“A Few Drops of Railway Accounts” [Module: 02 (Budget)]

Collected byNurul Kabir Aktaruzzaman, IRAS

F.A.& C.A.O. (Finance &Budget), Eastern Railway, Kolkata

PREFACE

The IRAS Times has shown the light of the day to the Module-01 of my collection of “A Few Drops of Railway Accounts” by displaying the same on the Website for its circulation amongst all those interested in it. I gratefully acknowledge the positive inspiration and motivation that IRAS Times has infused in me for undertaking the next effort for the collection of the Module-02 of the Title.

2. The driving spirit and purpose behind this Collection has been fairly indicated in Preface to Module-01. I enclose herewith Module-02 of the Title “A Few Drops of Railway Accounts”.

Sd/- 14. 03. 2012 ( N. K. Aktaruzzaman, IRAS)

F.A.&C.A.O.(Fin.&Budget) Mob: 9002020101

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1.0. GENERAL

1.0. Role of Indian Railways

Basically, the Indian Railways produce and sell transport. Indian Railways is the nation’s lifeline. It is a vast network- second largest in the world under a single management. It has been successfully playing the role of prime mover to the economy and society of the Indian sub-continent. It links places to people enabling large-scale rapid and low cost movement of people across the length and breadth of the country. It connects production centres (agricultural and industrial) with their markets and sources of raw materials and thereby promotes their growth. It provides rapid, reliable and cost effective bulk transportation. Indian Railways have become a symbol of national integration and a strategic instrument for our defence preparedness.

2.0. Sources of Railway Finances

(a) The Railway Plans today are financed through three main sources: (i) Internal resources; (ii) market borrowing through the Indian Railways Finance Corporation( IRFC) and other schemes (Own Your Wagon, BOLT, Public Private Partnership(PPP) etc); and (iii) Capital from General Exchequer( also called Budgetary Support).

(b) The budgetary support in % terms, has shrunk and the level of market borrowings has gone up. The average cost of market borrowings is high and there is the repayment obligation also. The burden of lease charges is increasing; shortly the lease charges will tend to exceed the market borrowing level itself.

The generation of internal resources is seriously affected by the higher staff costs (about 56% of Ordinary Working Expenses) and the limitation of the Railways to raise fares and freights due to a policy of restraint.

3.0. Areas of Concern for Indian Railways

3.1. Shrinking budgetary support from General Exchequer, increasing market borrowings and poor generation of internal resources due to higher staff cost.

3.2. High density network (golden quadrilateral) is today totally saturated and the corridor needs massive investment for expansion.

3.3. Loss of market share to Road Transport. The railways are denied a level playing field. Unlike the railways, the roads are built and maintained by the Government without any specific charge on the transport operators except levy of road taxes on vehicles.

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3.4. Cross subsidization of Passenger services by Freight services. The passenger traffic needs 60% of transport effort but contributes 30% of revenue; whereas freight traffic needs 40% of transport effort but contributes 70% of revenue.

3.5. Unbridled introduction of numerous new trains every year despite constraint in line capacity, the above cross subsidization and consequent blockage of goods trains movement.

3.6. Safety is a management priority: huge investment needed on track renewals, rolling stock maintenance, manning of huge number of unmanned level crossings, etc

3.7. Aspirations of our rail-users for more accessible, faster, safe, secure, punctual and affordable large number of services with better amenities at stations and in trains. The industrial customers expect an efficient service, free from delays, damages and pilferage.

3.8. Duality of objectives: The Indian Railways play the dual role of a ‘commercial enterprise’ and a ‘public utility’. The railways are required to remain financially viable but also at the same time, as a public utility, have to discharge their service obligations under Government tutelage.

3.9. Inadequate Compensation for public service obligations discharged (Social Cost) The Government (both the Central and States) should fund the socially desirable but economically unviable projects.

3.10. The Railways are to share the cost on maintenance of law and order in Railway areas despite it being a State subject.

4.0. Strategy for Survival and Self-Sustaining Growth

4.1. Sharpen the marketing capability to attract the freight and passenger business to the rail network through constructive pricing mechanisms and tariff rationalization as also through customer focus.

4.2. Strengthen the high-density network to make the system capable of meeting the demands of the freight and passenger business.

4.3. Practise austerity especially in the areas of energy consumption, materials management, overtime, traveling allowance, advertisements, etc. and in all other areas in general to the maximum extent possible.

4.4. Cut operating costs drastically.

4.5. Withdraw from ancillary activities to enable the management to concentrate on the primary business of running freight and passenger services.

