Railways lands in a tough spot as the proposed hike in employee salary makes finances precarious
New Delhi: Railway Minister Suresh Prabhu has written to Finance Minister Arun Jaitley seeking Rs.32,000 crore during the next three to four years for implementing the seventh pay commission recommendations.
Railways bear over 35 per cent of the amount spent on pay and allowances of the total Central government employees. Prabhu has pointed that this is more than one-third of the burden to be caused by implementing the commission’s recommendations.
Implementation of pay commission will annually increase the liability of the Railways by Rs.28 crore. Prabhu has also assured the finance minister that the Railways would be able to absorb the burden in the next three to four years.
He has also indicated that passenger fares could be adjusted and the railways would be taking other measures. However, Prabhu has ruled out increase in freight rates and argued that there is no room for it.
“The first factor of freight earnings originating at loading is demand driven and is largely not within the control of the Railways. The second factor that is freight rates, though is within Railways competence, there is hardly any headroom available for increasing the same without affecting competitiveness adversely,” he said, pointing out to the Railway’s competition with the road transport sector.
He has also said that increase in freight rate would also adversely impact the national economy by affecting the cost of transportation of coal, cement and foodgrain. Prabhu has pointed how it is difficult for railways to cut its cost. “While we have put in place serious cost-cutting measures and are focusing on fuel management,” he said.
A senior Railway Board official says its gross traffic receipts need to grow at 35-40 per cent annually from 12.5 per cent now to absorb the financial burden arising out of seventh pay commission recommendations. The public sector transporter is already grappling with shortfall in its projected revenue with earnings from freight hit by the lower loading of coal, iron ore, foodgrain and cement among others, he said.
The additional burden of over Rs 30,000 crore annually as a result of suggested hike in salaries and pension is set to leave its finances in a precarious condition and lead to higher operating ratio.
Operating ratio indicates how much railway spends to earn a rupee. As per provisional estimate, the Railways had an operating ratio of 91.3 per cent in 2014-15, which means it spent Rs 91.3 paisa to earn a rupee.
“After the seventh pay commission implementation, salary and allowances are estimated to grow 38 per cent and pension by 56 per cent in the next year. If IR (Indian Railways) is to cater to this it will require gross traffic receipts (GTR) to grow beyond 35-40 per cent, which is near impossible. Last year, GTR grew by 12.3 per cent and most of IR’s traffic is derived from overall growth in the core sector of the economy which is sluggish at present,” said an internal note of Railways reviewed by Financial Chronicle.
The state-run Railways employs nearly 13 lakh people and has an annual wage bill of Rs 58,333 crore. It pays about Rs 33,220 crore to its pensioners.
While on its part the public sector behemoth has put on hold recruitment for non-safety and non-operating posts to save on annual expenditure, it has asked the finance ministry to help it reduce the burden of additional staff cost. The pay panel recommendations are to take effect from January 1, 2016.
The proposed hike in wage bill has come at a time when the Railways has kick-started a massive capital investment plan tapping all available avenues. It may impact its ability to aggressively scale up rail infrastructure development.
According to the Brochure on Pay and Allowances published by finance ministry for 2012-13, the total civil staff of 30.84 lakh employed by the central government, the Railways accounts for 42 per cent. Moreover, it is the only government department, which pays to its employees from its own earnings.
“No matter how high the revenues grow the increasing staff costs neutralise the benefits. At present, 50 per cent of the revenues go towards meeting the staff costs including pensions,” the railways note said.
“But yes, it’s a clear signal that active engagement can be done at a quick pace,” the aide said, declining to be identified. BJP spokesperson Nalin Kohli said in New Delhi that India was ready to take two steps forward if Pakistan took one to improve ties.