Detailed Response to Chapter 5 of Rakesh Mohan
Committee Report
Chapter 5 of Rakesh Mohan
Committee Report deals with the finances of Indian Railways. The observations can be broadly categorised
under three headings as shown below:
1.
It
is essential to reorganise Railway finances along with the corresponding
organisational restructuring and this is considered sine-qua-non for the
achievement of the high growth scenario.(Page
157, Para 1 & 4)
2.
The
existing financial structure has failed to meet the original objective of
separation of Railway finances from general finances. According to the Committee, the findings of various parliamentary
and official reviews over the financial arrangements of the Railways throughout
the last 50 year period suggests continuing reservations over the financial
system, within which Indian Railways operates. (Page 161, Para 2 & 4)
3.
Indian
Railways financial structure as revealed through its profit and loss account as
well as balance sheet, lacks sufficient financial transparency and proper
accounting procedures. Further, Indian Railway accounts do not conform to the
disclosure standards that are expected of going concerns registered under the
Companies Act. The Committee concludes that the accounts are far from Indian
GAAP or for that matter any canon prescribed by any international accounting
body.(Page 165 & 166, Para 1)
What
follows is a response with reference to the factual position item wise:
Item 1:
The
organisational restructuring of Indian Railways suggested by the Committee is
primarily aimed at institutional separation of role into policy, regulatory and
management functions.
It is true
that Railway Board, was conceived as a policy making body. In fact delegation of powers to General
Managers, Organization of Zonal Railways and reorganization of Railway Board’s
office was covered in the second Report of Railway Convention Committee more
than two decades ago.
Even now
the GMs do not have adequate powers for granting Station-to-Station rates. The Divisional Railway Managers do not have
powers to permit licensing of land in wayside stations, to stack materials
before loading. Even if two adjacent
Divisions agree within their resources for the necessity of a special train, it
cannot be run without the permission of the Zonal Railways. Thus there is vast scope for improvement in
the area of delegation of powers, which should be seriously addressed.
The Expert
Group has stressed the need for an outward looking, business oriented and
customer driven organisation. Even with
the present composition of Railway Board and organisational structure, Indian
Railways have successfully implemented better management practices and
introduced modernization and customer oriented measures.
Ever since Independence, the Railway Board
has ushered in dieselization, electrification, modernization of tract, rolling
stock, signalling and other activities – introduction of air conditioned
trains, faster trains like Rajdhani and Shatabdi etc. At the time of
independence, almost 90% of Railways’ requirements were being imported. Now the
country is not only self-sufficient in manufacture of coaches, wagons and
locomotives, but even has export potential. Railways were the first in 1964 to
instal Management Information System
for traffic costing, inventory management and freight and passenger
earnings. Computerisation of Passenger Reservation System is very
unique, probably unparallel in its range and scope.
In the
opinion of the Expert Group, the time has come to reorganise Railway finance
along with the restructuring of the organisation. First, the link between the two are not very apparent. Be that as
it may, sources of funds are not going to be very different from what prevails
today, even if the Railways are corporatised. This has been the worldwide
experience as railway projects are of long gestation, and, the return is not
comparable to other fields of investments such as manufacture of cosmetics or
vanaspathy or consumer durables. The Government of India as the major
shareholder has necessarily to shoulder the responsibility for the development
of the infrastructure, as Railways have not been able to generate funds for
upgrading facilities for improvement and extension. Railways are necessarily to remain the mainstay in a country of
the size of India, and, the future vision should be movement of freight and
passengers at better speeds consistent with an improved infrastructure.
From time
to time, funds have been obtained from World Bank, Asian Development Bank and
other Multilateral Agencies by Government of India for specific projects which
have been evaluated by these agencies.
They continue to be interested in Indian Railway’s development.
Government of India as the sole owner of the Railways have got a role to play.
