Dinesh Trivedi, Former Rail Minister, said: "If you don‘t have a separate Budget for railways the importance for railways goes away. You don‘t need a railway minister, merge it with surface transport."
Speaking to CNBC-TV18 Sachin Bhanushali of Gateway Rail Freight, said that the merger of Union is a welcome step, adding it should have happened a long time ago. Railways being a commercial organisation, it does need freedom. That said, merging will eliminate preparing separate finances, he said. Railways was paying a dividend to the Union government, and from hereon it won’t have to bear the strain.
The dividend which the railways has been paying the Centre will be done away with after this merger, he said. A new way of accounting will set in as far as zonal railways are concerned.
However, RN Malhotra of the Railway Board said he remembered reading in some news reports that the railways will keep paying the Centre dividends. He was also not sure whether commercial accounting will be introduced in railways.
Bibek Debroy, Member, NITI Aayog highlighted three areas of concerns: 1) What will be done to dividends which are linked to the loan extended to railways 2) the windows that railways have for borrowing 3) accounting principle that will be borrowed.
Dinesh Trivedi, Former Rail Minister, said: "If you don’t have a separate Budget for railways the importance for railways goes away. You don’t need a railway minister, merge it with surface transport."
Below is verbatim transcript of the interview:
Nigel: What is your first reaction? We are no longer going to have a separate day of a Railway Budget and then a separate day of Budget, both are going to be merged your first reactions?
Bhanushali: I think it is a welcome step because of legacy issues that we have had two separate Budgets; one for general as well as one for the railways. Railway being a commercial organisation does need some amount of freedom in terms of controlling as it is done in government expenditure always. However, merging would eliminate both separations of finances of both the organisation. I mean Railway and the rest of Government of India will also be able to bring in some amount of subsidy which is given on account of social reasons of providing transportation to the passengers, I think will also be taken care of.
Then there was an artificial way of payment of dividend which was over a period of time resulting into strain on the finances of railways. I am sure that also will be taken care of in this. Over a period of time, if I remember correctly, the honourable minister of railways has mentioned that railways must move on to a commercial way of accounting. So, it will be possible to do that under the railway board and railway board will be able to focus primarily on the policy matter.
So, I think it is a move in the right direction. This is something which should have happened actually quite long back. I was expecting this to happen a couple of decades ago. However, good at least it has come in now.
Reema: What you are trying to say is that railways could now get the subsidy under the social sector schemes now that it could be merged with the Union Budget and even the dividend which is paid becomes easier, right, these are the two benefits?
Bhanushali: The dividend will probably be done away with completely. At present the government accounting is always on a cash basis; it is never done on the basis of accrual whereas any commercial organisation should do it accounting on the basis of accrual. So, I am sure the new way of accounting will set in as far as the zonal railways are concerned, which are the operating units of Indian Railway, 16 units which are there, they will be able to maintain their accounts on commercial principles and the consolidated Budget then can be merged with the main Budget. There won’t be a dividend coming in and a subsidy going out. There will be only net a transaction which will take place.
Latha: How do you see this merger of the two budgets? It was long awaited, but does this crimp the railway’s independent decision making in any way?
Malhotra: First I would like to comment on a couple of statements which have been made just now that is whether the dividend will be done away with because I saw a news report a few days back which said that dividend will be kept on being paid by railways as has been done till now.
As far as commercial accounting is concerned, once the Railway Ministry becomes in the whole government, just like any other ministry, none of the other ministries have got a commercial accounting. I do not know how commercial accounting will be introduced by the railway.
Latha: Now that the Budgets have merged, what would be the impact on the railways you think?
Debroy: That is more like a trigger because there are certain other things that need to be ironed out - a) there are structural reforms that the railways need to introduce which are independent of this decision and b) so far as this particular decision is concerned, there are details of those decisions which are not yet in the public domain. They need to be ironed out in terms of the relationships between the Union Government as represented by the finance ministry and the railways. Primarily, the most important ones would be a] what is done to the dividends which is linked in a sense also to the loan that is extended by the Union Government to the railways in perpetuity b] the window that the railways has for borrowing through Indian Railway Finanace Corporation (IRFC). These would be the two most important ones. There is a little bit that is linked to the accounting principles being changed, which is part of the structural reforms because that will determine the social costs on the extent to which those are reimbursed by the Union Government.
Shereen: This was essentially your idea as part of the Niti Aayog to push the merger of the Union Budget with the Raiwlay Budget, so congratulations in order to you as well. But, what would you see as the immediate priorities that the government will need to address? In fact, the Former Finance Minister, Yashwant Sinha talking about the need for the government to clarify the autonomy as far as the railway ministry is concerned. How would you like those concerns to be addressed?
Debroy: First, it is not my idea at all. It was the Prime Minister’s idea, but yes, in the railway committee and yes, in the subsequent note that I wrote, we argued out the case for not having a separate Rail Budget as we understand it today.
