Behind Lalu’s ‘surplus’ claim: A shift in accounting policy

NEW DELHI, SEPTEMBER 13: Railway Minister Lalu Prasad’s proud declaration, made while presenting the Railway Budget this February, that Indian Railways (IR) would generate a cash surplus before dividend of Rs 20,000 crore in 2006-07 has turned out to be inflated. An investigation by The Indian Express has revealed that the IR ‘earned’ Rs 2,690 crore — or 13.3 per cent of the declared surplus (Rs 20,153.49 crore) — not by transporting more people or goods, but by changing its accounting procedures.

Replying to a right to information (RTI) application made by The Indian Express, the Railway Ministry has conceded that three accounting policy changes made by IR increased its surplus by Rs 2,689.97 crore in 2006-07. Excluding this amount, the 2006-07 cash surplus would fall to Rs 17,463.5 crore — a smaller increase over the 2005-06 figure of Rs 14,700 crore.

While two of these changes got a line in Lalu’s Budget speech, the third — the biggest contributor to the Rs 2,689.97 crore swell — didn’t even get a mention. Railway Board financial commissioner Sudha Chobe did not respond to an appointment request or a questionnaire sent by us on the accounting changes relating to three entries:-

Lease charges payable to IRFC (Rs 1,720.12 crore): IR leases rolling stock from Indian Railways Finance Corporation (IRFC) and pays lease charges. Earlier, IR used to book this amount to its working expenses. From 2005-06, though, it started booking the capital component of lease charges as capital expenditure sourced through a Capital Fund. Simply put, as an asset, rather than an expense.

The Comptroller and Auditor General (CAG) of India hasn’t agreed to this change. In its 2005-06 report, its latest, CAG said, “The charging of the capital component to revenue was not in order.” Further, CAG noted, “Railways needed to appropriate funds to the Capital Fund, from which the capital portion of the lease charges are finally paid, from the surplus available with them.” According to the report, the Railways is now considering doing that.

Interest on IR fund balances (Rs 660.85 crore): The Finance Ministry pays interest on the closing balance of various IR funds (Depreciation Reserve Fund, Pension Fund, Development Fund and Capital Fund). Earlier, this interest was adjusted to IR funds through the year-end proforma adjustment with the Finance Ministry.

From 2006-07, IR decided to first credit the interest income accruing on its fund balances to ‘miscellaneous receipts’ and subsequently debit an equal amount to the same funds. CAG hasn’t agreed to this change either. “If the interest amount is received under miscellaneous receipts, the surplus would be enhanced artificially,” says a CAG letter to IR.

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