The Lok Sabha has passed the bill to revise the salary of members of parliament. Much of the debate in the media has been on the wealth of current MPs and the lack of accountability. It is important to focus as well on structural issues related to remunerating legislators. Under the bill, the base salary of MPs is being raised to Rs.50,000 from Rs.16,000 per month. The daily allowance paid to MPs when they attend parliament is being hiked to Rs.2,000 from Rs.1,000. The constituency allowance is being increased to Rs.45,000 per month from Rs.20,000 and office expenses (for staff, stationery and postage) to Rs.45,000 per month from Rs.20,000. Pension for former MPs will be Rs.20,000 per month instead of the present Rs.8,000. Other than these, MPs get accommodation in Delhi, which varies from a hostel in Vitthalbhai Patel House to two-bedroom flats and bungalows, all in central Delhi. MPs get reimbursement of electricity, water, telephone and internet charges. They (and their family) are also reimbursed for 34 one-way air tickets from their constituency to Delhi. In a parliamentary democracy, compensation for legislators should be sufficient to ensure their independence and autonomy. It should attract professionals who can devote their full time to legislative work. There should be a sufficient support system to enable legislators perform their duties effectively. There are mainly three issues that need to be resolved while fixing the compensation package for legislators. First, MPs fix their own salaries and allowances, which results in a conflict of interest. Second, every time the salary is revised upwards, there is an adverse media and public reaction. The outcome is that MPs' salaries are significantly lower than that for any other position of similar responsibility in the public or private sector. The low salaries may deter honest persons, without other income sources, from contesting elections. Third, reimbursements of office expenses are classified as 'allowances'. Thus, expenses for office staff, telephone charges, etc. are often seen as part of their compensation. Contrast this with the treatment for government or private sector employees. The costs of office support staff, rental, communication and travel costs are not counted as their salary or perks. The process in India is similar to that in some countries. The US Congress and the German Bundestag determine their own salaries. There are two alternative approaches seen in some other democracies. Some countries appoint an independent authority to determine salaries. Some others peg the salary to that of public officials. For example, New Zealand has a remuneration tribunal which is tasked to fix salaries based on being (a) fair relative to levels of remuneration elsewhere; (b) fair to person being remunerated and the taxpayer; (c) adequate to recruit and retain competent persons. In Canada, a commission is appointed after every general election and salaries are then indexed to the federal government's annual wage rate index. Australia has a remuneration authority that links the salary to that in the Principal Executive Office. In the UK, the Senior Salaries Review Board determines salaries, which are then voted upon by parliament. The Scottish parliament indexes its salaries to that of British MPs. In France, the salary of the legislator is the average of the highest and lowest paid official in the seniormost level of the government. There were two distinct themes during last week's Lok Sabha debate. Several MPs discussed structural issues. Some MPs - L.K. Advani, Ramachandra Dome, Sanjay Nirupam, Shailendra Singh and Pinaki Misra - suggested that the government establish an independent commission for determining salaries. Advani pointed out that a decision to that effect had been taken in an all-party meeting held by the Speaker in may 2005 and demanded that the government announce the formation of such a commission before the end of the current session of parliament. Some MPs - Dhananjay Singh, Sanjay Nirupam and Shailendra Kumar -- focussed on the need for support structures such as office space, research staff and assistants in the constituency. They felt that these would help MPs examine proposed laws and rules and monitor the work of the government. Nirupam and Misra suggested that MPs' salaries be linked to performance; salaries should be cut for any time lost due to disruption. Some MPs highlighted the need for pension and accommodation for former MPs. Sharad Yadav, Raghuvansh Prasad Singh and Sansuma Khunggur Bwiswmuthiary requested that the pension be raised to Rs 25,000 per month. Yadav and Bwiswmuthiary also said that former MPs be allocated residential accommodation in Delhi. The bill will next be discussed in the Rajya Sabha. The government agreed that there is merit in forming an independent commission. It is however uncertain whether the government will accede to Advani's demand that the commission be announced in the next couple of days. - M.R. Madhavan This column has been published by IANS today.
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.
