Chapter 1 State of Finances

Chapter-1 State of Finances

This chapter provides a broad perspective of the finances of the Indian Railways
(IR) during 2012-13 and analyses critical changes in the major financial indicators
with reference to the previous year as well as the overall trend analysis. The base
data for this analysis is the Finance Accounts of the IR, which is a document that
is compiled annually for incorporation in the Union Government Finance
Accounts. In addition, data from authentic government reports1 has also been used
to compare actual performance of IR during 2012-13 vis-à-vis targets set by it.

1.1 Summary of Current Year’s Fiscal Transactions

Table 1.1 presents the summary of IR's fiscal transactions during 2012-13 vis-à-
vis the previous year and budget estimates for 2012-13. It broadly provides
perspective of the finances of the IR during the year 2012-13, along with its
comparison with actual of the previous year including deviations of actual receipts
and expenditure of this year from the budget estimates.
Table 1.1 Summary of Receipts and Expenditure of IR
(` in crore)
Sl. Details Actual Budget Revised Actual
No. 2011-12 Estimates Estimates 2012-13
2012-13 2012-13
1 Passenger Earnings 28,246.10 36,073.00 32,500.00 31,322.61
(9.51) (10.89)
2 Freight Earnings 69,547.59 89,339.00 85,956.00 85,262.58
(10.67) (22.60)
3 Other Coaching Earnings2 2,716.85 2,994.00 3,083.00 3,054.46
(10.00) (12.43)
4 Sundry Earnings3 3,643.00 4,096.00 4,096.00 4,261.36
(6.57) (16.97)
5 Suspense -43.19 50.00 45.00 -168.42
(524.68) (289.95)
6 Gross Traffic Receipts 4 104,110.35 132,552.00 125,680.00 123,732.59
(Item no.1 to 5) (10.13) (18.85)
7 Ordinary Working 74,537.41 84,400.00 84,400.00 84,012.04
Expenditure5 (9.39) (12.71)
8 Appropriation to
Depreciation Reserve Fund 6,520.00 9,500.00 7,000.00 6,850.00
(18.22) (5.06)
Pension Fund 17,610.00 18,500.00 20,000.00 20,710.00
(11.31) (17.60)
9 Total Working Expenditure 98,667.41 112,400.00 111,400.00 111,572.04
(Item no.7 and 8) (10.27) (13.08)
10 Net Traffic Receipts (Item 5,442.94 20,152.00 14,280.00 12,160.55
no.6 – 9) (7.54) (123.42)


1
Budget documents, Annual Statistical Statements of Indian Railways.
2
Other coaching earnings from transportation of parcels, luggage and post office mail etc
3
Sundry Earnings from renting, leasing of building, catering services, advertisements, maintenance of
sidings and level crossing, re-imbursement of loss on strategic lines etc
4
Gross Traffic Receipts-Operational receipts from freight, passenger, other coaching traffic and sundry
earnings of IR
5
Operating Expenses of IR
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Chapter1StateofFinances

11 Miscellaneous Receipts6 2,134.92 3,141.89 2,522.23 2,447.84

(-0.49) (14.66)
12 Miscellaneous Expenditure7 796.26 1,060.82 1,053.32 993.20
(-7.48) (24.73)
13 Net Miscellaneous Receipt 1,338.66 2,081.07 1,468.91 1,454.64
(Item no. 11 – 12) (4.20) (8.66)
14 Net Revenue (Item no.10 6,781.60 22,233.07 15,748.91 13,615.19
and 13) (6.86) (100.77)
15 Dividend Payable to 5,656.03 6,676.07 5,339.78 5,348.94
General Revenues-Current (14.47) (-5.43)
year
Deferred Dividend of 0.00 0.00 0.00 0.00
previous year
Total Dividend Payable in 5,656.03 6,676.07 5,339.78 5,348.94
Current year (14.47) (-5.43)
16 Net Surplus (Item no. 14 – 1,125.57 15,557.00 10,409.13 8,266.25
15) (-19.88) (634.41)
17 Surplus available for
appropriation
Development Fund 610.00 10,557.00 9,984.00 7,815.00
(-56.58) (1181.15)
Capital Fund 515.57 5,000.00 425.13 451.25
(-12.48)
Source: Explanatory Memorandum on Railway Budgets and Accounts for 2012-13 and 2013-14
Note: Figures in brackets represent the increase/decrease in percentage over previous year

1.2 Reliability of Budget Estimates

Accurate forecast of budget is critical to an organization’s financial and

operational performance. Assessment of how well the financial targets are met
depends on how realistic the financial estimates were from the outset. During the
current fiscal year IR could not achieve the projected performance. Anticipated
Gross Traffic Receipts (GTR) of 2012-13, in all the segments except for Other
Coaching earnings and Sundry earnings, was not achieved and overall decline of
6.65 per cent (` 8,819.41 crore) was recorded as compared to the Budget
Estimates of current fiscal year. Ordinary Working Expenditure (OWE) and Total
Working Expenditure (TWE) was marginally less by 0.46 per cent (` 387.96
crore) and 0.74 per cent (` 827.96 crore) as compared to the Budget Estimates.
There was a reduction in appropriation to Depreciation Reserve Fund (DRF) by
around 28 per cent with an increase in appropriation to Pension Fund by around
12 per cent when compared to Budget Estimates. The resultant net revenue was
below the budget projections by 38.76 per cent, mainly due to shortfall in
passenger earning by 13.17 per cent and additional appropriation to pension fund
(11.95 per cent) than as envisaged in the budget 2012-13.


6Miscellaneous Receipts comprise of subsidy from Government of India (GoI) towards dividend receipt
and other concession, receipts by Railway Recruitment Board etc.
7Miscellaneous Expenditure comprised of expenditure on Railway Board, Surveys, Research, Designs and
Standards Organization, Other Miscellaneous Establishments of IR, Statutory Audit, Expenditure on Open
Line Works (Revenue) etc.
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 Chapter 1 State of Finances

1.3 Fiscal Transactions in 2012-13-An overview

1.3.1 Gross Traffic Receipts (GTR)

GTR increased by 18.85 per cent during the current fiscal year (2012-13), this was
higher than the 10.13 per cent growth achieved during 2011-12, which was mainly
due to increase in freight earnings during the current year as compared to the
previous year. The growth rate for all other sources of earnings was slightly higher
as compared to previous year.

1.3.2 Ordinary Working Expenditure (OWE)

OWE increased by 12.71 per cent in current fiscal year (2012-13) over the
previous year which was higher than the growth rate of 9.39 per cent achieved
during 2011-12 as compared to 2010-11.

1.3.3 Miscellaneous Receipts and Expenditure

In the current fiscal year (2012-13), Miscellaneous Receipts as well as

Miscellaneous Expenditure increased by 14.66 per cent and 24.73 per cent
respectively over the previous year. The increase in the growth rate of
Miscellaneous Expenditure was high, Net Miscellaneous Receipts increased by
8.66 per cent over previous year. Net Miscellaneous Receipts were significantly
below the budget projection by nearly 30.10 per cent.

1.3.4 NetRevenue

Net revenue in the current fiscal year increased by 100.77 per cent, which was
significantly higher than the 6.86 per cent growth achieved during previous year.
This was mainly due to increase in Gross Traffic Receipts (18.85 per cent) during
the current year as compared to the 10.13 per cent rate for the previous year. The
increase in Total Working Expenditure (TWE) was 13.08 per cent during the
current year as compared to 10.27 per cent rate for the previous year.