Strategic planning by the Government from time to time, keeping in mind, the
resource constraints has definitely led to continual enhancement of
capacity. It may not be out of place to
mention here that the gauge conversion undertaken was on strategic and economic
consideration and led to opening up of Rajasthan, Gujarat, Andhra Pradesh,
Karnataka, Assam and Tamil Nadu for further industrial development, and,
safeguard the integrity and defence of the country. The socio-economic benefits
to the community by avoidance of transshipment, savings in time, loss in
transit have been immense(In fact, before admission to European economic
community, Spain and Portugal were asked to convert the rail track to standard
gauge to accord with other countries). This has been achieved without much
addition to the rolling stock, and
by better turn round of wagons as evident from the following:
|
|
90 - 1991 |
99 – 2000 |
Increase in Percentage |
|
Originating
tonnage(in million) |
318.4 |
456.9 |
43.5 |
|
NTKMs (in million) |
235785 |
305201 |
29.44 |
|
Goods Earnings(Rs. in crores) |
8247 |
21755 |
163.79 |
|
Passenger Earnings (Rs. in crores) |
2788 |
8511 |
205.27 |
|
Rolling Stock Diesel Locos Electric Locos Passenger Coaches Wagons |
3759 1743 28677 346102 |
4651 2810 32302 244419 |
23.73 61.22 12.64 -29.37 |
The
Committee, no doubt, is very optimistic about the capacity of the Railway to
raise funds from public and other agencies once freed of Government control.
This may well turn out to be wishful thinking.
At the time when the Konkan Railway Corporation was formed, as the
Corporation found it difficult to raise resources, the Government has
necessarily to guarantee the Konkan Railway bonds.
It may thus be
concluded that the Organisational Restructuring and Financial Restructuring are
not mandatory for achieving strategic high growth scenario, not withstanding
the fact that the assumptions about the growth rate are themselves open to
question. On the organizational side, a compact Board as recommended by the
Convention Committee(1980) with greater devolution of powers would pay rich
dividends. Better management and operational practices, with a change in the
mind -set, shedding the departmental bias, would be a better answer.
Financial
restructuring contemplated presupposes
a high growth scenario, requiring
large infusion of funds, which would not be forthcoming, unless the
finances are restructured.
The past
track record of Railway investment through International agencies, does not
support this argument. Even limited efforts through BOLT schemes, have not been
successful so far, as the nature of investment with long gestation and
inadequate returns, is not attractive enough for private investment.
In
the recent years, in attempts to overcome the perceived inefficiencies of
public financial management, governments have turned to private funding. In
some cases, government owned utilities have been sold to the private sector,
usually at very attractive prices in order to lure purchasers who may have to
spend a lot of money restructuring the organisation to make it into a
profitable business.
Telecommunications, power supply and airlines are all areas which
governments have sold into private ownership and some of which have eventually
become profitable. Railways are more
difficult to sell since they have high infrastructure and maintenance costs and
the income from operations is not large enough to give handsome profits as in
many other alternative businesses because fares are politically restricted to
low levels or because the railways are perhaps subject to politically assisted
competition from road transportation.
Some
progress has been made in “converting” publicly owned railway companies to
private ownership but only by offering inducements, guarantees, and/or
financial subsidies to the new owners.
This is because the numbers simply do not stack up when it comes to
return on investment. In fact, as
already mentioned, they rarely add up when it comes to just the cost of
day-to-day operations compared with the revenues.
Railways
all over the world find it difficult to cover all their operating costs from
their fare revenues. The published examples of a few important Railway Systems
world over are given below:
|
Railway |
Ratio of Revenue to Operating Costs |
|
Kuala Lumpur PUTRA System – Malaysia |
40% |
|
RATP – Paris |
50% |
|
Sao Paulo Metro – Brazil |
70% |
|
BNSF Aurora (Chicago, II. USA) |
75% |
|
Kuala Lumpur STAR Elevated – Malaysia |
90% |
|
London Underground |
125% |
|
Seoul Metro – Korea |
140% |
|
Mass Rapid Transit – Singapore |
150% |
|
Santiago - Chile |
160% |
|
Manila Line 1 - Philippines |
170% |
|
Manchester Metrolink - UK |
190% |
|
Mass Transit Railway – Hong Kong |
220% |
It can be observed that Metro and
Suburban System, which have high patronage as a feature, cover these costs
better. Most main line passenger
railways will never perform to these financial standards.
