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).

Figure 1Railways’ 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 2Figure 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.

Figure 3One 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.

On January 17, 2020, the Ministry of Health and Family Welfare acknowledged the emergence of COVID-19 that was spreading across China. On January 30, 2020, the country’s first COVID-19 positive case was reported in Kerala.  By March 11, 2020, the World Health Organisation declared COVID-19 as a global pandemic.  This blog summarises the key policy measures taken by government of Kerala to respond to the pandemic.  

As on April 22, Kerala has had 427 confirmed cases of COVID-19, of which 307 have recovered (highest rate of recovery in the country). Only three deaths have been recorded in the state so far.

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Pre-lockdown period: Early measures for containment

Following the first confirmed case involving a returnee from Wuhan, China, the initial responses by the state were aimed at surveilling, identifying, and conducting risk-based categorisation of all passenger arrivals from China and others who had come in close contact with these travellers. As two more cases were confirmed on February 2 and 3, the state government declared a health emergency in the state. 

Subsequently, a health advisory was issued to track, identify, and test all travellers with a travel history to Wuhan since January 15, 2020.  Such passengers and their close contacts were to be kept in isolation for 28 days.  The advisory also directed all lodging establishments to maintain a register of travellers with travel histories to corona-affected countries. A similar advisory was issued for student returnees as well. With no further confirmed cases being reported immediately, on February 12, the state withdrew the health emergency.  However, a high state of response and surveillance continued to be applied.

Second wave of infections

When a second wave of infections began spreading in early March, the government took several multi-pronged measures to address the threat. The following measures were taken in this regard:

  • Health measures: Revised guidelines for the clinical management of COVID19 patients, covering testing, quarantine, hospital admission, and discharge, were issued.  
     
  • Instructions were issued regarding airport safety protocols as well as testing of foreign nationals entering and exiting the state. All foreign arrivals, even if asymptomatic, were to be kept in isolation until their test reports were available. 
     
  • Further guidelines and precautions on social distancing and various hygiene norms, such as, use of sanitsers, were also issued to malls, shopping centres, and salons
     
  • Movement restrictions: All non-medical educational institutions, including anganwadis and madrassas were immediately shut down till March 31 and exams of classes 1-7 were postponed. Exams for classes 8 and above were to be held as scheduled. University exams were also postponed till March 31.
     
  • Government departments were asked to make temporary arrangements regarding working hours of their employees. Officials were also instructed to look into welfare measures for migrant workers.
     
  • Guidelines were also issued to private establishments regarding working time, safety measures, and leave for employees.
     
  • Administrative Measures: On March 17, COVID19 was declared a notified disaster, thus becoming eligible for funds from the State Disaster Response Fund (SDRF). SDRF is the primary fund available with state governments for responses to notified disasters. Notifying a disaster enables states to spend more from the SDRF to fight the said disaster.
     
  • In order to better coordinate the state’s response, the government issued instructions to constitute COVID-19 cells in all departments. Meetings and inspections by government officials were also to be avoided. 
     
  • Local Self Government institutions were assigned various roles and responsibilities. These include: (i) running awareness programs, such as, ‘Break the Chain’ initiative, (ii) conducting sanitation and cleanliness drives, (iii) regular outreach to home isolated/quarantined persons, (iv) activating committee system to manage responsibilities, (v) ensuring availability of essential commodities, (vi) categorising and ensuring available response mechanisms, such as, material resources, volunteers, medical resources etc, and (vii) ensuring special attention to vulnerable populations, such as senior citizens, and persons with co-morbidities or undergoing special treatments. 

The lockdown period

On March 23, Kerala announced a state-wide lockdown till March 31.  A day later, the central government announced a nation-wide 21-day lockdown.  

Restrictions imposed under the state’s order included: (i) stoppage of all forms of passenger transport services, (ii) prohibition of a gathering of more than five persons, and (iii) closure of all commercial establishments, officers, and factories, except those exempted.  Use of taxis, autos or private vehicles was permitted only for procurement of essential commodities or for medical emergencies. Establishments providing essential goods and services such as banks, media, telecom services, petrol bunks, and hospitals were permitted to operate.  