1.3.5 Dividend Payment

Dividend payable to the Government of India (GoI) is based on the Capital-at-

charge advanced through general budgetary support. The rate of dividend for
2012-13 was fixed at four per cent by the Railway Convention Committee (RCC).
Payment of dividend to general revenues in the current fiscal year decreased by
5.43 per cent over the previous year 2011-12. IR paid dividend of ` 5,348.94 crore
in 2012-13. However, this was lower than the budget projection by nearly 19.88
per cent.

1.3.6 Net Surplus available for Appropriation

Generation of Net surplus after meeting all revenue liabilities including payment
of dividend increased by 634.41 per cent in current fiscal year. Net Surplus
increased to` 8,266.25 crore as compared to`1,125.57 crore in 2011-12.

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Chap
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Nett Surplus was

w 46.86 per p cent lesss than thee budget esstimates, the reason of
decrrease in thee net surpluus was due to
t decrease in Net Traaffic Receip
pt (excess of
Grooss Traffic Receipts
R ovver Total Working
W Exppenditure) aand Net Miiscellaneouss
Recceipt (excesss of Misceellaneous Receipts
R oveer Miscellanneous Expeenditure) byy
39.666 per cent and 30.10 per
p cent resppectively.
Thee Net Surpplus to the tune of `
` 7,815.00 crore andd ` 451.25
5 crore wass
appropriated too Developm
ment Fund an
nd Capital Fund
F respecctively.

1.4 Resourcees of IR

Thee main sourcces of IR receipts weree as follows:

F
Figure 1.1: Sources off Receipts


m internal reesources inccreased by 18.76 per cent duringg
Thee revenue reeceipt from
2012-13 against the Com mpound Ann nual Growthh Rate (CA AGR)8 of 9.17 per cennt
duriing 2008-122. The Geeneral Budg getary Suppport increassed by 20.5 58 per cent
duriing 2012-13 against CAGR
C of 27.99
2 per cent
c duringg 2008-12, while extraa
buddgetary receipts (markeet borrowing gs) increaseed by 2.38 pper cent duriing 2012-133
agaiinst CAGR R of 23.89 per cent during 20008-12. Thuus, Generall Budgetaryy
Suppport and innternal resoources of IR increasedd at a highher rate thaan the extraa
buddgetary receipts (markeet borrowing gs).
Shaare of each of
o these souurces of funnds during thhe current yyear 2012-13 as well ass
over the averagge of past fiive years en
nded 31 Maarch 2012 arre given in pie diagram m
in Figure
F 1.2:


8
Ratte of growth ovver a period of yyears taking into account the effect of annuaal compoundin
ng
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 Chapter 1 State of Finances

Figure 1.2: Relative Share of various Resources of IR

AverageReceipts2007Ͳ12 Other
Other revenue
Receipts2012Ͳ13
Passenger
revenue 5.76%
Passenger earnings
6.30%
earnings 18.81%
20.86% GBS
GBS 14.49%
12.76%

Diesel
Diesel cess
cess 0.66%
0.80%

Market Market Freight

borrowin Freight borrowin earnings
gs earnings gs 51.19%
8.26% 51.02% 9.09%

Note: Other Revenue Earnings include Other Coaching Earnings, Sundry Other Earnings and
Miscellaneous Receipts; GBS- General Budgetary Support

Diagram at 1.2 shows that the single largest resource earnings of IR was mainly
from freight sector, followed by passenger earnings. These two factors continued
to be the largest sources of IR receipts for the current year also. The share of
passenger earnings, diesel cess and other revenue decreased slightly whereas share
of freight earnings, market borrowings and General Budgetary Support increased
in the current year as compared to average figures of receipts during 2007-12.
1.4.1 Revenue Receipts

The trend of total revenue receipts for the last five years are given in the Figure
1.3.
Figure 1.3: Revenue Receipts during 2008-09 to 2012-13
Revenue Receipts 2008-09 to 2012-13
140000 126180.46
120000 106245.27
96681.04
100000 89229.30 85262.58
81658.98
Rs. in crore

80000 69547.59
58501.68 62844.72
53433.42
60000
28246.1 31322.61
40000 21931.32 23488.17 25792.63

20000 7239.45 8043.69 8451.58 9595.27

6294.24
0
2008Ͳ09 2009Ͳ10 2010Ͳ11 2011Ͳ12 2012Ͳ13
Year
Passenger Freight Others Total

Note: Others include Other Coaching, Sundry Others, Suspense and Miscellaneous Receipts

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Chapter1StateofFinances

Total Revenue Receipts increased at a CAGR of 9.17 per cent during 2008-12,
however, the increase in the Total Revenue Receipts during year 2012-13 was
18.76 per cent. The annual inflation of all commodities on an average during
2012-13 was around 7.4 per cent9, which implies that the real increase in revenue
receipts was 11.36 per cent (after discounting for inflation).
The trend of growth rates of different segments of revenue receipts are discussed
in the succeeding paragraphs.

1.4.1.1 Freight Earnings

Trend of freight loading and freight earnings of IR for the last five years ended 31
March 2013 are shown in the graph below:

Figure 1.4: Annual Rate of Growth of Freight Earnings and Freight Loading

Annual Growth Rate

25 22.60

20
Percentage

15 12.65
10.67
9.49
10 7.42

5
6.53
4.98 5.13
0 3.82 4.03

2008Ͳ09 2009Ͳ10 2010Ͳ11 2011Ͳ12 2012Ͳ13

Year

Growth Rate of Earnings Growth Rate of Loading

Figure 1.4 indicates a decline in the annual growth of freight loading in the current
fiscal year. The annual incremental increase in loading (in absolute terms) ranged
between 39.50 Million Tonne (2008-09) to 39.04 Million Tonne (2012-13) during
the last five years. Increase in freight loading by 4.03 per cent during 2012-13 was
less than the CAGR of 5.16 per cent achieved during 2008-12.This implies that the
growth in freight receipts has been mainly achieved through increased freight rates.
In 2012-13, freight earnings increased by 22.60 per cent over the previous year
against the CAGR of 9.18 per cent achieved during 2008-12. The status of freight
services statistics are given in the Table No. 1.2:


9 (Source –Economic Survey, Ministry of Commerce and Industry)
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 Chapter 1 Sttate of Financees

Tab
ble 1.2 Freiight Services Statisticcs

Yeaar Loaading NTKM10

N Earning Averagee lead Raate per tonne
(M
Million ( million)
(in (` in crore) ( in kiloometre) perr km
Tonnne) (in
n paise)
20008-09 833.39 551448 53,433.442 662 93.84
20009-10 887.79 600548 58,501.68 676 94.77
20110-11 921.73 625723 62,844.72 679 100.00
20111-12 969.05 667607 69,547.59 689 104.17

20112-13 1008.09 691658 85,262.58 686 123.27

(Soource-Indian Railways
R Annuaal Statistical Sttatements (Stateement No.13-G
Goods Revenue Statistics)

