How Railways window-dressed their balance sheet

New Delhi, Feb 25: Mamata Banerjee has created history in recent times in her maiden Railway Budget. For the first time in its history ba...

New Delhi, Feb 25: Mamata Banerjee has created history in recent times in her maiden Railway Budget. For the first time in its history barring a case in 70s, railway finances have gone in deficit. If the Budget has ducked this and projected excess receipts of Rs 576 crore over expenditure, it is courtsey window-dressing of accounts or to be more specific due to a kind gesture from the Finance Minister Yashwant Sinha.

How? The Railways pays a dividend every year to the Government for the money it gets from it as Budgetary support. For the year 2000-01, the dividend worked out to Rs 2,115 crore. However, due to shortfall in internal resources, it will be paying the Government of India only Rs 615 crore and deferring Rs 1,500 crore. If that would not have happened, the railways would have been in the red. In the history of railway finances, dividend has been deferred only once long back, during the 70s.

However, this deferrment of Rs 1,500 crore would get reflected elsewhere 8211; in the Union Budget which is to be presented on February 29. How? Finance Minister, Yashwant Sinha will not be able to show this amount as receipts in his Budget and to fill it will have to look for other means.

This is not the only feature where Mamata Banerjee has created history. There8217;s another instance as well. For the first time, railways will be borrowing money for capital fund and development fund, where otherwise money is supposed to come from its retained earnings. Since railways have wiped out its retained earnings, it will be borrow Rs 249 crore as loan for capital fund from the budgetary support of Rs 3540 crore. It will also have to raise Rs 600 crore for development fund. Capital fund is for gauge conversion, doubling and procuring rolling stock. Whereas development fund is for meeting unviable expenditures like passenger amenities.

Another indicator of the health of railway finances is its operating ratio. Meaning what it has to spend to earn Rs 100. This year, the operating ratio has gone to 98.8 per cent. Meaning that to earn Rs 100, railways have to spend Rs 98. This also because it has deferred Rs 1,500 crore of dividend liability. Otherwise, the operating ratio would have gone in negative. The operating ratio has been declining over the years. It used to be around 88-89 per cent during late 80s and went on increasing since 1996. Last year, it was 97.9 per cent.

However, Railway Board members defended the financial situation of the railways. Member Traffic, Shanti Narain when asked about the window dressing by deferring the dividend, said that this was Government8217;s way of assisting railways in meeting its social obligations.

Narain also pointed towards efforts by the railways to mobilise additional resources through non-traditional measures. It has projected earnings of Rs 500 crore through leasing of its optic fibre cables to telecom operators and Rs 150 crore through commercial exploitation of its land and air space.

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However, these figures are too ambitious. Optic fibre project is still to go a long way and there8217;s no way railways can earn Rs 500 crore through it in one financial year. Similarly, commercial exploitation of land is hanging since 1992 and there8217;s nothing to suggest in recent times that a miracle will happen in a year8217;s time and give railways Rs 150 crore.

The moral of the story is clear: railways have started downhill. Unless investments on new lines, trains etc is not freezed for couple of years, there8217;s nothing which can salvage it.