Even
Amtrak is likely to see a change in its set-up if the recommendation of Amtrak
Reform Council set up in November 1997 is implemented. It recommends setting up of a federally owned infrastructure company and a new Government agency so as to oversee the infrastructure and operating business.
Despite renewed attempts to
emulate Private Sector, Amtrak is still
far from the goal of reaching financial independence by 2003. Amtrak’s financial performance of 2000 – 01
revealed operating shortfall of $940m and the cash loss was $120m more than
anticipated, despite increased revenue from mail and express freight. Amtrak says, even if it should succeed in
becoming self-sufficient in terms of operating costs, it will continue to need
capital grants for new rolling stock and other equipment as well as for the
launch of services on the proposed high speed corridors scattered across the
USA.
The
Reform Council suggests that Congress provide a ‘stable and adequate source of
federal funding’ for future capital needs.
Among possible sources of cash were straight appropriations from the
public purse, bonds, or a supplementary 1% petrol tax that could be matched by
states wanting more passenger trains (International
Railway Gazette, May 2001).
It
is thus apparent that Government’s role will continue to be crucial for
Railway’s finances, as the experience world over suggests. (Source:www.trainweb.org/railwaytechnical)
Item 2:
A careful reading of the
separation Convention and subsequent reviews would be essential to determine
the relationship between Railway and general finances. The recommendations of
the Acworth Committee were primarily intended to avoid violent fluctuations in
the Govt. of India budgeting by ensuring a fixed contribution to the General
Revenues. The separation of the Railway
Budget from the General Budget was done with this purpose in view, and, also
enable the Railways to have a better control over their expenses and
earnings. In fact this has worked to
the advantage of the Railways and to the Govt. of India and introduced a
certain flexibility for Railways to have some control over the funds, which in
anyway was forming part of the Govt. of India funds. In fact, it may not be out of place to mention that the Railway
which originally formed part of the Central Works Department was separated and
Indian Railway Board Act was enacted in 1905 and each of the Government
Railways were managed by a General Manager.
It may be
worthwhile to reproduce in verbatim the Resolution for separation of Railway
Finance from General Finances, which was introduced on 17th
September 1924:
“Finally, and most
important of all, we want to establish a principle. It is right and proper that the tax-payer, the State, should get
a fair and stable return from the money it has spent on its Railways; but if
you go further, if you take from the Railways more than that fair return, then
you are indulging in a concealed way in one of the most vicious forms of
taxation, viz. a tax on transportation.
One of the objects we have most at heart in putting these proposals
before this house is to establish that principle”.
While the Railway did not suffer in its autonomy, however,
utilisation of funds of the Railways was very much subject to overall ways and
means position of Govt. of India.
The need
for a review of the existing financial arrangement between the Railways and the
Central Government so as to facilitate functioning of Indian Railways as a
commercial venture has been emphasised. The crux of the existing arrangement is
a regular return from the Railways to the Central Government on the Capital
invested by it. While this position has been met by the Indian Railways, with
the proviso of operating a deferred dividend liability account in difficult
years, it has been pointed out that Indian Railways have declared surplus over
the years at the cost of insufficient provisioning for
depreciation. Considered from this angle, the Indian Railways would need
accommodation from General Revenues for operation of the deferred dividend
liability account for some years until, the financial health improves.
The
present arrangement also implies, obviously a continuous infusion of capital
from the Central Government to build up Railway infrastructure. While the Government did fund the Railway
Plans adequately until about the year 1980, the 8th and 9th
Plans, show a substantial reduction in capital support from the General
Exchequer. Railways had responded with
the creation of the Indian Railways Financial Corporation to raise resources
for the Plan effort and at present IRFC finances not only new acquisitions, of
rolling stock, but also a considerable part of replacements. Taking
note of the cost of servicing IRFC funds, there has to be a ceiling on
this kind of funding.