Duriing 2012-133, it was seeen that the annual

a growwth rate of freight loadding was 4.003
per cent,
c while the Net Toonne Kilometre (NTKM M) increaseed at the ratte of 3.60 per
p
cent. The growtth rate of Rate
R per ton nne per kiloometer and F Freight earn
ning over thhe
prevvious year was
w 18.34 per
p cent and d 22.60 per cent respecctively; eveen though thhe
average lead (avverage haull of a tonnee of freight)) declined ffrom 689 km m in 2011-112
to 6886 km in 20012-13.
Sharre of majorr commoditties in load ding and eaarnings are given in the t bar chaart
(Figuure 1.5).
F
Figure 1.5: Major Com mmodity wise
w share of loading and earning gs (2012-13)

Percenatge share
s of Frreight loadiing and Earrnings 2012
2-13
6
60
49.24
42.10

5
50

4
40
Percentage

3
30
12.06

10.50

2
20
9.38

9.08
8.82

8.19

6.61
5.68

5.53
4 99
4.99
4.86

4.70
4.58

4.07
4.03
50
3.50

1
10
1.52
0.54
3

P
Percentage off Loading Percenntage of Earniing

Coaal, being a captive

c com w the majoor componeent both in loading andd
mmodity, was
earnnings for IR
R. The aboove major commoditie
c es (excludinng ‘Other Goods’ andd

10
NTTKM-Net Tonn ne Kilometre-UUnit of measurre of freight trraffic which reepresent the trransport of one
tonnee goods (inclu uding the weigght of any packing but exccluding the weeight of the veehicle used foor
transsport)over a disstance of one kilometre
k
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 Chapter1StateofFinances

Miscellaneous earnings) contributed about 91 per cent of the total freight earnings
of IR. Iron ore for export constituted 0.54 per cent of the total loading and earned
1.52 per cent of the total freight earnings.
1.4.1.2 Passenger Earnings
Key performance indicators of passenger services are tabulated below:
Table 1.3 Passenger Services Statistics
Year No. of Passenger Earnings Average lead Average earnings
Passenger Kilometre (` in crore) (in kilometre) per passenger per
(in millions) (in million) kilometre (in
paise)
2008-09 7046.91 839203 21,931.32 119.09 26.13
(8.84) (10.52) (1.52)
2009-10 7382.77 904761 23,488.17 122.55 25.96
(7.81) (7.10) (-0.65)
2010-11 7810.15 980131 25,792.63 125.50 26.32
(8.33) (9.81) (1.39)
2011-12 8224.38 1046522 28,246.10 127.25 26.99
(6.77) (9.51) (2.55)
2012-13 8420.71 1098103 31,322.68 130.40 28.52
(4.93) (10.89) (5.67)
Note: Figures in bracket represent percentage increase over previous year.
Source-Indian Railways Annual Statistical Statements (Statement No.12- Passenger Revenue Statistics)

Despite decrease in growth rate of originating passengers it was seen that average
earnings per passenger per kilometer increased from 26.99 paise in 2011-12 to
28.52 paise in 2012-13, which was mainly due to increase in passenger tariff. IR
had been incurring a loss11 every year on passenger and other coaching services.

The growth in earnings from Passenger traffic and in Passengers Originating

during the last five year (2008-13) is shown in Figure 1.6.

Figure 1.6: Growth Rate of Passenger Originating and Passenger Earnings

Annual Growth Rate
12 10.52 10.89
9.81 9.51
10
7.82
8 7.10
Percentage

5.78
5.31
6 4.77

4 2.39
2

0
2008Ͳ09 2009Ͳ10 2010Ͳ11 2011Ͳ12 2012Ͳ13
GrowthRatePassengerEarning GrowthRatePassengerOriginating


11
As per Summary of End Results Coaching Services Profitability/Unit Costs prepared by Ministry of
Railways
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 Chapter 1 State of Finances

The percentage increase in earnings from passenger traffic in 2012-13 over the
previous year was 10.89 per cent which was above the CAGR of 8.80 per cent for
the period 2008-12. The percentage increase in passengers originating in 2012-13
over the previous year was 2.39 per cent which was below the CAGR of 5.28 per
cent during 2008-12.
Audit observed that passenger earnings fell short of budget estimates in all zonal
railways during 2012-13. The shortfall in passenger earnings targets was up to 18
per cent in Metro Railway/Kolkata and 17 per cent in North Eastern Railway.
1.4.1.3 Sundry Earnings and Other Coaching Earnings

Sundries and other coaching earnings constituted around six per cent of the Gross
Traffic Receipts in the current fiscal year (2012-13). It grew at around 15.03 per
cent in 2012-13 as against eight per cent in the year 2011-12. Analysis in audit
revealed that earnings from rent, license fee and advertisements increased in the
current year as compared to the previous year. Though there was considerable
scope for increasing revenue generation from the components of sundry earnings
provided bills for realization of rent of buildings, license fee (wherever due) were
raised and realized in a time bound manner.

1.5 Unrealized Earnings12

Against the target for recovery of ` 50 crore during 2012-13 under un-realized
earnings, IR accumulated ` 168.42 crore as unrealized earnings. The unrealized
earnings rose from ` 1,401.03 crore in 2011-12 to ` 1,569.45 crore in 2012-13.
At the end of the financial year unrealized earnings were ` 1,569.45 crore, of
which ` 1,352.29 crore under Traffic Suspense and ` 217.16 crore under Demand
Recoverable. During the current fiscal year North East Frontier Railway was the
major contributor to the accumulation of unrealized earnings with ` 75.79 crore.
This was followed by East Central Railway with ` 26.16 crore. The major portion
of outstandings under Traffic Suspense was on account of un-recovered freight
and other charges from Power Houses and State Electricity Boards amounting to
` 695.48 crore which constituted 51.43 per cent of the total Traffic Suspense, yet
to be recovered. Major defaulters are shown in the Table below:
Table 1.4-Outstanding dues against State Electricity Board
(`` in crore)
Sl. State Electricity Board/Power Outstanding Outstanding Increase/decrease
No. House dues as of 31 dues as of 31 (-) during the year
March 2012 March 2013
Punjab State Electricity Board 447.47 448.39 0.92
1.
(PSEB)
Delhi Vidyut Board (DVB) 175.88 175.88 -
2.
3. Rajasthan State Electricity
36.89 36.93 0.04
Board (RSEB)
Source-Statement of dues recoverable from State Electricity Board/Power Houses


12Unrealized earnings on account of movement of traffic was classified as ‘Traffic Suspense’ whereas on
account of rent/lease of building/land and maintenance charges of sidings etc as ‘Demand
Recoverable’.
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Chapter1StateofFinances

The Ministry of Railways needs to speed up the efforts to realize the old
outstanding dues from SEB's.
1.6 Cross-Subsidization
1.6.1 Subsidy towards Passenger and other Coaching Services

IR was unable to meet its operational cost of passenger services and other
coaching services. Revenue from passenger services increased by 43.68 per
cent13during the last five years as of 31 March 2012, however, the expenditure
under this head increased by 86 per cent during the same period.