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4.6. Evolve an optimal Financing strategy for optimal allocation of scarce resources to actualize the objective of a higher growth rate, in tune with, and perhaps ahead of, the GDP growth rate and thus be the harbinger of a railway renaissance.

4.7. Bring about a cultural change in the organizational philosophy from being production oriented to customer orientation.

4.8. Research and Development.

4.9. General i) Run the Heavier, the Longer & the Faster Trains ( both Goods and Passenger).

ii) Rationalisation of Freight and Passenger fare.iii) Dynamic Pricing Policy and Freight Incentive Schemes.iv) Improve wagon availability and mobility.v) Control Project cost ( time over run & cost over run ) vi) Ensure PPP ( Public Private Partnership)

4.10. Responsibility Accounting

4.11. Optimum utilization of Railway resources relating to non-conventional earnings.

5.0. Reduction of Operating Costs : Areas

5.1. Securing efficiency in production and maintenance units.

5.2. Purchasing procedures should be improved to secure cost reductions and also improved reliability. The vendors should be ISO certified, the “life cycle” costing principles to be adopted, quality control to be strict, etc.

5.3. Human resource development : Staff should be well trained and motivated. They should be trained in the critical areas of (i) Increased level of customer satisfaction (ii) Maximising return on investments (iii) Cost reduction for higher internal resource generation (iv) Adoption of state of art technologies (v) Improved reliability of assets and services.

5.4. Reduction in manpower : Staff cost accounts for 56% of working expenses. Major initiatives are now inescapable to reduce the workforce both by improving manpower productivity in real terms through multi-skilling and mechanisation , as also by outsourcing certain off-line activities, which, incidentally, may also help in meeting the rising customer satisfaction.

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6.0. Financing strategy

6.1. IR being a public utility should demand for more Budgetary support from General Exchequer commensurate with the present social cost and burden. The dividend payment should be exempted for social projects.

6.2. Generate more internal funds by augmentation of earnings and reduction of working expenses.

6.3. Tapping of non-traditional sources of funding. Investment packages should be commercially attractive and match the interests and aspirations of concessional funding agencies and private sector participants. IR needs to create the conditions that facilitate investments through articulating a compelling change vision and appropriately influencing the legal, regulatory and tax regimes.Non-traditional funding mechanisms could include, inter-alia, the following :

(i) Attracting external funding by involving domestic financial institutions and private sector participants at concessional rates of interest through appropriate fiscal mechanisms.

(ii) Leveraging right of way of Railways to attract investment in fibre-optic telecommunication network.

(iii) Commercial exploitation of air space above Stations for securing renovation and upgradation of terminal capacities at these locations.

(iv) Exploiting the leasing route for procurement of rolling stock, including financial as well as operating leasing mechanisms and cross-border lease arrangements to secure capital at affordable rates.

(v) Innovative financing techniques such as Deep Discount Bonds with repayments towards the end of the term of the loan.

(vi) “Sell and Lease Back” mechanisms to leverage existing fixed as well as mobile assets.

(vii) PPP ( Public Private Partnership)

6.4. Reduce dependence on expensive market borrowings to the extent feasible

7.0. Effecting cultural change in the organizational philosophy :

The objective should be to bring about a transformation from a production oriented and functional organization to a customer led organization . The following areas would need attention :

1. Differentiated approach of segmenting passengers and freight business to develop tailored products and services;

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2. Effective use of financial systems to enable accurate measurement of detailed costs to provide bench marks for measuring performance;

3. Reviewing rules and procedures taking into account customer requirements and making the interface area more responsive to the customer.

4. Launching educational campaign for the staff and officers at the cutting edge level to inculcate courtesy and customer care concepts.

5. Necessary changes in the management structure to achieve the above changes.

8.0. Railway Funds: their purpose and sources

Railway Fund Purpose Source of Finance

1. Depreciation Reserve Fund (DRF)

Cost of replace/renewal of an asset etc.

Amount contributed annually from Railway Revenue plus interest earned on fund balance.

2. Development Fund(DF)

Cost of New Works relating to passenger and other Railway user amenity and labour welfare work as well as the cost of un-remunerative work for improvement of operational efficiency costing more than Rs. 10 lakh etc.

Amount transferred/ appropriated from surplus or other wise and interest earned on fund balance.

3. Capital Fund(CF)

All Capital works financed from Railways internal resource including lease charges to IRFC.

Amount appropriated from surplus along with interest earned on the fund balance.

4. Open Line Works Revenue (OLWR)

Cost of New Works/ replacement/addition to existing other than passenger and other Railway user amenity, safety work falling within new minor works limit. Cost of New works for un-remunerative improvement of operational efficiency costing not more than Rs.10 lakh each.