The hiatus
in Government funding, vis-à-vis the requirement of the Railways Project, is
conspicuous. This is not to say that unremunerative
projects should be funded by the Central Government, despite severe constraints
– such projects should be ruthlessly weeded out. That having been said, there
is still clear need for a considerable enhancement in Government support for
the Railway projects. If Railways are
to be accorded due priority as infrastructure, this has to be reflected in the
sectoral allocation of funds by the Government. By their very nature Railways are highly capital-intensive and
maintenance-intensive (on account of
both safety and efficiency consideration); they cannot be expected,
consistently with bearable pricing, to generate adequate surpluses for network
expansion and modernisation. This has been the experience of Railways the world
over, and Government funding for the infrastructure continues to be a cardinal
feature of the restructuring efforts that have been initiated.
The
Railway projects are capital-intensive. The published figures indicate that
cost of a single track can be as high as US$ 336 million a kilometre – Jubilee
Line extension, London (100% tunnel, Heavy Metro) or as low as US$ 2.5 million
per kilometre – Tripoli – Ras Jedir main line, as shown below:
|
Railway |
Date |
Type of System |
Cost per km(US$) |
Distance |
Notes |
|
Jubilee Line, London,UK |
1999 |
Heavy Metro |
$336 million |
16 kms |
100% tunnel |
|
Tripoli-Ras Jedir, Lybia |
2000 |
Main line |
$2.5 million |
191 kms |
Surface |
(Source:www.trainweb.org/railwaytechnical)
The
rationale for Government spending is that private sector is averse to making
any investment because the commercial risks are too high. Fares are not enough to repay the cost of
building and maintaining the lines. It
is ironical that clamour for
improved public infrastructure facilities, is not matched by a willingness of
citizens to pay higher fares and in fact there is a resistance. The standard
argument is that avoidance of waste and misuse of money, coupled with greater
public accountability, in state run Railways should result in improved
efficiency and reduced fares/freight. The vicious circle thus goes on!
Whatever may be the arrangement envisaged, the fact
remains that the Railway revenues are not sufficient to cover the cost of operation and maintenance,
particularly when there are 110 unremunerative lines under operation incurring
a loss of Rs.348 crores as in the case
of Indian Railways. Government support
is therefore inevitable.
Having
said this, it must be added that the existing arrangement of the Indian
Railways with general finances needs modification to the extent that Government
financial support, as accepted worldwide, should be forthcoming without any
reservation! The magnitude of net social obligation has been assessed as
Rs.4000 crores for the year 2000-01; stricter methodology of computation and
upward revision of passenger tariff could bring down this figure. Even U.K has
adopted a policy of offering
franchises to railway
operation with Government financial
support, albeit the lowest amount of support needed!
Item 3:
The
Committee has made a sweeping statement that railways accounts are not
transparent and at best translucent.
The accounts are not understandable by a trained Chartered Accountant or
a Financial Analyst.
The
transparency of accounts in railways would be clear from the following:
1.
The
Railway Budget is presented to the Parliament.
The Minister’s Speech and the Budget documents clearly bring out the
state of accounts.
2.
The
actual expenditure vis-à-vis Budget provisions are scrutinised by the
Comptroller and Auditor General of India, and, the Appropriation Accounts are
subsequently submitted to the Parliament for the completed year.
3.
The
systems, methods and control of financial management in-house caters for
traffic costing, cost control, cost reduction and other Management Information
System.
4.
There
is a concurrent audit by the officers of Comptroller and Auditor General, and,
important lacunae is brought out in the Audit Report.
5.
The
Audit Report is discussed by the Public Accounts Committee, consisting of
Parliamentarians, and, they make recommendations to be implemented by the
railways.
6.
The
Budget documents, Appropriation Accounts, Audit Report and the Annual Report
and Accounts and Year Book contain a fund of information.
Private
Companies primarily aim to enhance shareholders well and Company account takes
full advantage of various Tax provisions.
Many Companies were making super
profits without paying Corporate Tax, leading to introduction of a minimum
alternate Tax. Corporate governance and Audit Committees conform more to form than substance. If
Railways are privatised, assets stripping will take place and even the Defence
of the country would be jeopardised.
Transparency:
Further an investor or lender who
may be interested in a particular project for financial participation, the
viability of the project in itself is the primary concern. No doubt, the manner in which the
estimations of revenue streams and expenditure are worked out would engage the
attention of the Financial Analyst, but it is doubtful whether the presentation
of the Railways accounts is seriously relevant. The overall financial position of the Railways is otherwise
available from the documents now prepared, so that an intending investor can take a view on the commercial risk, any
guarantees required etc.