The Summary of End Results-Freight Services Unit Costs and Coaching Services
Profitability/Unit Costs for the year 2011-12 published by the IR indicates that
there was cross subsidization from freight earnings to passenger and other
coaching earnings. Loss incurred by passenger and other coaching services
increased from ` 7,493.50 crore in 2007-08 to ` 23,643.68 crore in 2011-1214.
The gap in percentage of expenditure on passengers and other coaching services
left unrecovered during the period of five years as of 31 March 2012 are shown in
Figure 1.7.
Figure 1.7: Percentage of expenditure on Passenger and Other Coaching
Services left uncovered

Percentage of Expenses left unrecovered

42.50 41.13 41.77
45 37.78
40
35
Percentage

30 24.62
25
20
15
10
5
0
2007Ͳ08 2008Ͳ09 2009Ͳ10 2010Ͳ11 2011Ͳ12
Year

Figure 1.8 shows the percentage of profit on freight services, utilized to make up
the loss on passenger and other coaching services:


13. Excluding Narrow Gauge and Metro Railway/Kolkata (2007-08), excluding Narrow Gauge (2011-12)
14
Summary of End Results-Coaching Services-Profitability/Unit Costs for 2012-13 not compiled (May
2014)
ReportNo.19of2014 Page10
 Chapter 1 State of Finances

Figure 1.8: Percentage of profit on freight earnings used to subsidize the

passenger and other coaching services

Percentage of profit on freight services used to cover losses

on Passenger and other Coaching services
120 105.76 101.87 102.46
100 83.28
Percentage
80
60 36.95
40
20
0
2007Ͳ08 2008Ͳ09 2009Ͳ10 2010Ͳ11 2011Ͳ12
Year

It would be seen that the entire profit amounting to ` 23,076.70 crore from freight
traffic was utilized to compensate the loss of ` 23,643.68 crore on operation of
passenger and other coaching services of IR.
1.6.2 Operational losses of various Classes of Passenger Services

Table 1.5 gives the operational losses of various classes of passenger services
during 2007-08 to 2011-12:

Table 1.5 Operational losses of various Classes of Passenger Services

(` in crore)
Class of 2007-08 2008-09 2009-10 2010-11 2011-12
Passenger
services
AC-Ist class -14.77 -59.37 -53.14 -46.61
-38.78
Ist class -6.30 -69.67 -32.67 16.47
-39.13
AC sleeper 123.09 -176.91 -372.32 -407.93
-438.83
AC 3 Tier 547.60 540.57 212.14 266.31
499.33
AC Chair car 114.68 5.45 -2.11 33.62
-13.29
Sleeper Class -2,384.08 -3,175.24 -5,333.90 -6,070.58
-6531.75
Second class -993.22 -2,933.09 -3,401.25 -3,998.08
-4237.60
Ordinary (All -3,541.28 -6,381.77 -7,763.36 -7,437.00
-8893.12
Class)
EMU suburban -922.39 -1,651.19 -2,214.06 -2,320.23
-2813.95
services
Source-Summary of the End Results Coaching Services Profitability/Unit Costs

As is clear in the above table that, except AC-3-Tier, all classes of train services
have incurred losses during the year ended March 31, 2012 which means that AC-
3-Tier only has covered its operational cost in 2011-12.
The subsidy provided to both ordinary class and suburban services increased
almost continuously in the last five years with subsidy on Ordinary Class being

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Chap
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the maximum. The perceentage of lo oss15 to the earning off the variou
us classes of
passsenger servvices rangedd from 2 peer cent (AC Chair) to 2203 per cennt (Ordinaryy
classs) with 1399 per cent onn EMU Subburban trainn services.

1.7 Appplication off Resources

Thee two main componentts of expen nditure in IRR are ‘Revenue Expen nditure’ andd
‘Plaan Expenditture’. Revennue expend
diture includdes ordinaryy working expenditure
e e,
miscellaneous expendituree and dividdend payoutt. The total expenditurre of IR andd
its composition
c n under revenue and pllan for the last five yeears are giveen in Figuree
1.9.

Figure 1.9: Plan and

a Revenu
ue Expendiiture in thee last five yeears

Plan and Revenu

ue Expenditture in last five
f years 20008-09 to 2012-13
168297.63
180000
1 0180.82
150
160000
1 136068
8.86
0
128861.40
140000
1 1
114031.70 117914.18
5119.70
105
120000
1 95276.13
Rs. in crore

89228.55
100000
1 77202.20
80000 50383.45
39632.85 40792.73 061.12
450
60000 36829.50
40000
20000
0
2008Ͳ09 2009Ͳ10 2010Ͳ11 20
011Ͳ12 2012Ͳ13
Totall Revenue Exppenditure Total Plan Expenditure Total Expenditure

Durring last fivve years, thee share of revenue

r exppenditure aand plan exp
penditure too
totaal expendituure remainedd almost staatic within the
t range oof 68 per ceent to 70 perr
centt and 32 per
p cent to 30 per cen nt respectivvely. A dettailed analy
ysis of plann
expenditure is discussed inn paragraph h 1.10.
1.7..1 RevvenueExpeenditure
Commposition ofo revenue expendituree during the current yyear and an
n average of
pastt five years ended on 31 March 20
012 are giveen in Figure 1.10:


15
Looss worked out on the basis off figures of Exp
penses and Earrnings given in Summary of th
he End Resultss-
Coacching Services Profitability/Un
P Unit Costs (20111-12)
ReportNo.19of2014 Page12
2
 Chapter 1 State of Finances

Figure 1.10: Revenue Expenditure in last five years

Average Revenue Expenditure Revenue Expenditure 2012-13

2007-12
4.54%
0.83% 6.04%
0.84%
15.66%
17.56%

6.25%
5.81%
71.25%
71.22%
OWE Appr. To DRF
OWE Appr. To DRF
Appr. To PF Misc. Expdr Appr. To PF Misc. Expdr
Dividend Dividend

The main components of expenditure was OWE which constituted about 71 per
cent of the total revenue expenditure on an average during 2007-12, which
remained 71 per cent during 2012-13. Appropriation to DRF was reduced to 5.81
per cent in 2012-13 as compared to 6.25 per cent on an average during 2007-12.
Appropriation to Pension Fund increased to 17.56 per cent in 2012-13 as
compared to 15.66 per cent on an average during 2007-12 to meet the increased
pension liabilities.
OWE comprises expenditure on day-to-day maintenance and operation of the IR
i.e. expenditure on office administration, repairs and maintenance of track and
bridges, locomotives, carriage and wagons, plant and equipment, operating
expenses on crew, fuel, miscellaneous expenditure, pension liabilities etc. The
trend in OWE over the last five years is shown in Figure 1.11:
Figure: 1.11 - Growth of Ordinary Working Expenses (2008-09 to 2012-13)

GrowthofOrdinaryWorkingExpenditure
100000 84012
74537
80000 65810 68139
Rs.incrore

54349
60000
41033
40000

20000

0
2007Ͳ08 2008Ͳ09 2009Ͳ10 2010Ͳ11 2011Ͳ12 2012Ͳ13

OWE increased at a rate of 12.71 per cent during 2012-13 over the previous year
against a CAGR of 11.10 per cent during 2008-12. The main reasons for increase
ReportNo.19of2014 Page13
Chapter1StateofFinances

in OWE during 2012-13 over previous year were incurrence of more expenditure
on pensionary charges (31 per cent), fuel expenses (19 per cent) and repairs and
maintenance of rolling stock and equipments (15 per cent).
The break-up of working expenditure on IR under staff, fuel, lease charges, stores,
other and pension outgo for the last five years is shown in the Figure 1.12.
Figure: 1.12 -Component wise expenditure

