Rail Budget 2013: Bansal's tough task to put Railways back on track

The operating ratio is the ratio of total receipts to total expenditure including appropriation to Depreciation Reserve Fund meant to replenish existing assets and Pension Fund but excluding Capital and Development Funds.

The decline in operating ratio has depleted Railways funds drastically since 2007-08, when their combined closing balance stood at an encouraging Rs 22,279 crore. One won't be surprised if the Revised Estimate for this year's opening fund balance is close to nil.

The Capital Fund supposed to be used for creating new revenue-generating assets had soared to Rs 11,072 crore in 2007-08 but remained exhausted in 2009-10. Appropriations to this Fund only marginally exceeded withdrawals in subsequent years, and this year's BE shows net allocation of Rs 5,000 crore, a impossible task given the current state of affairs. The operating ratio for this fiscal could be around 90, although 84.9 was projected in the last rail Budget.

The Railways' deplorable financial situation is evident from the fact it spends 78% of its revenue receipts for paying wages, pension and fuel bills. After paying 9% of these receipts to meet repairs and maintenance expenses (which are evidently not done up to a satisfactory level) and paying lease rentals to IRFC, the national transporter is left with virtually nothing.

The Railways has recently been brought under the service tax net and the 'dividend' it pays is nothing but the interest (6.75%) payable on the "capital at charge" (Plan expenditure), which is treated as "loan in perpetuity." Plan expenditure comprises budgetary support (Rs 24,000 crore this year) and market borrowings. There is only limited interest in public private partnership projects firmed up by the Railways. Investor interest has been seen only in port connectivity projects. This means the Railways must increase its borrowing power and for that, bolstering its balance sheet and shifting to accrual-based accounting are prerequisites.

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