OLWR is credited with amount realized from disposal of an asset without being replaced which was created from OLWR or replaced at the cost of OLWR.

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6. Safety Fund (SF)

Cost of new work considered on safety aspects.

Contribution/Budgetary support from General Exchequer as well as amount appropriated from surplus.

9.0. Information Technology areas :

Indian Railways has successfully computerized the Passenger Reservation System and the Management Information Systems ( FMIS, PMIS, MMIS, etc,). The FOIS is nearly complete. Parcel computerization is on hand.

The need for an integrated holistic approach to tap the potential of Information Technology to cut costs, improve the efficiency and effectiveness of performance is imperative. Specific areas for immediate action are arrival time management for freight as distinct from a find-and-tell approach, and the management of terminals and through yards where almost all detentions occur.

Information Technology based solutions should also enable higher line capacities being achieved without recourse to the construction of more expensive multiple lines, limiting such expenditure only to cases where there is no other alternative but to do so. Information Technology based approaches could also improve safety significantly.

10.0. Assessment of working expenses : In relation to any capital expenditure proposal, the working expenses will consist of :

i) average annual cost of operation.ii) average annual cost of repairs and maintenance of the assets.

iii) annual depreciation charges.

11.0. Technique of financial appraisal of projects .

(i) Accounting Rate of Return (ARR) Method : Rate of Return (ROR) is worked out by arriving at percentage ratio of the net gain (i.e. earnings less working expenses) over the initial anticipated investment of the project.

(ii) Pay Back Period. (PBP) Method : It lays emphasis on the calculation of the time it takes to recoup the expenditure incurred on the project. Return on the capital is not assessed.

(iii) Discounted Cash Flow (DCF) or Net Ppresent Value (NPV) Method : It considers the time value of money. The NPV of a project is the sum of the present values of the net cash flows for all the years of the project’s economic life. The net cash flows

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are discounted to arrive at the NPV of a project by applying a pre-determined discount rate. If the NPU is positive ( or zero), the project is financially acceptable.

2.0. RAILWAY BUDGET

1. Budget Statement is a statement of estimated receipts and expenditure of the Government of India for the coming year which runs from 1st April to 31st March and has to be laid before the Parliament in respect of every financial year under Article 112 of the Constitution. It is also called “Annual Financial Statement’ or “Annual Budget”.

2. Why a separate Railway Budget? As Railway finances have been separated from the General Finances of the Central Government, a separate budget is presented for the Railways. The financial relationship between the Central Government and the Railway is governed by the recommendations made from time to time by the Railway Convention Committee of the Parliament.

3. Components or Elements : The Budget Statement shows the total revenue receipts, revenue expenditure and works expenditure, distribution of excess of receipts over expenditure and position of various Funds which the Railways keep with the Central Government, viz. Depreciation Reserve Fund, Development Fund, Pension Fund, Capital Fund and Railway Safety Fund.

As a matter of practice, every budget contains three elements : (i) a review of the preceding year, including the actual receipts and expenditure in that year.(ii) an estimate of the receipts and expenditure of the coming year; and(iii) proposals, if any, for meeting the requirements of the coming year.

4. Revenue Receipts: The Revenue Receipts of the Railways consist of earnings from passenger traffic, other coaching earnings ( which include parcels and luggage), earnings from goods traffic and sundry other earnings like rent, catering receipts, interest and maintenance charges from outside bodies, commercial utilization of land and air space and commercial publicity on rolling stock and station buildings etc.

5. Miscellaneous Receipts: Miscellaneous receipts consists of the items like receipts of Railway Recruitment Boards from sale of application forms and examination fees, etc. and Government’s share of surplus profits which includes receipts from subsidized Railway companies in which the Government has no capital interest. The subsidy from General Revenues in respect of dividend payment is also accounted for in the miscellaneous receipts.

6. Total Receipts: The total of Revenue and Miscellaneous receipts makes up the total receipts of the Railways. The portion of the earnings which is due to the Railways during the financial year but has not actually been realized is held in a “Suspense” account. [ Earnings = Receipts + suspense ]

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7. Revenue Expenditure : The Revenue Expenditure consists of Ordinary Working Expenses incurred by the various Departments on the Railways in their day to day working and other miscellaneous expenditure like-the expenditure on Railway Board, Audit, Surveys and other miscellaneous establishments, payments as regulated by contracts to worked lines which are not owned by the Railways and are either worked by the Indian Railways or companies concerned.