Component wise expenditure

42579
45000

39114
37203

36073
40000

35000
28063

30000

22282
Rs. in crore

21021
25000

18756
17919
16704
16603

16019
14522
20000
13848
11265

15000

9812
8678
8260
7161
6052

10000

5037
4182

4002
3807
3720

3579
3523
3426

3204
2960

5000

0
2008-09 2009-10 2010-11 2011-12 2012-13
Year
Staff Pension Outgo Fuel Others Stores Lease Charges
Staff cost (including pension outgo) constituted 61 per cent of the working
expenses of the IR during the current year.
1.7.2 CommittedExpenditure

The committed expenditure of the IR consisted of dividend payment to general

revenues, staff cost, pension payments and lease hire charges on rolling stock.
Figure 1.13 shows the percentage of committed expenditure to the total revenue
expenditure of IR during the last five years 2008-13:

ReportNo.19of2014 Page14
 Chapter 1 State of Finances

Figure 1.13: Committed Expenditure as a percentage of total Revenue Expenditure

Percentage of Committed Expenditure to Total Revenue

75 70.10 Expenditure
70

Percentage
63.73 63.33 62.75
65
58.67
60
55
50
2008Ͳ09(44916) 2009Ͳ10(62553) 2010Ͳ11(60721) 2011Ͳ12(66574) 2012Ͳ13(73986)

(Figures shown in bracket indicate total committed expenditure)

Percentage of committed expenditure to total revenue expenditure was 62.75 per

cent in 2012-13. IR was left with 37.25 per cent of the total revenue expenditure
to run their operations.

1.7.3 Dividend and Subsidy

Under the ‘Separation Convention’ the IR is required to pay dividend to the general
revenues on the capital advanced by the Government of India at a rate determined
periodically by Railway Convention Committee (RCC). Further, in terms of the
recommendations of the RCC, IR is given concessions towards payment of
dividend in respect of capital invested in the larger national interest16. Dividend
paid on such capital is received back as subsidy to IR. The subsidy increased from
` 2,034.37 crore in 2011-12 to ` 2,286.14 crore in 2012-13. Thus, the net effective
rate of dividend decreased from 2.95 per cent in the 2011-12 to 2.12 per cent in
2012-13.
Figure: 1.14 Effective Rate of Dividend

Efffective Rate of Dividend

4.18
5 3.86
4
4 2.78 2.95
Percentage

3 2.12
3
2
2
1
1
0
2008Ͳ09 2009Ͳ10 2010Ͳ11 2011Ͳ12 2012Ͳ13
Year


16Strategic Lines, 28 New Lines taken up on other than financial consideration, non-strategic capital of
Northeast Frontier Railway, Un-remunerative branch lines, Ore lines, 50 per cent of work-in-progress
ReportNo.19of2014 Page15
Chapter1StateofFinances

1.7.4 Un-discharged Liability

The RCC allowed a moratorium on payment of dividend on investments in New

Lines during the period of construction and the first five years after opening of the
line for traffic. Cumulative dividend was payable when the line showed surplus
after discharging current liability. The account of dividend liability is closed after
20 years, extinguishing all such un-liquidated liability. The liability on this
account which was ` 9,246.98 crore at the close of 2011-12 increased to
`10,119.91 crore as of March 2013.

1.8 Revenue Surplus

Trend of net revenue surplus after meeting all revenue expenditure including
payment of dividend, during the last five years as on 31 March 2013 are shown in
the Figure 1.15.
Figure: 1.15 Revenue Surplus

Net Revenue Surplus 2007-08 to 2012-13

15000 13431.09
Rs. in crore

10000 8266.25

4456.78
5000
1404.89 1125.57
0.75
0
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

The net surplus which declined to `1,125.57 crore in 2011-12 increased to

` 8,266.25 crore during 2012-13. Despite this, there was a shortfall of ` 7,290.75
crore in the net surplus as envisaged in the budget estimate of 2012-13. The
increased revenue surplus was mainly due to increase in passenger and freight
earnings.

1.9 EfficiencyIndices

The financial performance and efficiency in operations of an enterprise can best

be measured from its financial and performance ratios. The relevant ratios in this
regard for IR were ‘Operating Ratio’, ‘Capital-Output Ratio’ and ‘Staff
Productivity’, which are discussed below:

1.9.1 OperatingRatio

Operating ratio represents the percentage of working expenses to traffic earnings.

The operating ratio which was 94.85 per cent in 2011-12, improved to 90.19 per
cent in 2012-13 for IR. This was primarily due to increase in growth rate of total
earnings (excluding suspense) (18.96 per cent) than the growth rate of working
expenses (excluding suspense) (13.11 per cent) during 2012-13 over the previous

ReportNo.19of2014 Page16
 Chapter 1 State of Finances

year. Operating ratio of zonal railways during the last three years ended on 31
March 2013 are shown in the Table 1.6.

Table 1.6 Operating Ratio of Zonal Railways

Sr. No. Zonal Railway 2010-11 2011-12

2012-13
1 Central 107.31 105.68 97.82
2 Eastern 178.52 182.1 178.86
3 East Central 109.06 103.58 92.19
4 East Coast 42.82 44.68 44.50
5 Northern 112.2 121 113.15
6 North Central 63.12 61.8 59.68
7 North Eastern 201.78 202.06 200.01
8 Northeast Frontier 167.25 166.4 178.39
9 North Western 106.41 99.99 88.97
10 Southern 135.55 122.58 130.59
11 South Central 85.76 85.9 79.63
12 South Eastern 66.98 72.74 70.50
13 South East Central 58.01 55.24 49.14
14 South Western 98.69 109.01 104.85
15 Western 97.96 94.61 89.84
16 West Central 74.93 70.13 68.18
17 Metro Railway/Kolkata 226.35 310.89 328.26

Overall IR 94.59 94.85 90.19

Source-Indian Railways Appropriation Accounts –Part-I Review

There were noticeable improvement in the Operating Ratio of East Central, North
Western, Central and Northern Railways whereas the same deteriorated noticeably
in North East Frontier, Southern and Metro Railway/Kolkata during the current
year compared to the previous year. Operating Ratio of Eastern, Northern, North
Eastern, Northeast Frontier, Southern, South Western Railways and Metro
Railway/Kolkata was more than 100 per cent during 2012-13, implying that their
working expenditure was more than their traffic earnings.
1.9.2 Capital-Output Ratio

Capital Output Ratio indicates the amount of capital employed to produce one unit
of output (Total Traffic in NTKMs could be seen as the output in the case of IR).
The Table 1.7 shows the Capital-output ratio for total traffic (in NTKMs), carried
by the IR during the last five years ended on 31 March 2013:

ReportNo.19of2014 Page17
Chapter1StateofFinances

Table 1.7 Capital Output Ratio of IR (2008-13)

As on Total Capital Goods Passenger Traffic Total Capital at
including Traffic Traffic (in charge (in
investment (NTKMS) Passenger Million Million Paise) per
from Capital (in Kilometres NTKMs NTKMs) NTKM
Fund (` in million) (in
Million) millions)
31-Mar-09 1,043,012 552,002 838,032 59,500 611,502 171
31-Mar-10 1,230,007 601,290 903,463 64,146 665,436 185
31-Mar-11 1,432,205 626,473 978,508 69,474 695,947 206
31-Mar-12 1,614,480 667,607 1,046,522 74,303 741,910 218
31-Mar-13
1,834,880 691,658 1,098,103 77,965 769,623 238
Source-Indian Railways Annual Statistical Statements