Now, let me respond to your question, but let me rephrase what you said. Every organisation has a Budget and so will the railways. The railways will continue to have a Budget. All that happens is this annual ritual of that particular Budget being presented through a Budget speech in parliament ceases. That is all. The Budget will still be there, the railways will be free to do what it wants. There are structural reforms that are important, those will continue to happen in parallel, be they through an independent regulator which the railways are now going to call a Railway Development Authority, be they through a transition to proper accounting practices.
So far as the immediate relationships between the Railway and the Union Finance Ministry is concerned, we will await the details, which I am sure will be forthcoming, but there are three major issues in terms of those relationships. First, what happens to dividends? Dividends in the sense of corporate dividends; some people are generally unaware that this is actually a repayment of debt that the Union Government extends to the railways in perpetuity and only the interest gets repaid, the principle is never extinguished. So, one is dividends.
Two, what happens to the existing debt. Does that continue or not. Three, what happens to the gross budgetary support, what form does it take, to what extent is it ring-fenced. And fourth, what happens to the windows that the railways have today for borrowing because the railways cannot directly borrow, it borrows through the IRFC. So, what happens to the IRFC window? These are the major details.
Shereen: We were just talking to Bibek Debroy about the cabinet decision now to merge the Railway Budget with the Union Budget. As the former railways minister your first reaction to this do you believe that this is a step in the right direction? What would your key concerns be? Bibek Debroy was articulating what his key concerns would be what would your key concerns be with regards to this?
Trivedi: First of all my concern would be, would this be good for the railway or not good for the railways that is the first concern. I have always been making a statement that subsequent government have not understood the strength of Indian railways. It is one of the best organisations. It is very easy to dismantle something but very difficult to create something. Now if this is going to help the railway, I welcome it.
However, the fact is in the year 1924 through the separation convention this was created because that is the time the railways did Rs 103 crore between 1898 and 1924 so the British thought that we should get some dividend out of it and that is why through then the legislative assembly this was passed.
So, one number if it was passed through the legislative assembly rightfully it should come to the parliament because that was by a legislative assembly. So, I do not know whether they are going to pass the parliament or not. It should come to parliament number one.
Second, Railway requires investment. They have not understood. It is a very stupid thing to pay dividend. When finance ministry is giving money to the Railway why should Railway pay dividend. So, the next question is the convention committee which has been set up also needs to be demolished because the work of the convention committee is not there if separate Budget is not there.
However, I will tell you in short because I am sure you don’t have much time that the importance of the Railway goes away. So, my suggestion is if you are not going to have a separate Budget why do you have a railway ministry.
Latha: The road ministry didn’t have a separate budget but when the government intended that you should have a very good road network, we saw that ministry getting a lion share of the government’s funds. So, just because it is a department without a separate budget it need not necessarily be neglected and as you yourself have been saying Railway in spite of a Budget have been actually paying out dividend when they should be investing. Let me look at it positively and just let me know your view on this. The Railway Budget has been very often used by prior railway ministers to score political points, to announce railway lines where probably none is needed or only to placket allies maybe now business like decisions will be taken because it will not have this smoke of limelight on it?
Trivedi: I must tell you first of all the definition given to the Railway is a profitable organisation. Now that itself is wrong. Railway can make indirect addition to the gross domestic product (GDP) but per se every railway in the world runs in losses, even the Swiss railway. However, indirectly it can easily give 2.5 percent to the GDP and this simple thing the government have not understood. I am sorry to say even this government.
Railway today even if you talk about strategic project when you want to send our soldiers or even our armament to the borders, who is going to pay for that, what is going to happen to your financial discipline as far as the finance ministry is concerned?
Latha: Basically, the Budget date is getting advanced. From a point of view of an economist, is this going to be material?
Ghosh: The first thing regarding the Rail Budget and the making it uniform, basically the same, merging it with the general Budget, that is a very good decision in the sense that as you know, in 2015 there has been a committee report on restructuring which talked about the same thing of accurately revamping the accounting system. So, possibly, it should lead to better standards of government accounts, financial reporting and possibly better capital budgeting which may enhance the public accountability.
Now, coming to a specific point of advancing the Budget, this has both plus and minuses. The plus is that now the government will be able to, there has been always some revenue foregone in earlier cases. For example, if you look at the financial memorandum, it is adopted at a later date. So in every year, you see one or two months we lose revenue. So, that could actually now start happening from April 1. So, that is the positive step.
The negative thing is that if it is adopted this year then it's a possibility that some of the ministries could end not utilising the entire budgeted amount. So therefore, it could be good for the fiscal deficit perspective this year, but may not be good for a growth perspective. So, overall by net-net basis, positive for next year, but a little bit mildly negative in the short-term.
For entire discussion, watch accompanying videos...