Pension liability pushes Railways to tipping point

The pension liability for this year is around Rs 42,000 crore.

Written by Avishek G Dastidar | New Delhi | Published:November 16, 2016 2:12 am
suresh prabhu, indian railway, railways pensioners, pensioners in railways, indian railwys pensioners, pension bill, indian railways, govt pension, indian express, india news Railway Minister Suresh Prabhu.

It’s a ticking time bomb for Indian Railways.

India’s largest commercial utility employer is staring at an extraordinary pension liability that has been growing each year and has now grown at a rate faster and greater than that of its earnings. While that is never good for business, the situation is such that in a few years’ time, pension is going to eat up 50 per cent of its revenues, as per projections based on current trends. And projections are grim. Railways currently pays pension to a whopping 14.3 lakh ex-employees, whereas the number of serving employees is now 13.25 lakh.

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While Railways is facing crisis of sorts this year—it is just not earning enough—translating into a revenue shortfall of around Rs 12,500 crore by the end of first six months of the current fiscal year, the pension liability for this year is around Rs 42,000 crore.

Finance ministry, which takes over Rail Budget from the next financial cycle, has refused to share this burden. Railways plans to ask again for subsequent years because there may be no other way.

“This year obviously we will take care of it, just like we have been taking care of it. But in the subsequent years it is going to only multiply. So a call needs to be taken by the government about sharing Railways’ future pension liability. Further deliberations with the Finance Ministry will happen,” Shahzad Shah, Railway Board Financial Commissioner told The Indian Express.

If salaries and allowances are viewed along with the growing pension bill, the whole package is going to be three-fourth of Indian Railways working expenditure budget, projects an analysis paper authored by Sanjoy Mookerjeee, who recently retired as Financial Commissioner.

In the paper, Mookerjee argues that the government will do well to step in to carry the burden at least till the time the capacity-augmentation projects—which typically have a long gestation period—are commissioned. “With the increased emphasis on borrowing for developing infrastructure, the Railway Ministry might soon face a Catch 22 situation, at least during the medium term of 5 to 10 years, until the capacity enhancements projects such as DFC’s, multiple tracks, etc. begin yielding the kind of returns…promised,” Mookerjee’s analysis says.

It is normal for a government entity to budget for pension liability and that is what has been happening in Railways as well. Trouble started when the organisation’s earnings kept getting hit.

As a result, while earnings grew typically at a rate of around 10-11 per cent per year, the pension bill grew at 17-18 per cent. This year pension is 34 per cent of its budgeted working expenditure. In 2012-13, this was 24.5 per cent.

This year, the Pension Fund opened with a balance of a little over Rs 6,000 crore but thanks to the cash situation as it is, it might be reduced to a paltry sum of around Rs 500 crore by the end of March.

“The situation is bad,” said another Railway Board member who did not wish to be named. “We keep doing physical verifications for sample surveys to see if pensions claimed by ex-employees in the higher age brackets are genuine. We seem to have a huge number of former employees in the higher age brackets,” he said.

What he means is that as per available data, 49 per cent of all railway pensioners are in the age bracket of upwards of 71 years. More significantly, 10 per cent are in the bracket of above 80 years. These are highest in the government.

Next year onwards the relationship Railways has had with the Finance Ministry is going to change in that its finances will be viewed vis a vis India’s overall budget. In the merger deliberations, it has been decided that Railways will continue to fund itself from its own coffers and take just a Gross Budgetary Support from the government like it does. But unlike previous years Railways will not be required to pay a dividend to the Finance Ministry and that is as sweet as the budget-merger deal gets for Railways.