Capital Output ratio had increased from 171 paise (2008-09) to 238 paise (2012-
13) indicating decrease in physical performance of the IR as compared to capital
employed. Higher cost overruns due to non-completion of projects in time
coupled with investment in financially unviable projects contributed to higher
Capital Output ratio.
1.9.3 Staff Productivity
Staff productivity17 in case of IR is measured in terms of volume of traffic handled
in terms of NTKM in Million per thousand employees, increased by over 34 per
cent during the period 2008-09 (472) to 2012-13 (632) of Open Line staff.
The improvement in staff productivity over the last five years was a result of two
distinct factors:
¾ Increase in freight carried in terms of tonnage and passenger originating in
relation to total distances carried/travelled.
¾ Decline in workforce of Open Line staff from 12.96 lakh (2008-09) to12.18
lakh (2012-13).
Zone wise analysis of staff productivity revealed that during 2012-13, highest
Staff Productivity of 1612.44 Million NTKM per thousand employees was
achieved by North Central Railway whereas Staff Productivity of 206.06 Million
NTKM per thousand employees of Eastern Railway was the lowest during the
same period.
1.10 PlanExpenditure

IR plays a crucial role in augmenting infrastructure for sustainable economic

growth. To keep pace with the transport sector in general and to respond to the
pressures of a buoyant economy, it is essential that its plan resources are used
effectively. Creation of new assets, timely replacement and renewal of depleted
assets which had outlived its usage, augmentation of network capacity were the
activities carried out by the IR through their plan expenditure. IR's plan
expenditure was financed from the general exchequer extended as general
budgetary support, internal resources 18 and extra budgetary support i.e. market

17
Annual Statistical Statements of Indian Railways
18 Reserve Funds such as Depreciation Reserve Fund, Capital Fund, Development Fund
ReportNo.19of2014 Page18
 Chapter 1 State of Finances

borrowing through Indian Railway Finance Corporation (IRFC) for rolling stock
and new network links by Rail Vikas Nigam Limited (RVNL).
The Table 1.8 gives the sources of funds for the plan expenditure during 11th Five
Year Plan period (2007-08 to 2011-12) and 1st year of the 12th Five year Plan
period (2012-13 to 2016-17):
Table 1.8 Sources of Plan Expenditure

(` in crore)
Source of Plan Expenditure 10th FYP 11th FYP 12th FYP
2011-12
(2002-03 to (2007-08 to 2012-13
2006-07) 2011-12)
Actual Actual Actual Budget Actual
Estimates
General Budgetary Support 19 37,516.06 77,316.28 21,336.80 26,000 25,710.21
(% age to the total) (44.88) (40.46) (47.35) (43.26) (51.03)

Internal Resources (% age to 29,567.99 66,546.08 8,933.73 18,050 9,531.31

the total) (35.37) (34.82) (19.83) (30.03) (18.92)

Extra Budgetary Resources (% 16,502.15 47,238.94 14,790.59 16,050 15,141.93

age to the total) (19.75) (24.72) (32.82) (26.71) (30.05)

Total 83,586.20 1,91,101.30 45,061.12 60,100 50,383.45

Note: Figures in brackets represent percentage to the total plan expenditure
Source-Explanatory Memorandum on Railway Budgets and Appropriation Accounts

Due to non-availability of sufficient internal resources, the dependency of Plan

Expenditure on General Budgetary Support increased substantially in 2012-13.
The share of General Budgetary Support to the total plan expenditure increased
from 47.35 per cent in 2011-12 to 51.03 per cent in 2012-13. Share of Extra
Budgetary Resources (market borrowings) reduced from 32.82 per cent in 2011-
12 per cent to 30.05 per cent in current year. During 2012-13, Ministry of
Railways obtained extra budgetary support of ` 15,141.93 crore from IRFC for
rolling stock and new network links etc. For this purpose, IRFC issued Tax free
and Taxable bonds of ` 8,016 crore. The fund arranged by IRFC through bonds
was utilized on rolling stock etc.
Plan expenditure is broadly categorized under various Plan Heads. Table 1.9
gives the share of expenditure grouped under various categories of Plan Heads
during the 10th FYP Period, 11th FYP period and during 2012-13:


19Includes expenditure from RSF
ReportNo.19of2014 Page19
 Chapter1StateofFinances

Table 1.9 Category-wise Plan Expenditure

(` in crore)

Plan Heads 10th FYP (2002- 11th FYP (2007- 2011-12 2012-13
03 to 2006-07) 08 to 2011-12)
New Lines, Gauge Conversion, 42,391.07 73,276.21 13,839.34 16,721.19
Doubling, Traffic Facilities, Track
Renewal, Bridge Work, S & T (50.72) (38.34) (30.71) (33.19)

Rolling Stock and Payment of 26,556.21 76,686.36 21,679.67 22,403.29

Capital Component of Lease charges (44.47)
(31.77) (40.13) (48.11)
Workshop and Production Units and 1,962.67 6,762.29 1,613.57 1,917.00
Plant & Machinery (2.35) (3.54) (3.58) (3.80)
Investments in Government 3,372.74
2,886.59 10,108.19 2,599.88
Undertaking
(3.45) (5.29) (5.77) (6.69)
Others 9,789.66 24,268.25 5,328.66 5,969.23

(11.71) (12.70) (11.83) (11.85)

Total 50,383.45
83,586.20 1,91,101.30 45,061.12

Source – Indian Railways Appropriation Accounts-Grant No.16 and Statement No.10-Statement

of Expenditure on Capital Account.

Note: 1 Figures in brackets represent percentage to the total plan expenditure.

Note : 2 Others include Road Safety Works, Electrification Projects, Computerization, other
Electric Works, Railway Research, Other Specified Works, Stores Suspense,
Manufacturing Suspense and Miscellaneous Advance, Staff Quarters, Passenger
Amenities, Metropolitan Projects.
Note: 3 Since IRFC, WIS and RVNL are also contributing to Plan Expenditure (i.e. Extra Budgetary
Resources), these were also included under Plan heads Rolling Stock – (` 16,052.25 crore for 10th
–FYP, ` 46,127.94 crore for 11th FYP and ` 15,034.03 crore in 2012-13) and Investment – (` 450
crore in 10th – FYP, ` 1,111 crore for 11th – FYP and ` 107.90 crore in 2012-13

The Table 1.9 shows that the share of Plan Expenditure on track related works
(Construction of New Lines, Doubling, Gauge Conversion, Yard Remodelling and
Traffic Facilities, Bridge Works and Signal and Telecommunication Works)
declined from 51 per cent during the 10th Five Year Plan to 38 per cent during 11th
Five Year Plan whereas the share of Plan Expenditure on Rolling Stock and
Payment of Capital Component of Lease charges increased from 32 per cent
during the 10th Five Year Plan to 40 per cent during 11th Five Year Plan.

During 2012-13, the share of plan expenditure on track related works increased to
33.19 per cent from previous year’s share of 30.71 per cent.

ReportNo.19of2014 Page20
 Chapter 1 State of Finances

1.11 Railway Funds

Table 1.10 Status of Railway Funds

Fund Description
The appropriation to this fund is met out of the revenues earned by
Depreciation Reserve
IR. This is meant for replacement and renewal of over-aged assets.
Fund
This fund receives interest at the rate of dividend payable to general
revenues. The fund closed at ` 9.80 crore at the end of 2012-13 by
expending less amount (`7,045.47 crore) on replacement and
renewal of assets than appropriated to the fund (`7,050 crore). The
Appropriation to DRF was made less than Budgeted provision by
27.32 per cent.

