further, the pension bill is expected to increase further in the years to come, as about 40% of the Railways staff was above the age of 50 years in 2016-17.
The Committee on Restructuring Railways (2015) had observed that the expenditure on staff is extremely high and unmanageable. This expense is not under the control of Railways and keeps increasing with each Pay Commission revision. It has also been observed that employee costs (including pensions) is one of the key components that reduces Railways’ ability to generate surplus, and allocate resources towards operations.
What is the allocation towards depreciation of assets?
Railways maintains a Depreciation Reserve Fund (DRF) to finance the costs of new assets replacing the old ones. In 2018-19, appropriation to the DRF is estimated at Rs 500 crore, 90% lower than 2017-18 (Rs 5,000 crore). In the last few years, appropriation to the DRF has decreased significantly from Rs 7,775 crore in 2014-15 to Rs 5,000 crore last year. Provisioning Rs 500 crore towards depreciation might be an extremely small amount considering the scale of infrastructure managed by the Indian Railways, and the requirement to replace old assets to ensure safety.
The Standing Committee on Railways (2015) had observed that appropriation to the DRF is the residual amount after appropriation to the Pension Fund, instead of the actual requirement for maintenance of assets. Under-provisioning for the DRF has also been observed as one of the reasons behind the decline in track renewals, and procurement of wagons and coaches.
Is there any provision towards safety?
Last year, the Rashtriya Rail Sanraksha Kosh was created to provide for passenger safety. It was to have a corpus of one lakh crore rupees over a period of five years (Rs 20,000 crore per year). The central government was to provide a seed amount of Rs 1,000 crore, and the remaining amount would be raised by the Railways from their own revenues or other sources.
As per the revised estimates of 2017-18, no money was allocated towards this fund. In 2018-19, Rs 5,000 crore has been allocated for it. With the Railways struggling to meet its expenditure and declining internal revenues, it is unclear how Railways will fund the remaining amount of Rs 95,000 crore for the Rail Sanraksha Kosh.
What happened to the dividend that was waived off last year?
Railways used to pay a return on the budgetary support it received from the government every year, known as dividend. The rate of this dividend was about 5% in 2015-16. From 2016-17, the requirement of paying dividend was waived off. The last dividend amount paid was Rs 8,722 crore in 2015-16.
The Standing Committee on Railways (2017) had noted that part of the benefit from dividend is being utilised to meet the shortfall in the traffic earnings of Railways. This defeats the purpose of removing the dividend liabilities since they are not being utilised in creating assets or increasing the net revenue of Railways.
As of April 28, Odisha has 118 cases of COVID-19. Of these, 37 have been cured, and 1 person has died. In this blog, we summarise some of the key decisions taken by the Government of Odisha until April 28 for containing the spread of COVID-19 in the state.
Before the lockdown
On March 24, the state government enforced state-wide lockdown. Before enforcing it, the state government took several measures for preventing the spread of COVID-19 besides declaring it as a State disaster on March 13. Some of the key measures are summarised below.
Health Measures
The Odisha COVID-19 Regulations, 2020: On March 18, the Government issued The Odisha COVID-19 Regulations, 2020. These regulations are valid for a year. As per these regulations, both government and private hospitals must have dedicated COVID-19 isolation facilities.
Foreign returnees: On March 16, the Government issued an order for foreign returnees to: (i) mandatorily register on COVID portal within 24 hours of their arrival (ii) home quarantine themselves for 14 days. An incentive of 15,000 rupees will be provided for registration and completing home quarantine.
Prisons: On March 17, the Government released precautionary measures to be taken in prisons by authorities and inmates. Newly admitted prisoners should be quarantined in different wards for a week. From March 18, e-Mulakat was allowed in District headquarters jails.
Private Health Care Facilities: On March 19, the Department of Health and Family Welfare issued guidelines for Private Health Care Facilities. The guidelines specify the hospitals to have a COVID-19 specific counter with separate entrance, regulating the entry of visitors, and infection control measures.
Media: On March 21, the Department of Health and Family Welfare issued guidelines to the media not to publish any information or interview the infected persons, their relatives, doctors and support medical staff of them.
Increasing the health workforce in the state: The Department of Health and Family Welfare issued an order on March 23 for the engagement of Staff Nurses and other Paramedics on a short term basis. The hired employees will be provided with additional incentives.
Administrative Measures
State crisis management committee: On March 4, a State crisis management committee was formed to take policy decisions regarding cluster containment.
Prohibiting strikes of employees: On March 21, the government issued an order prohibiting any strikes by employees engaged in the supply of drinking water and sanitation in urban local bodies. The order is valid for six months.
Public and private establishments: On March 21, the government requested all public and private establishments not to terminate the employees or reduce their wages.
Movement Restrictions
Closure of commercial establishments: On March 13, the Department of Health and Family Welfare ordered for the closure of cinema halls, swimming pools, gyms and educational institutions except for holding examinations until March 31.
Suspension of bus services: On March 23, the Department of Health and Family Welfare issued an order suspending intra-state bus services from March 24 and City bus services in all urban local bodies from midnight of March 23.
Lockdown in few districts: On March 21, the government announced lockdown in five revenue districts and eight towns of the state until March 29. The lockdown involved (i) suspension of public transport services (ii) closure of all commercial establishments, offices, and factories (iii) banning the congregation of more than seven people at any public place.