On April 15, the central government extended the lockdown till May 3.  Some of the key measures undertaken during the lockdown period are: 

Administrative Measures

  • A round-the-clock war room, comprising members of different departments, was set up to monitor and supervise all COVID-19 containment activities. 
     
  • Corona media cell was set up to monitor and tackle the threat of fake news surrounding COVID19.  
     
  • With the legislature not in session, the Kerala Epidemic Diseases Ordinance, 2020 was promulgated by the Governor of Kerala on March 26. The Ordinance empowers the state government to undertake necessary measures and specify regulations to counter the threat of an epidemic disease.  It also specifies a penalty for those who violate orders made under this Ordinance. 

Healthcare Measures

Essential Goods and Services

  • On March 25, the state declared a list of essential services under the Kerala Essential Services Maintenance Act, 1994. 
     
  • Various exemptions from lockdown were issued to services that were later deemed essential. These include: (i) shops and bakeries, including departmental stores, (ii) online food deliveries, (iii) parcel services, for delivery of essential goods, (iv) automobile service workshops, (v) shops and service centres for mobile phones, computers etc, only on Sundays, and (vi) plumbers and electricians to undertake maintenance work in houses and flats. 
     
  • On April 3, orders were issued to set up community kitchens under the aegis of Kudumbasree and Local Self Governments (LSGs). Kudumbasree is the poverty eradication and women empowerment programme implemented by the Kerala government. As on April 20, a total of 339 Community Kitchens have been functioning in 249 panchayats across 14 districts of the state. They have served a total of 5,91,687 meals since April 4, 2020. The government has also instructed LSGs to hire volunteers for the kitchen and pay them an honorarium of Rs. 400 (for one-time service) or Rs. 650 (for the whole-day).

Welfare Measures

  • Under SDRF norms, funds were released to the Health Department for relief and response activities for COVID-19. 
     
  • Each District Collector has been allocated Rs. 50 lakh for carrying out various COVID-19 outbreak-related control and prevention activities.
     
  • Financial assistance has been sanctioned to (i) fishermen, (ii) artists, (iii) lottery agents and sellers, and (iii) elephants and other such animals being looked after. 
     
  • A 2000-crore worth Chief Minister’s Helping Hand Loan Scheme was announced for people facing lockdown-related unemployment and hardships. The scheme will be operationalised through neighbourhood groups under the aegis of Kudumbasree. 

Post-lockdown strategies – Strategies easing lockdown relaxations

  • Expert Committee: On April 4, an Expert Committee was constituted by the government and on April 6, the Committee submitted its Report on the guidelines for post-lockdown regulations. It recommended a conditional, three-phase strategy, with districts being the unit of implementation. Relaxations would be progressively eased in each phase depending on criteria, such as, (i) number of new confirmed cases, (ii) percentage increase/decrease in number of persons under home surveillance, and (iii) no emergence of hotspots.. 
     
  • Containment Guidelines: After the lockdown was extended till May 3, the state released revised guidelines for containment, that recommended classification of districts into four zones, based on number of cases and disease threat. The zones – Red, Orange A, Orange B, and Green – would have different, graded restrictions, with Red having stringent restrictions in the form of a lockdown till May 3. The Orange A and B zones would have a lockdown till April 24 and 20 respectively, followed by a partial relaxation thereafter. Green zone would have a lockdown till April 20 and relaxation in restrictions thereafter.
     
  • Based on the above order, the state issued an advisory for industrial units to follow while resuming operations. Some of the Standard Operating Procedures to be followed include: (i) conducting disinfectation of premises, machinery, and vehicles, (ii) arranging exclusive transportation facilities with vehicles operating at 30-40% capacity, (iii) mandatory thermal scanning of people, (iv) following hygiene and social distancing norms, including a cap on elevator capacities and size of meetings (v) mandatory corona-related insurance cover for workers, (vi) mandatory use of CCTVs, and (vii) preparing a list of nearby COVID-19 hospitals .

For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.