Pension Fund The opening balance in this fund account as on 1 April 2012 was
` 6.52 crore. Appropriation to this fund is also met out of the
revenues earned by IR. The fund receives interest at the rate of
dividend payable to general revenues. Appropriation to the fund
during 2012-13 was slightly less than the withdrawals. The
available balance under the fund at the close of the year was ` 5.42
crore as on 31 March 2013.

Development Fund Due to continuous decrease in revenue surplus after 2007-08, there
was a substantial decline in net balances under the fund at the end
of each year. The fund account as on April 1, 2012 stood at ` 4.73
crore. In 2012-13, the Revenue surplus to the tune of ` 7,815 crore
was appropriated to it. The fund closed at ` 2,332.61 crore due to
the following reasons:-
1. The capital expenditure amounting to ` 2,457.82 crore was
incurred out of this fund during 2012-13.
2. Repayment of loan taken from Government of India
amounting to ` 3,000 crore and interest of ` 117.56 crore
was made during 2012-13 out of this fund.
Capital Fund The opening balance in this fund account as on April 1, 2012 was
` (-) 401.53 crore. Ministry of Railways had to pay interest
amounting to ` 7.04 crore in 2012-13 due to negative balance.
Against the budget estimate of ` 5,000 crore, only ` 451.25 crore
was appropriated to this fund in 2012-13. No expenditure was
incurred from this fund during the year. The fund closed at ` 42.68
crore as on 31 March 2013.

Railway Safety Fund The opening balance in this fund account as on April 1, 2012 was
` 2,156.15 crore. An amount of ` 1,578.32 crore was utilized in
2012-13 as against an amount of ` 1,105.06 credited to it. The fund
account closed at ` 1,682.90 crore at the end of 2012-13.

Source – Indian Railways Appropriation Accounts-Part-II-Detailed Appropriation Accounts

ReportNo.19of2014 Page21
Chapter1StateofFinances

The funds20 shown in Table No. 1.10 were either financed through revenues or
surplus except Railway Safety Fund, which received a share of the Diesel Cess.
The Development Fund and Capital Fund, are funded from the ‘Surplus’ available
after payment of dividend. They closed with balances of ` 2,332.61 crore and
` 42.68 crore respectively.
Figure 1.16- Fund Balances at the close of the years (2008-09 to 2012-13)

Fund Balances

6179.05
7000

6000

5000
3335.98

4000

2582.20
2438.20
2332.61

2316.08

2417.34
2298.78

2156.15
Rs. in crore

3000

1682.90
1524.79

2000

1000

42.68
18.90

9.80

6.52
4.98

5.04

5.42

5.41

4.73
1.24
5.33

0
DRF PF DF CF RSF

-401.53
-1000
-885.71
-1213.34

-2000

Year
2008-09 2009-10 2010-11 2011-12 2012-13

Source-Indian Railways Appropriation Accounts Part-II-Detailed Appropriation Accounts

Analysis by Audit of the fund balances available in Capital Fund and Depreciation
Reserve Fund revealed the following:
1. Indian Railways borrow money through the Indian Railway Finance
Corporation (IRFC) for acquiring rolling stock by the financial lease route.
These lease payment have two components, viz principal components and
interest. Prior to 2005-06, these payments were fully met through the
Ordinary Working Expenses (Revenue Grant No.9). However, from the
year 2005-06 the Accounting policy in respect of accountal of lease
charges payable to IRFC was modified. As per new accounting system,

20Till 2007-08, IR also operated Special Railway Safety Fund which was created in 2001-02 to wipe out
the arrears in renewal/replacement. The fund was closed at the end of 2007-08 and balance remained
in the fund was transferred to Depreciation Reserve Fund.
ReportNo.19of2014 Page22
 Chapter 1 State of Finances

Capital component was to be charged to Capital Fund (Grant No. 16) and
interest component was to be charged to Revenue Grant No. 9. It was
observed that during 2012-13 a budget provision of ` 4,230 crore was
made under Capital Fund (railways own resources) for ‘Payment of
principal component of lease charges to IRFC’. However, due to less
appropriation to Capital Fund (` 451.25 crore) against the Budget Estimate
(` 5,000 crore), the Ministry of Railways could not pay principal
component of lease charges amounting to ` 4,204.29 crore from Capital
Fund. Consequently, Ministry of Railways had to make payment of this
amount from ‘Capital 21 ’ by re-appropriation of funds from other plan
heads without obtaining any supplementary grant. This re-appropriation
was irregular and has been commented upon in Para No. 2.6.2-‘Re-
appropriation within Grant No. 16’ of Chapter 2. Besides, the payment of
capital component of lease charges from ‘Capital’ made by the Ministry of
Railways during 2012-13 was in violation of the accounting policy
followed by IR. A similar payment of `3,454.33 crore was made in 2011-
12.
Further this arrangement of repayment to IRFC from the Capital has
resulted in depriving the Railways of the additional investments that could
have been made on other capital works. It also made the borrowing from
IRFC more expensive as dividend is required to be paid to Government of
India on any expenditure incurred from Capital. In this case ` 168.17 crore
has been paid as dividend.
2. It is seen that the contribution to Depreciation Reserve Fund (DRF) was
not made on the basis of historical cost, expected useful life and expected
residual life of the asset but was dependent on the amount which the
working expenses could bear. During 2012-13, an amount of ` 7,050 crore
was appropriated to DRF against the Budget Estimate of ` 9,700 crore.
Ministry of Railways in its reply to Action Taken Note on Para 3.4.1 of
Report No.33 of 2010-11 (Railways Finances) had stated that the ‘throw
forward value of assets to be replaced’ during 2011-12 and 2012-13 was `
49,158 crore and ` 46,907 crore respectively. Audit observed that against
throw forward value of ` 46,907 crore, the Ministry of Railways had spent
` 7,045.47 crore (15.02 per cent of the throw forward value) on
replacement of the assets, from DRF during 2012-13. Thus, there is huge
backlog of renewal and replacement of overaged assets in railway system
which needs to be replaced timely for safe running of trains.
The annual contribution to DRF is distributed zone-wise in proportion to
the Block Account (value of assets held) of each zonal railway. This
apportionment is charged to the working expenses of the zone. It was seen
that at the zonal level there was no relation between the amount
appropriated to DRF and amount expended on replacement and renewal of
the assets. There was negative balance at the end of 2012-13 in respect of
Central, Eastern, North Eastern, North Western, South Central, South

21
Capital represents the amount advanced by the Government of India to Ministry of Railways to finance
Capital Expenditure and Ministry of Railways pays dividend thereon at the rate fixed by the Railway
Convention Committee
ReportNo.19of2014 Page23
Chapter1StateofFinances

Eastern, South East Central, South Western, Western, West Central

Railways, Integral Coach Factory (ICF), Central Organization for Railway
Electrification (CORE) and MTP/Chennai.
The balance available in the funds increased from ` 1,770.91 crore in
2011-12 to ` 4,073.41 crore at the end of the year 2012-13. However, it
was seen that the fund balances had declined from ` 15,654.68 crore in
2008-09 to ` 4,073.41 crore in 2012-13. Depreciation Reserve Fund and
Capital Fund closed with balance of ` 9.80 crore and ` 42.68 crore
respectively. Even the fund balance of ` 4,073.41 crore at the end of the
year 2012-13 has been achieved by not making payment of capital
component of lease charges to IRFC 22 amounting to ` 7,658.62 crore
during the period 2011-13, from Capital Fund. Further, contribution to
Depreciation Reserve Fund was not made as per requirement.