During the lockdown
With two cases in the state, on March 24, the government extended the lockdown to the entire state till March 29. Establishments engaged in the supply of essential goods and services were excluded from this lockdown.
This was followed by a nation-wide lockdown enforced by the central government between March 25 and April 14, now extended till May 3. Before the extension announced by the central government, the state government extended the lockdown in the state till April 30.
Starting from April 20, the central government allowed certain activities in less-affected districts of the country. Further, on April 24, the Ministry of Home Affairs allowed the opening of certain categories of shops with a limited workforce.
Welfare Measures
The Odisha government announced several welfare measures to address the difficulties being faced by people during the lockdown. Key measures include:
Temporary shelter for migrants: On March 28, the government ordered District collectors and Municipal Commissioners to use closed down schools and hostel buildings as temporary shelters for the migrants.
Provision of food in rural areas: On March 30, the government decided to provide hot cooked food for needy people in rural areas at affordable prices. Two meals per day will be provided at Rs 60 for adults and Rs 45 for children per day.
Compensation to family members: The Odisha government will be giving compensation of fifty lakh rupees to the family members of the employees who may die due to COVID-19 and are not covered under insurance scheme of the central government.
Administrative Measures
Ordinances: As the State Assembly is not in session, the government promulgated two ordinances.
The Epidemic Diseases (Amendment) Ordinance, 2020: On April 7, the government promulgated an ordinance to deal with COVID-19 spread. The Ordinance amends Section 2 and 3 of the Epidemic Diseases Act, 1897. The Act provides for the prevention of the spread of dangerous epidemic diseases. The ordinance amends the act to increase the penalty for individuals committing the offences under the act.
The Odisha Contingency Fund (Amendment) Ordinance, 2020: On April 9, the Odisha Government promulgated Odisha Contingency Fund (Amendment) Ordinance, 2020. The ordinance increases the corpus of the contingency fund from 400 crores to 2000 crores. The contingency fund is generally used for meeting any unforeseen expenditure.
Setting up control rooms: On March 26, the Home department set up a round the clock control room for monitoring the issues regarding the implementation of lockdown and stranded Odias in various parts of the country. On March 27 and 28, three control rooms were set up in Bhubaneswar and Delhi for the migrant labourers.
Deferment of salaries: The government announced 70% deferment of salaries of all the elected representatives of the state and 50% deferment for the employees of All India Services such as IAS and IPS.
Implementation of MGNREGS: On March 31, the Department of Panchayati Raj and Drinking Water issued an advisory for the implementation of MGNREGS. Key measures include: (i) Job cards will be provided to people interested in doing unskilled works, (ii) Individual works up to 5 persons is allowed (iii) Hand wash and safe drinking water should be provided at the worksites.
Essential Goods and Services
On March 25, the government authorised certain authorities to issue passes for the free movement of essential goods.
For facilitating the movement of goods, the government allowed the opening of roadside dhabas, and vehicle repair shops situated on Highways. These should be located outside of towns and cities.
Health Measures
Amendments to Odisha COVID-19 regulations, 2020
On April 3, the government added following provisions to the Odisha COVID-19 regulations, 2020: (i) additional duties and responsibilities of hospitals and local bodies such as infection control measures in hospitals among others. (ii) state government or empowered officers can declare any government or private hospital as COVID hospital.
On April 9, wearing masks were made compulsory for the people stepping out their houses and were included in the regulations.
On April 16, the government included the ‘prohibition of spitting in any form in public places’ into the regulations.
Short term engagements: On March 27, the government invited senior professionals having expertise in various sectors such as health care management, international logistics, and charities to work as Honorary Advisors to Government on a voluntary basis. The government issued an order for engagement of microbiologists on a short term basis.
Training of MBBS students- On March 28, the government decided to train the MBBS students of all medical colleges studying 7th, 8th and 9th semesters and deploy them if there is a rise in the number of cases in future. Training of government establishments was taken up in the first phase. Private colleges were also requested to train doctors and students simultaneously.
Additional resources: On April 6, the State Executive Department authorized the Principal Secretary, Department of Health to requisition the services of anybody having expertise in public health care management. When the need arises, the government can use the services of healthcare professionals such as doctors, nursing staff from government or private organisations to assist the state government.
Support to personnel fighting the Pandemic: On April 22, the government announced certain measures to support the personnel fighting COVID-19 in the state. They are
The Government will invoke the National Security Act, 1980 against the individuals causing violence to any member of the medical community such as doctors, nurses, and health workers.
While on duty, if any government employee dies due to COVID-19, the family will get the salary until the retirement date of the deceased employee.
The cremation of the individuals dying due to COVID-19 on duty will be honoured by the state as usually accorded to the martyrs.
Handling the return of migrants from other parts of the country: On April 19, the Revenue and Disaster Management department issued an advisory to Gram Panchayats and Urban Local Bodies for handling the influx of migrants from other parts of the country, once the lockdown is over. The advisory has the following steps.
(i) All local bodies should have registration facilities. People returning from other states should register through their relatives or family members.
(ii) All persons arriving from various states will be quarantined for 14 days.
(iii) An incentive of 2,000 rupees will be provided to the people for completing the quarantine period in the quarantine facilities.
For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.