The Revenue expenditure also includes appropriation to the Depreciation Reserve Fund, the Pension Fund and dividend paid by the Railways to the General Revenues. Appropriation to Depreciation Reserve Fund is made annually on the basis of the recommendations of the Railway Convention Committee (R.C.C.) and is intended to finance the cost of new assets replacing old assets including the cost of any improved features that such new assets may have. Appropriation to Pension Fund is to finance all pensionery payments to the retired Railway staff. Dividend is payable at the rate of 7% on the dividend paying capital of the Railways. Out of the 7% dividend, 1.5% of the Capital invested up to 31sat March, 1964 ( less Capital entitled to ‘Subsidy’) is for transfer to the State Governments in lieu of passenger fare tax to the extent of Rs. 23.12 cr. and balance for appropriation to the Railway Safety Fund.

8. Distribution of excess of receipts over revenue: The excess of receipts over expenditure remaining after discharging the dividend liability is appropriated to the Development Fund, the Safety Fund and the Capital Fund. These Funds are meant to finance part of the Plan requirements.

While the appropriations to Depreciation Reserve Fund, Development Fund, Pension Fund, Railway Safety Fund and Capital Fund are voted by the Parliament for spending on specific objects, the proposed expenditure on the specific objects is also submitted for vote of Parliament even though the moneys have already been earmarked by the Parliament for transfer to these funds.

The Development Fund is used to finance expenditure on Passenger and Other Railway Users’ Amenities Works, Staff Welfare Works, Un-remunerative operating improvements etc. The Railway Safety Fund is used for financing works relating to conversion of unmanned level crossings and for construction of ROB./RUBs at busy level crossings. This fund is financed through the Railway revenues, transfer of Funds by the Central Government from the Central Road Fund and the aforementioned part of dividend which until 2000-01 was appropriated to the Railway Safety Works Funds. Capital Fund is used for works chargeable to Capital and for making payment of principal component of the lease charges payable to Indian Railway Finance Corporation. The appropriation to Capital Fund is made only after making necessary appropriations to Development Fund and Safety Fund. In case there is no ‘Excess ‘ or not enough ‘excess’ to be transferred to Development Fund and Capital Fund, temporary loan is obtained from General Revenues to finance the expenditure to be met out of these Funds.

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9. Works Expenditure (Capital Expenditure): Works expenditure is incurred for acquisition, construction or replacement of railway assets. It is financed from capital borrowed from the General Revenues and also by internal resources viz., Capital Fund, Depreciation Reserve Fund, Development Fund, Railway Safety Fund, and Revenues. (The cost of unremunerative operating improvements and works other than passenger amenities costing below certain financial limits are charged to Revenue.) The overall annual budgetary support of the General finances of Government of India to the Railways consists of the Capital loans and the sums temporarily loaned to meet the deficiency, if any, in the Development Fund and the Capital Fund. A part of the investment in Railway assets, covered by the Railways Plans, is also made by the India Railway Finance Corporation which raises funds through market borrowing.

10. The Contingency Fund of India : All the revenue earning of the Railways are credited to the Consolidated Fund of India and expenditure is incurred from the Consolidated Fund. No amount can be withdrawn from the Fund without authorization from the Parliament.

Occasions may arise when Government may have to meet urgent unforeseen expenditure pending authorization from the Parliament. The Contingency Fund of India is an imprest placed at the disposal of the President to incur such urgent unforeseen expenditure pending authorization from the Parliament. Parliament approval for such expenditure and for the withdrawal of an equivalent amount from the Consolidated Fund is subsequently obtained and the amount spent from Contingency Fund is recouped to the Fund.

11. Demands for Grants :A ‘Demand’ presents a distinct functional activity on the Railways. The

proposals of Government in respect of sums required to meet expenditure from the consolidated Fund of India as included in the Budget Statement and required to be voted by the Lok Sabha are to be submitted in the form of “Demands for Grants” to the Parliament.

There are 16 Demands for Grants – Demands 1 to 15 dealing with Revenue Expenses, Appropriations to the Funds and Dividend payment and Demand 16 dealing with Works Expenditure. Each Demand pertaining to Working Expenses and Miscellaneous Expenditure has a two-way classification, by activity and by primary units of expenditure, the activity classification indicating for what purpose the expenditure was incurred, like track maintenance, water supply, periodical overhaul of locomotives etc. and the primary units of expenditure indicating how the expenditure was incurred, like salaries, wagons overtime, cost of materials etc. This two-way classification integrates the requirements of performance budgeting which is based on activities, and management control which is based on objects of expenditure.

The Demands for Grants are presented to the Lok Sabha along with the Budget Statement. The estimates of expenditure included in the Budget Statement are for the net expenditure as will be reflected in the accounts, that is after taking into account the

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recoveries. The estimates of expenditure included in the Demands for Grants are, however, for the gross amounts.