The
World Bank, Asian Development Bank and other multilateral agencies have not
found it difficult to understand the accounts. There cannot be any greater
transparency than this. In fact, the costing and financial
control procedures on the Railways were examined by a World Bank Team in 1970
and based on their suggestions, a task force set up which included two charted
accountants to examine the various questions related to budgeting, accounting
and management practices on the railways, rationalising the structure of budget
proposals in the form of demands for grants;
introduction of a system of performance budgeting; developing a system of responsibility accounting; and
improvements in the system of internal audit in each railway. The accounting structure was reorganized to
provide, to the extent feasible, for responsibility accounting and computer
based Management Information System.
The acceptance and implementation
of the
recommendations of the Committee
have led to significant improvements in the budgetary process and documentation
in Indian Railways.
However,
there is enough scope for improvement in the area of Traffic Costing which
should be attempted in all earnestness and sincerity in a time bound manner.
In regard to the adoption of company format
and adherence to GAAP, it may be interesting to note the observation of Union
Minister for Law, Justice and company affairs, while releasing a comparative
study of Indian GAAP, IAS and US GAAP, brought out by the Institution of
Chartered Accountants of India. The Minister, while underscoring the need to
have accounting standards that will align themselves with the best practices
which are accepted the world over, held that some deviations may still be
necessary between the two sets of standards to cater to the domestic
requirements. Mr. N.D. Gupta,
President, ICAI has argued that ‘ the state of development of accounting
standards mainly reflected the stage of development, the economy and the
capital markets' (Source: Business Line 27th September 2001).
How the varying accounting
practices affect the final financial results will be evident from the Adjusted
Profit & Loss Account of Reliance Industries Ltd., as reflected in their
Annual Report for the year 2000-01. The profit of Rs.2645.62 cr. declared as per Indian GAAP, gets reduced to
Rs.2036 cr. if computed adopting the US GAAP.
It is significant to observe that the difference is partly attributable
to the change-over to written down value method of depreciation w.e.f. 1.4.2000
from the straight line method used hitherto and giving retrospective effect to
the same.
This shows that in any
presentation of accounts, the interpretation is important to get a proper
picture of the financial position of a Company, not the mere format. Indian Railways accounts provide sufficient
details to inform about the financial status.
If at all, a different presentation as suggested by the Expert Group is
to be prepared, it may be on a pro forma
basis limited to the accounts of IR as a whole; to perform this exercise for
the other administrative units of the Railways may not be worth the trouble.
Depreciation:
This is an
area about which the Expert Group had expressed not only serious reservations
but also wanted a change in the methodology.
It is admitted that a proper policy approach as well as practical action
in respect of the depreciation of assets is of vital concern in IR’s financial
management and the physical health of the
railway system for safe and efficient operation.
A brief
review of the developments on this issue would be in order. The Depreciation Reserve Fund was born 1924
as an important feature of the Separation Convention in that year. Initially it was funded by the revenues on
the basis of “straight-line method” with reference to the original cost of each
asset, and replacement was charged to the Fund only to the extent of the
original cost of the asset. In further stages of evolution, the inflationary
element and then the improvement element, earlier charged to Capital were also
brought under the purview of the DRF (from 1936 and 1950, respectively). Thus it has taken the character of a Renewal
Fund, and it operated as such. During
the fifteen year period from 1935
to 1950 the basis
of assessing the provision was 1/60th of the
Capital-at-charge.
With the
advent of era of Planning in 1950, the funding of DRF was related to the
expenditure on renewal and replacement to be incurred during each period and to
be decided by the Railway Convention Committee of Parliament. In practice the expenditure on replacement
and renewal came to be limited by the overall planning process and paucity of
resources, resulting in the build-up of arrears. But since the Sixth Plan period the provision has been enhanced
fairly significantly from year to year, taking note of the recommendation of
the Railway Reforms Committee
(Vol. IV of the Report, 1982). During the Seventh Plan years, in fact,
their methodology of computing the provision on the basis of the current value
of the assets was introduced. Admittedly, this was not consistently carried
forward in the subsequent decade, causing arrears to accumulate. The balance built up in the DRF has
drastically come down. It is perhaps
well within the realm of practical possibility to estimate the arrears, plan
for pulling them up within a definite timeframe and place adequate provision in
the DRF. This is essentially a matter
of prioritisation and focus.
