IR staring at Rs.6095 crore Negative Fund balance next Fiscal

IR Negative Fund balanceIndian Railways is staring at an overall negative fund balance of Rs 6,095 crore next financial year despite the rail ministry’s claim that it will manage to successfully handle the impact of the Seventh Pay Commission recommendations on its financial health.

The balance of the six reserve funds of Indian Railways – Depreciation Reserve Fund (DRF), Development Fund (DF), Pension Fund (PF), Capital Fund (CF), Debt Reserve Fund and Safety Fund – are a measure of its flexibility to meet expenditure and asset expansion.

The net balance in the six funds is seen changing from Rs 2,467 crore at the end of current fiscal (2015-16) to a negative value (indicating an overall shortfall) of Rs 6,095 crore in 2016-17 after accounting for the budgeted appropriations and withdrawal from each of the funds, according to the Union Budget. The last time the fund balance had entered the negative territory was in 2010-11 with a shortfall of Rs 4,989 crore.

It was earlier reported how the ministry has in this year’s rail budget cut down the funds meant for DRF to show a less unwholesome Operating Ratio of 90 for the current financial year. Railway Board’s Financial Commissioner S Mookerjee had last week sought to clarify the “doubt creeping into everybody’s mind” on Railways’ preparedness to deal with the Rs 28,000 crore impact of the pay panel’s recommendation.

“We have provisioned for this for the last three years. We had set up a fund called Debt Service Fund, which has a balance of almost Rs 4,000 crore and which we shall be using for this purpose. Similarly, in the Pension Fund we have a Rs 3,000 crore surplus which we have been building over the last three years and will be used to meet our immediate concerns,” Mookerjee said, adding the impact of the Pay Commission is of the order of Rs 12,000 crore for salaries and another Rs 8,000 crore for pensions.

The Union Budget 2016-17 document shows the railways currently has a balance of Rs 3,870 crore in the Debt Reserve Fund. In 2016-17, the ministry plans to add another Rs 322 crore in the fund and withdraw Rs 3,000 crore, leaving a net shortfall of Rs 2,677 crore. Similarly, the ministry will withdraw Rs 45,500 crore from the Pension Fund, thus creating a shortfall of Rs 2,528 crore in that fund.

Railways Negative Fund Balance Next Fiscal 2014-15 (in Rs crore) 2015-16 (in Rs crore) 2016-17 (B) (in Rs crore) Pension Fund 984 1,727 -2,528 Depreciation Reserve Fund 756 -1,560 253 Development Fund -1,039 -1,628 30 Capital Fund 831 55 -1,217 Debt Reserve Fund 0 3,870 -2,677 Safety Fund -707 3.8 43 TOTAL 824 2467 -6095 Figures are net of credit and debit in individual funds Source: Union Budget 2016-17

Experts believe the shortfall in railway coffers next fiscal may not be a huge cause of worry if railways are able to increase earnings through freight traffic as projected. “A temporary negative fund balance due to pay commission impact may not be a huge cause of worry. But it is crucial for railways to have a long term perspective plan covering 5-10 years period to ensure major crucial works and projects, particularly those related to safety, get sufficient funding,” said Abhaya Agarwal, Executive Director at accounting and consultancy firm E&Y.


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