Demand for Works Expenditure is kept distinct from Demands for Revenue Expenditure. At the head of each Demand, the total of ‘Voted’ and ‘Charged’ expenditure in the Demand is indicated separately. This is followed by the estimates of expenditure under different heads. The aggregate amounts of recoveries taken in reduction of expenditure in the accounts are also shown. Besides, the notes briefly explain the reasons for variations between the current year’s requirements and requirements for the next year included in the various Demands.

12. Appropriation Bill

After the Demands for Grants are voted by the Lok Sabha, the Parliament’s approval to the withdrawal of the amounts from the Consolidated Fund so voted and of the amounts required to meet the expenditure charged on the Consolidated Fund is sought through the Appropriation Bill. ‘Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without such an Appropriation Act passed by the Parliament.

3.0. Preparation of Railway Budget

Budget Statement is a statement of estimated receipts and expenditure of the Government of India for the coming year which runs from 1st April to 31st March and has to be laid before the Parliament in respect of every financial year under Article 112 of the Constitution

The Railway Budget Statement shows the total revenue receipts, revenue expenditure and works expenditure, distribution of excess of receipts over expenditure and position of various Funds which the Railways keep with the Central Government, viz. Depreciation Reserve Fund, Development Fund, Pension Fund, Capital Fund and Railway Safety Fund.

As a matter of practice, every budget contains three elements : (i) a review of the preceding year, including the actual receipts and expenditure in that year.(ii) an estimate of the receipts and expenditure of the coming year; and(iii) proposals, if any, for meeting the requirements of the coming year.

Revised and budget estimation framed separately for:i) Gross Receipts.

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ii) Ordinary Working expenses.iii) Payments to worked lines.iv) Appropriation to & expenditure from Rly. fund.v) Payment to General Revenue.vi) Works expenditure.vii) Civil estimates.

Individual Railways frames the revised estimate (RE) for the current year and the budget estimate(BE) for the next year under each Demand and submit the same to Railway Board. Within the railway, the concerned spending/earning authorities frame the RE and BE. FA&CAO compiles and scrutinizes the framed estimates.

The RE and BE for revenue expenditure are prepared after taking into account the expenditure for the preceding year and comparing the expenditure during the first seven (07) months of the current year with the corresponding period of the previous year, full consideration being paid to the special features of both years, duly supported by the justification for variation. In similar way expenditure for the rest 5 months are anticipated comparing with actual of corresponding period of previous year taking care about special features if any.

Earning Budget: Estimates for coaching earnings are prepared on the basis of passenger kilometer and average fare per passenger kilometer for each class of passenger. Estimates for parcel traffic, goods traffic are made on net tonne kilometer to be carried and the average yield per NTKM for each commodity. In other cases estimation is based on past actual. Estimates should be prepared for both originating and apportioned earnings in thousand of rupees. Budget estimates are prepared for the 1 st 7 months of current year on actual basis and on expectation for the rest period of current year under various categories of passenger and goods traffic as well as for sundry earnings considering all special features which may affect the earnings in ensuing year.

The estimates of expenditure included in the Budget Statement are for the net expenditure as will be reflected in the accounts, that is after taking into account the recoveries. The estimates of expenditure included in the Demands for Grants are, however, for the gross amounts.

Demand for Works Expenditure is kept distinct from Demands for Revenue Expenditure. At the head of each Demand, the total of ‘Voted’ and ‘Charged’ expenditure in the Demand is indicated separately. This is followed by the estimates of expenditure under different heads. The aggregate amounts of recoveries taken in reduction of expenditure in the accounts are also shown. Besides, the notes briefly explain the reasons for variations between the current year’s requirements and requirements for the next year included in the various Demands.

BUDGET STATEMENT ( FORMAT)(Statement of Revenue Receipts and Expenditure)

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Particulars Actuals 2008-09

Budget2009-10

Revised2009-10

Budget2010-11

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A. Capital –at- ChargeB. Investment from Capital FundC. TOTAL: [A+ B]

1. TRAFFIC EARNINGS(a) Coaching

(i) Passenger(ii) Other Coaching

(b) Goods (c ) Sundry other earnings

2. SUSPENSE

3. GROSS TRAFFIC RECEIPTS [1+2]

4. MISCELLANEOUS RECEIPTS (a) Subsidised companies (b) Railway Recruitment Boards (c ) Other misc. receipts (d) Subsidy from General Revenues towards dividend relief & other Concessions