The
rationale for the position has in fact been articulated very early,
by the 1923-24 Committee on Depreciation Fund – “Having regard to the
permanent character of our Railways……
what is required for Railways in India which are the property of the State is
not a Depreciation Fund in the sense in which the term is understood generally
in the commercial world, namely, an
institution which accumulates a reserve representing in value the equivalent of
the expired capital outlay, but a reserve which will, with a minimum amount of
accumulation, facilitate the timely execution of renewals with a view to
maintaining the property up to the highest standard of efficiency and insure
that on occasions when renewals due are
deliberately or unavoidably postponed, the provision to meet them is debited to
the Revenue Account of the period concerned by credit to the Reserve Account to
be spent later on when conditions are more favourable or circumstances permit”.
In
commercial practice, the provisioning for depreciation is basically a routine
accounting convention, with the twin results of creating a reserve and
identifying a tax-deductible expense.
Usually, calculated on the historical cost, it can seldom meet the
current cost of replacement of assets in an inflationary context. Nor is the reserve truly dedicated to
replacement and renewal, for it can be deployed for any purpose, even investment in the shares of another
company.
Despite the reserve being
available, a company may even fail to make actual renewals and replacements in
time. In other words, while the correct
provisioning may satisfy a certain norm in determining the profit, it does not
guarantee the physical as well as financial well being of the company. The fact that several textile mills, for
instance, became sick in course of time, with their machinery in run-down
condition is perhaps a proof. The
concept followed on the Railways is best suited to the primary objective
of timely replacements and renewals, so long as it is applied with full
rigour. It has the obvious merit of avoiding over capitalisation. The Railway’s
Budget Document make the cash flow position quite clear and cannot be held to be
obscure in any respect.
Appropriation
to DRF as a percentage of capital at charge as well as total investment would
indicate that provision is not all that unrealistic or ad hoc as pointed out by
the Committee.
|
PROFILE OF DEPRECIATION
RESERVE FUND(DRF) |
|||||
|
|
|
|
|
|
|
|
Year (A) |
Capital –at-Charge
(B) |
Total Investment
(C) |
Appn. To DRF (D) |
Appn. to DRF as a |
|
|
Percentage of |
|||||
|
(B) |
(C) |
||||
|
1950-51 |
827.00 |
855.00 |
30 |
3.63 |
3.51 |
|
1960-61 |
1521.00 |
1869.00 |
45 |
2.96 |
2.41 |
|
1970-71 |
3331.00 |
4100.00 |
100 |
3.00 |
2.44 |
|
1980-81 |
6096.30 |
7448.40 |
220 |
3.61 |
2.95 |
|
1990-91 |
16125.80 |
22200.50 |
1950 |
12.09 |
8.78 |
|
1991-92 |
17712.50 |
24808.40 |
2000 |
11.29 |
8.06 |
|
1992-93 |
20123.20 |
28524.30 |
2300 |
11.43 |
8.06 |
|
1993-94 |
22620.60 |
32212.00 |
1875 |
8.29 |
5.82 |
|
1994-95 |
24924.80 |
35618.20 |
1885 |
7.56 |
5.29 |
|
1995-96 |
27712.89 |
39816.00 |
2060 |
7.43 |
5.17 |
|
1996-97 |
30911.77 |
44627.30 |
2200 |
7.12 |
4.93 |
|
1997-98 |
33846.33 |
49057.80 |
1904 |
5.63 |
3.88 |
|
1998-99 |
36829.34 |
53657.60 |
1155 |
3.14 |
2.15 |
|
1999-00 |
39772.06 |
58353.40 |
1670 |
4.20 |
2.86 |
Although
Asset Registers were in vogue in the earlier years, they were given up in view
of the large volume of work involved. However, now that the Asset Registers
have been compiled on the entire Indian Railway System, it may be necessary to
work out the Appropriation to DRF based on this data. This will permit the necessary physical and financial planning
for the next five years or ten years keeping in view the entire range of assets
due for renewal, subject to prioritisation.
