Railway Minister Suresh Prabhu is set to present the budget of his ministry, which is in deep financial crisis, on Thursday. The ministry is likely to introduce cuts in crucial reserve funds to window-dress its financial condition and show a healthy operating ratio.
Railways may end this financial year with an unprecedented revenue loss of Rs 17,800 crore. Railways surplus is supposed have depleted to around Rs 3,400 crore, down from Rs 7,972 crore last year. The ministry has been missing every earnings target it set last year.
- Looking for new funding avenues for Railways: Suresh Prabhu
- Rail budget: No hike in fares; 3 more freight corridors, cut in goods tariff on its way
- Railway Budget 2016: 10 things Suresh Prabhu is likely to announce today
- Rail Budget 2016: Prabhu on tight rope walk to balance finance with aspirations
- No new train services, Suresh Prabhu keeps Rail Budget firmly on track
- Indian Railways passenger fares likely to go up early next year
However, Prabhu is likely to show a healthy operating ratio of under 90 (money spent to earn every 100 rupees, the lower the better). The previous budget had estimated that by the end of this fiscal, the ratio would reach 88.5.
Appropriation to Depreciation Reserve Fund is likely to be down to around Rs 5,700 crore from the estimated Rs 8,100 crore. Appropriation to this fund makes the operating ratio look healthier than it actually is and is a conventional trick in the trade. After withdrawal from the fund, Railways may be left with a balance of around Rs 500 crore by the end of the financial year. This balance was supposed to be Rs 2,300 crore as per budget estimates.
Also, the pension fund might see a cut from the budgeted Rs 35,260 crore to Rs 34,860 crore. Railways cannot draw heavily from this fund since pension is a statutory liability.
All other crucial reserve funds, linked to safety or repayment of loan or dividend, are likely to see massive cuts, sources said.
Thanks to efforts by zonal railways, Railways may show savings of around Rs 5,000 crore in its ordinary working expenses, thanks to low fuel costs, savings in power bills and other sources. However, a section of the Railway Board feels these savings might be wiped out if the financial crisis continues.
Despite a rough year, Prabhu is expected to lay out a plan size marginally higher than last year’s highest-ever Rs 1 lakh crore, with special focus on capacity augmentation.
Railways also faces the tough task of meeting increased salary and pension liabilities amounting to around Rs 32,000 crore, thanks to 7th Pay Commission recommendations.
Railways’ problems were compounded since the finance ministry slashed its Gross Budgetary Support to Rs 32,000 crore from Rs 40,000 crore. Left with no other option, it has decided to use loan money for capital projects with a rate of return of more than 14 per cent, making the projects costlier than they currently are.
In terms of a rejig of services, Prabhu may also announce a move towards a common seniority for at least the eight Railway services. The step, if taken, is bound to invite controversy.
Sources said a new freight rationalisation scheme, which makes freight rates more attractive for certain market segments, was likely to be introduced.
Sources said the budget might unveil a massive expenditure-control mode aiming to cut down ordinary expenses by a further 15 per cent. Safety upgrade may also be one of the hallmarks, the sources said.
A new catering policy, some value-added passenger services on payment basis, rationalisation of certain sub-cost services and massive thrust on non-tariff revenue like advertising will peg a huge “sundry earnings” target in railways. Like the previous budget, announcement of new trains is unlikely.