5. TOTAL RECEIPTS [ 3+4]

6. ORDINARY WORKING EXPENSESA-03: (Gen. Superintendence and Services) B-04: (R& M: Permanent Way & works)C-05: (R& M ( Motive Power)D-06: (R& M: Carriages & Wagons)E-07: (R& M: Plant & Equipment)F-08: (Optg.Exp.:Rolling Stock & Equipment)G-09: ( Optg. Exp.: Traffic)H-10: ( Optg. Exp.: Fuel)J-11: ( Staff Welfare & Amenities)K-12: ( Miscellaneous Working Expenses)L-13: PF, Pension & other retirement benefitsN-14 : Suspense

7. M-15: APPROPRIATION TO FUNDS (i) Appropriation to DRF(ii) Appropriation to Pension Fund

8. TOTAL WORKING EXPENSES [6+7]

9. MISCELLANEOUS EXPENDITURE

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(a) Payment to worked lines (b)Surveys (c )Other Misc. Expenditure(d)Open Line Works Revenue

10. TOTAL EXPENDITURE [8+9]

11. NET REVENUE [5 – 10]

12. PAYMENT DUE TO GEN. REVENUES (a)Dividend Payable(b)Grant in lieu of Passenger Fare Tax(c )Contribution to Rly. Safety Fund/Works(d) Payment of Deferred Dividend

13. EXESS (+) / SHORTFALL (-): [11-12]

14. OPERATING RATIO

15. Ratio of Net Revenue to Capital-at- Charge and Investment from Capital Fund

4.0. FINANCIAL CONTROLS

4.1. Exchequer Control

Exchequer control is the mechanism for concurrent review of regular cash out go by each disbursing officer against the cash content of the budget allotment i.e. against cash authorization made to each disbursing officer. The object of exchequer control is to establish a system for correct estimation of cash out go including disbursements.It is thus an important tool of budgetary control in the hands of Administration. Budget allotment covering cash out go is known as cash budget

4.2. Budgetary and Expenditure control in the Railway

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4.2.1. BUDGET: Budget acts as a important management tool for control over expenditure. The Parliament fixes through Railway Budget the spending limit within which the expenditure need be restricted by the railway administration.

4.2.2. Budgetary Reviews: Control over expenditure is also exercised by way of budgetary reviews as below:

(i) August Review Estimate: done in the month of August. The actual expenditure of last year is compared with the actual of 1 st 3 months and the budget estimate of current year. Variations (excess/savings) are worked out and explained briefly.

(ii) Revised estimate: It is prepared after taking into consideration the actual expenditure during first 7 months of current year and the corresponding period of previous year giving full consideration to the special features of both the years.

(iii) Final Modification Estimate: It provides the the last scope of budgetary review. Any modification considered necessary as a result of new factors is submitted to Railway Board in March of each year.

4.2.3. Revenue allocation Register: Expenditure is recorded in the register under various heads of accounts of Revenue expenditure classification. A monthly comparison is made of the expenditure, with budget allotment. For this purpose annual allotment is distributed among the various months taking in to account various known factors which is called proportionate budget allotment for the month. The progress of expenditure is monitored through monthly financial review between actual expenditure and proportionate budget for the month and the result of the review communicated to Executive authorities/ Budget officer for taking necessary action.

4.3. Works Register : It provides information to compare the expenditure incurred against a work with the provision made in the estimate. The executive officer should examine the information recorded in the works register monthly or at more frequent intervals and watch the progress of expenditure on each work so that any tendency towards excess over sanctioned estimate may be investigated and curbed.

4.4. Progress Report –cum-Financial Review:- It monitors the relation between achievement and expenditure. It links the progress of work with the expenditure incurred. Financial review provides a means of assessing probable variation from sanctioned estimate. Financial reviews are prepared half yearly in Form E-1519.

4.5. Periodical Management Meetings on Review of Expenditure and Earnings

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5.0. Parliamentary Financial Control Mechanism

5.1. Budget: Railway Budget is an instrument of Parliamentary Financial Control, which is secured not only by the fact that all ‘voted’ expenditure must receive Parliament’s prior approval, but also by the system of reporting back to it, through the Public Accounts Committee, the actual expenditure incurred against the Grants voted by Parliament and Appropriations sanctioned by the President.

5.2. Supplementary Budget: Parliament by way of passing Railway Budget fix the financial limit before the Railway within which Railways are empowered to incur expenditure .Additional fund ,required if any, during a financial year also requires clearance from the Parliament through passing of the Supplementary Budget.