The financial planning should take into account the latest known prices,
as implied in the report of Railway Reforms Committee.
Suggestions on accounting practices
i)
Transfer pricing to be introduced.
ii)
Clear
cut service wise accounting may be done so as to establish the cost of
transportation. This is possible with computerization.
iii)
Once
service wise data is available, rebalancing of tariff and elimination of cross
subsidization can follow.
iv)
Accounting reforms for track renewal and maintenance:
The total expenditure under Demand No.4 works out to as
substantial a percentage as 11.5 of all working expenses. On this, 75% is related to track
maintenance. Considering that a healthy
and safe track is mandatory for any Railway operation and that this is our
chief asset, the budget and expenditure on this activity should be available
exclusively and without overlap with other activity. A separate revenue demand for track renewal alone may be a
solution. This would enable focused
attention.
v)
At present sub heads of accounts are available under the
following categories for recording earnings:
i)
Passenger Original Fare(110)
ii)
Passenger Reduced Fare(120)
iii)
Military Passenger(130)
In as much as different concessions are granted under varying
slabs, additional detailed heads can be opened. This would help in reviewing of
decision taken in this regard. Further detailed heads to record slabwise
concessions. This would help in review of decisions taken in this regard and
act as a brake on further extensions of such concessions. Of course it is to be pointed out that
reduction in concession will not lead to corresponding reduction in working
expenses as trains are unlikely to be withdrawn or other ancillary expenses reduced. In a way concessional fares may be compared
to off-season tariffs recommended by the Committee, as the concessional fare is
likely to be more than the marginal cost.
vi)
Overaged and retired assets can be dropped from books so
that a more realistic picture is projected. Poulose Committee’s recommendation
highlight the existence of several unproductive and redundant assets generated
by technological innovations, operating improvement and policy changes. This
has to be dropped from books.
vii)
There is case for seeking relief from the payment of
dividend for capital investment up to 1979-80 when the average borrowing rate
was lower than the rate of dividend (see statement enclosed). In fact railway
reforms committee has worked out a methodology for arriving at the contribution
made by the Indian Railways to the general exchequer during the period 1-4-1950
to 31-3-1980 (See annexure). It was calculated that the relief to be sought from the general revenues would
be of the order of Rs.500 crores (see methodology). Since this relief would
have been available from 1980-81, this contribution should be treated as an
excess fund available with the general revenues attracting normal interest as
for fund balances. This should be quantified and appropriate reliefs sought
from Government of India by preparing appropriate memorandum for submission
before the Convention Committees.
(viii) It
is the absence of introspection or review that has led to the Railways being
forever on the defensive and not able to answer uninformed criticism. The statistics so laboriously collected on
traffic are not examined to draw conclusions that are implementable in the
following year. This has to attempted on a systematic basis.
(ix) In
the absence of continuous internal audit, vigilance and statutory audit have
assumed almost the role of a bug bare. What they have found out and more may
have been discovered by internal audit much earlier. Accounts department should bring out a compendium of the special
studies on the lines of Audit report and executive made responsible to answer
the issues raised and take follow-up action as called for.
(x) In
regard to pensionary liability, the Expert Group itself has suggested that the Government should bear the liability. This has to be pursued. However, there is an
urgent need to evaluate the liability through actuarial process.
To sum up, simple recasting of accounts will
not really help. What is more relevant is efficient management of accounting
principles, constant review of financial decisions, the will to learn from
experience and to prevent a mistake from becoming a misery and to take stock of
situations and take decisions not for the year but to reach the common goal
over the years in sight.
Financial
administration as of now mainly concentrates on accounting both revenue and
project, internal audit, budgetary control, financial analysis of investments,
funds flow management including accounts receivable/payable. What is required, is a greater role for
finance in corporate planning, transportation management and marketing
strategies.
Smt
Vijayalakshmi Viswanathan,
FA&CAO/Southern
Railway,
Chennai.