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.
The Ministry of Human Resource Development released the draft National Education Policy, 2016 in July this year.[1] The Ministry was receiving comments on the draft policy until the end of September 2016. In this context, we provide an overview of the proposed framework in the draft Policy to address challenges in the education sector. The country’s education policy was last revised in 1992. It outlined equitable access to quality education, with a common educational structure of 10+2+3 years. The draft Policy 2016 aims to create an education system which ensures quality education and learning opportunities for all. The focus areas of intervention of the draft Policy are: (i) access and participation, (ii) quality of education, (iii) curriculum and examination reforms, (iv) teacher development and management and (v) skill development and employability. Through these key interventions, the draft Policy provides a framework for the development of education in the country over the next few years. We discuss the key areas of intervention below.
Access and participation 
Presently in the country, enrolment at pre-school levels for children between the ages of 3- 5 years is low. 38% of children in this age bracket are enrolled in pre-school education in government anganwadi centres, while 27% of the children are not attending any (either government or private) pre-school.[2] In contrast, the enrolment rate in primary education, which is class 1-5, is almost 100%. However, this reduces to 91% in classes 6-8 and 78% in classes 9-12.[3] The trend of lower enrolment rates is seen in higher education (college and university level), where it is at 24%.[4] Due to low enrolment rates after class 5, transition of students from one level to the next is a major challenge. Figure 1 shows the enrolment rates across different education levels. With regard to improving participation of children in pre-school education, the draft Policy aims to start a program for children in the pre-school age group which will be implemented in coordination with the Ministry of Women and Child Development. It also aims to strengthen pre-school education in anganwadis by developing learning materials and training anganwadi workers. Presently, the Right to Education (RTE) Act, 2009 applies to elementary education only. To improve access to education, the draft Policy suggests bringing secondary education under the ambit of the RTE Act. However, a strategy to increase enrolment across different levels of education has not been specified. Quality of education 
A large number of children leave school before passing class eight. In 2013-14, the proportion of students who dropped out from classes 1-8 was 36% and from classes 1-10 was 47%.3 Figure 2 shows the proportion of students who exited the school system in classes 1-8 in 2008-09 and 2013-14. Among the population of children who stay in school, the quality or level of learning is low. The Economic Survey 2015-16 noted that the proportion of class 3 children able to solve simple two-digit subtraction problems fell from 26% in 2013 to 25% in 2014. Similarly, the percentage of class two children who cannot recognize numbers up to 9 increased from 11.3% in 2009 to 19.5% in 2014.[5] To address the issue of learning levels in school going children, the draft Policy proposes that norms for learning outcomes should be developed and applied uniformly to both private and government schools. In addition, it also recommends that the existing no-detention policy (promoting all students of a class to the next class, regardless of academic performance) till class 8 be amended and limited to class 5. At the upper primary stage (class six onward), the system of detention should be restored. Curriculum and examination reforms It has been noted that the current curriculum followed in schools does not help students acquire relevant skills which are essential to become employable. The draft Policy highlights that the assessment practices in the education system focus on rote learning and testing the students’ ability to reproduce content knowledge, rather than on understanding. The draft Policy aims to restructure the present assessment system to ensure a more comprehensive evaluation of students, and plans to include learning outcomes that relate to both scholastic and co-scholastic domains. In order to reduce failure rates in class 10, the Policy proposes to conduct examination for the subjects of mathematics, science and English in class 10 at two levels. The two levels will be part A (at a higher level) and part B (at a lower level). Students who wish to opt for a vocational stream or courses for which mathematics, science and English are not compulsory may opt for part B level examination. Teacher development and management It has been observed that the current teacher education and training programs are inadequate in imparting the requisite skills to teachers. The mismatch between institutional capacity to train teachers and required supply in schools results in a shortage of qualified teachers. At the level of classes 9-12, the Rashtriya Madhyamik Shiksha Abhiyan prescribes a teacher-pupil ratio of 1:30.[6] However, some states have a higher teacher-pupil ratio: Chhattisgarh (1:45), Bihar (1:57) and Jharkhand (1:68).3 In various central universities, the total number of sanctioned teaching posts is 16,339, of which 37% are lying vacant.[7] The draft Policy recommends that state governments should set up independent teacher recruitment commissions to facilitate transparent, merit based recruitment of principals, teachers, and other academic staff. For teacher development, a Teacher Education University should be set up at the national level to focus on teacher education and faculty development. In addition, the draft Policy also states that all teacher education institutes must have mandatory accreditation. To ensure effective teacher management, periodic assessment of teachers in government and private schools should be carried out and linked to their future promotions and increments. Skill development and employability It has been noted that the current institutional arrangements to support technical and vocational education programs for population below 25 years of age is inadequate. The social acceptability of vocational education is also low. Presently, over 62% of the population in the country is in the working age-group (15-59 years).[8] Only 10% of this workforce (7.4 crore) is trained, which includes about 3% who are formally trained and 7% who are informally trained.[9] In developed countries, skilled workforce is between 60-90% of the total workforce.[10] The draft Policy proposes to integrate skill development programs in 25% of schools and higher education institutions in the country. This is in line with the National Skill Development and Entrepreneurship Policy that was released by the government in 2015. The draft Policy 2016 focuses on important aspects that have not been addressed in previous policies such as: (i) curriculum and examination reforms, and (ii) teacher development . Although the Policy sets a framework for improving education in the country, the various implementation strategies that will be put in place to achieve the education outcomes envisaged by it remains to be seen. For an analysis on some education indicators such as enrolment of students, drop-out rates, availability of teachers and share of government and private schools, please see our Vital Stats on the ‘overview of the education sector’ here. [1] Some Inputs for Draft National Education Policy 2016, Ministry of Human Resource Development, http://mhrd.gov.in/sites/upload_files/mhrd/files/Inputs_Draft_NEP_2016.pdf. [2] Rapid Survey on Children, 2013-14, Ministry of Women & Child Development, Government of India, http://wcd.nic.in/sites/default/files/RSOC%20FACT%20SHEETS%20Final.pdf. [3] Secondary education in India, U-DISE 2014-15, National University of Educational Planning and Administration, http://www.dise.in/Downloads/Publications/Documents/SecondaryFlash%20Statistics-2014-15.pdf. [4] All India Survey on Higher Education 2014-15, http://aishe.nic.in/aishe/viewDocument.action?documentId=197. [5] Economic Survey 2015-16, Volume-2, http://indiabudget.nic.in/es2015-16/echapvol2-09.pdf. [6] Overview, Rashtriya Madhyamik Shiksha Abhiyan, Ministry of Human Resource Development, http://mhrd.gov.in/rmsa. [7] “265th Report: Demands for Grants (Demand No. 60) of the Department of Higher Education”, Standing Committee on Human Resource Development, April 2013, 2015, http://164.100.47.5/newcommittee/reports/EnglishCommittees/Committee%20on%20HRD/265.pdf. [8] “Ministry of Skill Development and Entrepreneurship: Key Achievements and Success Stories in 2015”, Ministry of Skill Development and Entrepreneurship, Press Information Bureau, December 15, 2015. [9] Draft Report of the Sub-Group of Chief Ministers on Skill Development, NITI Aayog, September 2015, http://niti.gov.in/mgov_file/Final%20report%20%20of%20Sub-Group%20Report%20on%20Skill%20Development.pdf. [10] Economic Survey 2014-15, Volume 2, http://indiabudget.nic.in/es2014-15/echapter-vol2.pdf.