5.3. Appropriation Accounts: After closure of Annual Accounts of Railways, Appropriation Accounts are prepared showing actual expenditure incurred on various activities of Railways vis-a vis allotments as approved by the Parliament through Railway Budget for ensuring that the money shown in the accounts as having been disbursed were legally available for and applicable to the service/purpose to which they have been applied /charged. Appropriation accounts are examined by a Parliamentary Committee ( the Public Accounts Committee).

5.4. Parliamentary Committees: Besides the above, the Parliament also exercises its control through various Parliamentary Committees like the Railway Convention Committee ( which suggests the whole working mode and methods of capital investment, rate of dividend etc.), the Estimates Committee , so on.

6.0. Few Important Terms

6.1. Budgetary Support: refers to the fund the railways receive from the General Finances of the Government of India. It consists of the Capital loans and the sums temporarily loaned to meet the deficiency, if any, in the Development Fund and the Capital Fund.

6.2. ‘Voted’ expenditure are those for which the provision of funds is subjected to the vote of the Parliament.

6.3. ‘Charged’ expenditure are those for which the provision of funds is not subjected to the vote of the Parliament. For Railways it includes sums required to satisfy

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judgments, decrees or awards of Courts or awards by Arbitrators where made into rule of Court etc.

6.4. Capital –at-charge : represents the Central Government’s investment in the Railways by way of Loan Capital and value of the assets created there from.

6.5. Suspense: Suspense is intended for the temporary booking of certain classes of transactions pending adjustments to final heads of account and to record the expenditure in the accounts of a month to which it relates irrespective of whether the same has actually been liquidated.

6.6. Railway Convention Committee : is a Parliamentary Committee which determines the financial relation of the Railways and the General Finances. It also determines the rate of dividend payable by the Railways to the General Revenues on the amount invested in Railways by the General Finances (Budgetary support )

6.7. Performance Budget :This document inter alia indicates the comparative performance of Indian Railways in respect of Revenue and Expenditure vis-à-vis the targets, alongwith the reasons for variations, the performance in respect of Works costing Rs. 5 crore and above, including transfer of funds from one work to other; target dates of completion of the Projects are also indicated. It also gives a summary appraisal of the Railways’ performance included shortfalls, if any, in respect of revenue earnings, expenditure, works performance as provided in the ongoing Five Year Plan and Annual Plan.

6.8. Outcome Budget : Outcome Budget, besides giving highlights of certain main activities undertaken on Railways during the previous and the current year, gives outlays and targets set/ achievement for Annual plan and also targets for freight and passenger traffic. Performance of Production units is also given there.

6.9. Re-appropriation :is the transfer of funds, originally assigned for expenditure on a specific object to supplement the funds sanctioned for another object.

Rules: (a) No reappropriation is permissible between Capital, Railway Funds, safety Fund and Revenue,.

(b) Railway Board is competent for the re-appropriations within the Grant to and from the following Plan Heads: (i) New Lines (construction) (ii) Gauge Conversion (iii) Electrification Projects (iv) Track Renewals (v) Staff Quarters (vi) Staff amenities (vii)Passener Amenities and other Railway Users Amenities

6.10. “Appropriation Accounts”: are the statements which are prepared for presentation to the Public Accounts Committee, comparing the amount of actual expenditure wit the amount of Grants s voted by Parliament and Appropriations sanctioned by the President. The AA are signed by both the CRB and FC(Rlys) and transmitted to Statutory Audit of Railway entrusted with the duty of reporting on these accounts.

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6.11. The Loan Account represents the loan (share) capital and the physical assets created there from.

6.12. The Block Account represents all the physical assets of the Railway whether financed from loan (share) capital or the Railways’ own internally generated funds.

6.13. Operating Ratio : = (OWE excluding Suspense+ Appropriation to Pension Fund & DRF) / ( Total Earning excluding suspense)

6.14. Working Ratio := (OWE excluding Suspense+ Appropriation to Pension Fund) / ( Total Earning excluding suspense)

6.15. Performance Efficiency Index: =(OWE excluding Suspense) / ( Originating Earning)

7.0. CLASSIFICATION OF EXPENDITURE AND EARNINGS

7.1. Classification of Revenue Expenditure

( Revenue Expenditure----Sub-major Head (Abstract/Demand)----Minor---Sub---Detailed---Primary unit)

The revenue working expenses of the Railways are classified under 13 sub-major heads with a separate Abstract for each Sub-major head. The Sub-major heads are divided into minor, sub, and detailed heads as shown in the accompanying classification. The alpha (i.e. the letter of the Abstract) corresponds to the Demand head. The minor, sub-head and detailed heads of accounts represent classification of the activity from a broad grouping into its details. On computerisation of the accounting system, the alpha of the abstract classification is substituted by a Numerical Code as follows which will be the same as for Demands for Grants.