1.12 Comments on Accounts 

Persistent deficiencies not addressed though pointed out in audit

¾ Non-accountal of bonus shares

M/s Rail India Technical and Economic Services Limited (RITES Ltd) and
M/s Indian Railway Construction Company Limited (IRCON) issued Bonus
Shares of ` 60 crore and ` 9.87 crore respectively to the Ministry of Railways
(MoR) during the year 2012-13. Receipt of these bonus shares is mentioned in
Statement No.11-Statement showing Investment made in the Public Sector
Undertakings (PSUs) under the administrative control of Ministry of Railways
for the year 2012-13. However, these bonus shares are not shown in Statement
No.8-Detailed account of Revenue Receipts and Capital Receipts and
Statement No. 10-Statement of expenditure on Capital Account for 2012-13.
This non-accountal/non-inclusion of bonus shares was taken up with MoR
(December 2013). However, no reply was received from MoR. Audit
observations on non-accountal of bonus shares issued by the PSUs namely
IRCON, RITES and Container Corporation of India (CONCOR) was also
highlighted in Para 3.4.1 of the Audit Report No.3 of 2012-13-Union
Government-Railways (Railways Finances). However, no specific reply on
non-accountal of bonus shares in the accounts was given in the Action Taken
Note.
¾ Incorrect exhibition of Special Railway Safety Fund (SRSF)
The SRSF ceased to exist w.e.f 1 April 2008. However, Zonal Railways
(Eastern, North Eastern, Southern, South Central, South Eastern, South East
Central, West Central) are still showing this fund in their accounts (Balance
Sheet and Debt Head Report). The matter was taken up with the MoR
regularly during 2009-10 to 2012-13. MoR had issued instructions to the
Zonal Railways to take corrective action. However, the irregularity still


22
Payment of Principal component of lease charges to IRFC is being paid from Capital Fund from 2005-
06 onwards
ReportNo.19of2014 Page24
 Chapter 1 State of Finances

continues and thus, the accounts do not exhibit the true and fair view of state
of affairs of the Zonal Railways.
¾ Incorrect accountal of fee
Fee collected by railway administration under Right to Information (RTI) Act, 2005
is being credited as Railway’s Earnings under Major head 1002-Sundry Earnings
(Abstract Z-650) instead of crediting it under Major Head 0070-Administrative
Services-Sub-Major Head: 60-Other Services-Minor Head: 118-Receipts under RTI
Act, 2005. The matter of incorrect crediting of RTI fee in Railways earnings was
taken up with the MoR in March 2012 and July 2013. The MoR in its reply stated
(July 2013) that the matter has been referred to Controller General of Accounts in
April 2012 and again in July 2013. However, no further reply has been received from
MoR. In the meantime the irregular practice is being continued.
Other important deficiency
¾ Incorrect accountal of fee
Fee collected by Railway Claim Tribunal (RCT) is being treated as
commercial earnings and credited under Major Head-1002-Indian Railways
Earnings-Commercial by the Zonal Railways (ECR, ECoR, WCR and NWR).
However, other Zonal Railways are correctly crediting it under Major Head-
1001-Miscellaneous Receipts.
¾ Public Funds lying outside government accounts
As per Rule 16 (3) of the Rail Land Development Authority (Constitution)
Rules 2007, the Authority shall maintain a separate account to which all
earnings including royalties, concession fees and profits out of Authority’s
projects shall be credited and thereafter they shall be passed in full, on to the
Central Government. Scrutiny of Annual Accounts of Rail Land Development
Authority (RLDA) for 2012-13 revealed that an amount of ` 349.70 crore
towards upfront lease charges, interest earned on Term Deposits etc was
credited to separate account-Fund transferrable to Ministry of Railways but
not transferred to Ministry of Railways in full. Thus, due to non-transferring
of the earnings by the RLDA to Ministry of Railways, sundry earnings of the
Ministry of Railways was understated by ` 349.70 crore during 2012-13.
Audit scrutiny of the Annual Accounts of RLDA for 2012-13 further revealed
that an amount of ` 48.79 crore towards forfeited sums and interests thereon
is also lying with the RLDA and not transferred to the Ministry of Railways.
RLDA in its reply stated that as no land is leased out in these cases, it is not
clear to which railway/head of account this earning is to be transferred. They
had also stated that a proposal for considering such sums to be retained by
RLDA has been sent to the Ministry of Railways; no reply has been received
from the Ministry of Railways in this regard.

1.13 Conclusions 

During 2012-13, Total Working Expenditure decreased by 0.74 per cent (` 827.96
crore) as compared to budget projections. Gross Traffic Receipt and Net Surplus
increased by 18.85 per cent and 634.41 per cent respectively over the previous
year thereby showing an improvement in the performance of IR. However, Gross

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Traffic Receipt and Net Surplus were still below the budget projections by 6.65
per centand 46.86 per cent respectively.

IR has not been able to meet their operational cost of passenger and other
coaching services. There was significant cross-subsidization from freight services
to passenger services. IR earned profit of ` 23,076.70 crore from freight traffic on
one hand and incurred loss of ` 23,643.68 crore on operation of passenger and
other coaching services on the other hand during 2011-12.
At the end of the year 2012-13, railway funds closed with balance of ` 4,073.41
crore. The fund balances improved by ` 2,302.50 crore over the previous year
balance of ` 1,770.91 crore. Development Fund closed at ` 2,332.61 crore and the
Capital Fund at a meager balance of ` 42.68 crore. A positive balance in the
Capital Fund was due to payment of ` 3,454.33 crore and ` 4,204.29 crore in
2011-12 and 2012-13 respectively as repayment of principal component of lease
charges to IRFC from Capital advanced by the Government of India as General
Budgetary support. This was in violation of their accounting policy.
Ministry of Railways had spent ` 7,045.47 crore on replacement of the assets
against throw forward value of ` 46,907 crore from DRF during 2012-13. Thus,
there is huge backlog of renewal and replacement of overaged assets in railway
system which needs to be replaced timely for safe running of trains.
The operating ratio improved from 94.85 per cent in 2011-12 to 90.19 per cent in
2012-13. However, the Capital Output ratio (amount of Capital employed to
produce one unit of output i.e. Capital at charge per Net Tonne Kilometre) also
increased from 218 paise in 2011-12 to 238 paise in 2012-13 indicating decrease
in the physical performance of the IR.

1.14 Recommendations
¾ Non-availability of sufficient funds in Depreciation Reserve Fund to
replace the overaged assets and, in Capital Fund to meet its liability of
payment towards principal component of lease charges to Indian Railway
Finance Corporation are indicative of poor financial health of IR. IR
should explore ways and means to improve their fund balances.
¾ Instances of non-accountal of bonus shares, public funds lying outside
government accounts, payment of capital component of lease charges to
Indian Railway Finance Corporation from Capital advanced by the
Government of India’s general budgetary support are indicative of poor
accounting practices. IR should strictly follow the accounting principles
and maintain financial discipline.

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