SN Abstract Demand No.(Numerical Code)

Name of Demand

1. A 03 General Superintendence and Services2. B 04 Repairs and Maintenance of P.Way and Works.3. C 05 Repairs and Maintenance of Motive Power.4. D 06 Repairs and Maintenance of Carriages and Wagons.5. E 07 Repairs and Maintenance of Plant and Equipment6. F 08 Operating Expenses-Rolling Stock and Equipment7. G 09 Operating Expenses-Traffic

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8. H 10 Operating Expenses-Fuel.9. J 11 Staff Welfare and Amenities.10. K 12 Miscellaneous Working Expenses11. L 13 PF, Pension and other retirement benefits.12. M 14 Appropriation to Funds13. N 15 Suspense.

The classification up to the detailed head represents only the activity. The structure of the classification also incorporates a two digit code to represent the primary unit, i. e. the object of the expenditure indicating on "what" the expenditure is incurred viz., salary, allowances, wages, materials, etc. The indication of a classification of expenditure will, therefore, be complete only if the Abstract, the minor, sub or detailed heads of activity as well as the code of the object of expenditure are given, in that order. For instance, the wages of a Diesel Loco crew will be indicated as F. 212-01. Abstract( Demand)

Minor Sub Detailed Primary Unit

F (08) 200 210 212 01

Advantages: (i) easier computerization of revenue expenditure (ii) easier cost analysis ( iii) the new classification is "function" and "activity'' oriented.

7.2. Classification of Capital and other Works Expenditure

            The Works expenditure is classified under a single Demand-16 namely “Assets-Acquisition, Construction and Replacement”. The Accounting Classification for works expenditure is in the form of a 7 digit -4 module alphanumerical code.

Module Digit(s) NatureFirst 1 (alpha) the source of fund [P: Capital, Q: DRF,   R:  Revenue (OLWR),

S: DF, T: ACF]Second 2 standard Plan HeadsThird 2 the sub and detailed head of classification giving the details of the

assets acquired, constructed or replacedFourth 2 the primary unit i.e., object of the expenditure.             The Plan heads form the Minor Heads of Railway Capital under the Major Heads "546-Capital Outlay on Indian Railways-Commercial lines" and "546-Capital Outlay on Indian Railways-Strategic lines for the purpose of link with the accounts of the Central Government The minor Heads classification are as follows :

Plan Head

Particular Plan Head

Particular

11 New Lines (Construction) 41 Machinery and Plant.

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12 Purchase of new lines. 42 Workshops including Production Units13 Restoration of dismantled

lines.51 Staff Quarters.

14 Gauge conversion 52 Amenities for staff.15 Doubling. 53 (i) Passenger Amenities.

(ii) Other Railway User Amenities.16 Traffic facilities-Yard

remodelling and others.61 Investment in Government Commercial

under Takings-Road services.21 Rolling Stock. 62 Investment in Government Commercial

undertaking-Public Undertaking31 Track renewals. 64 Other specified works.32 Bridge work. 71 Stores suspense33 Signalling and

Telecommunication works.72 Manufacturing suspense.

34 Taking over of line wires from P. & T. Dept.

73 Miscellaneous Advances.

35 Electrification projects. 81 Metropolitan Transport Projects.36 Other Electrical works

            The sub and detailed heads give the break up of the expenditure on assets in its details such as Preliminary Expenses, Land, Formation, Permanent Way, Bridges, Stations and Buildings etc.

           The classification thus lends itself to computerised system being adopted for the compilation.   As the plan heads of classification coincide with the sub-heads of demands for Grants the compilation of budget is also rendered easy and direct.   The detailed explanatory notes follow the classification to facilitate the correct booking of the expenditure. 

7.3. Classification of Earnings

The earnings of Railways are classified under three Sub major Heads with a separate abstract for each Sub major Head. viz-

Abstract Subject“X” Earnings from Coaching traffic. “Y” Earnings from goods traffic“Z” Sundry other earnings.

The Sub major Heads are divided into Minor, Sub and Detailed heads as shown below- The various heads of classification will be referred to by the numbers allotted to them prefixed by the letter of the Abstract under which they occur. A few examples:

X. 110 Full fares.

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X. 141 Reservation chargesX. 710 Penalties levied for irregular travelling.Y. 300 Military trafficZ-243 The earnings from development of Railway land/air-space Z 650 Other unclassified receipts.

 7.4. Suspense: Suspense is intended for the temporary booking of certain classes of transactions pending adjustments to final heads of account and to record the expenditure in the accounts of a month to which it relates irrespective of whether the same has actually been liquidated.

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