Railways wants Finance Ministry help to meet Pay Commission ‘burden’

Pay panel roll-out may get delayed. Of the Rs 1.02 lakh crore extra expenditure estimated to implement the commission’s award next fiscal, Rs 73,650 crore was to be provided through the Union Budget and Rs 28,450 crore via the Railway Budget. Government may issue an order to implement recommendations by February-end.

New Delhi: The Indian Railways (IR) has written to the finance ministry, seeking a cushion against the hefty 45% increase in its FY17 salary and pension bill from the Seventh Pay Commission. Its plea for an additional increase — over the business-as-usual scenario — in the gross budgetary support (GBS) to pay the higher wage bill including the arrears, if accepted, could worsen the commission-induced strain on the Centre’s budget.

Of the Rs.1.02 lakh crore extra expenditure estimated to implement the commission’s award next fiscal, Rs.73,650 crore was to be provided through the Union Budget and Rs.28,450 crore via the Railway Budget.

That apart, it was believed that arrears of about Rs 25,000 crore (for the three months to April 2016) would be paid by the Centre and IR in the same ratio via their respective budgets.

The railway ministry, however, is learnt to have estimated the pay panel impact on salaries and allowances at 38% and on pensions at an even steeper 56%. IR’s current salary bill is about Rs.58,350 crore and annual expenses on pensions is over Rs.33,200 crore.

Sources said railway minister Suresh Prabhu has suggested in a recent letter to finance minister Arun Jaitley that the entire additional spending on the national transporter’s wages, allowances and pensions due to the pay commission be borne by the central Budget. The cash-strapped transporter, which produces meagre surpluses after meeting its operational expenses, has been increasingly relying on the Centre’s budget for its budgetary capital expenditure — more than half of the capex in FY15, for instance, came as GBS from the Centre and the rest from the transporter’s internal generations (20%), lease income and borrowings.

With the railways asking for extra GBS to meet the increased salary bill, it can’t hope for a major increase in GBS to meet the capital needs next fiscal, analysts said. Expenditure on salaries and pensions stood at more than half of the railways’ ordinary working expenses in the last fiscal; salaries 36% and pensions 19%, to be precise. The GBS for the railways grew 11% in FY15 but is budgeted to rise sharply by 32% to Rs 40,000 crore in the current fiscal, given the NDA government’s focus on railway capex.

As the Railways stares at INR 32,000-crore additional costs for implementing the Seventh Pay Commission recommendations,

Railway Minister Suresh Prabhu has reached out to the Finance Ministry seeking additional help to meet this “unbearable burden”.

Prabhu said that “INR 32,000 crore is an unbearable burden on the Railway finances. We are talking to the Finance Ministry on how we can deal with this.”

The Railways, the largest employer with over 13 lakh staff and an equal number of pensioners, is the only government organization that meets its staff and pension outgoes from its revenues.

Earlier, the Railways have dealt with Pay Commission-mandated salary and pension revisions by deferring its dividend payout to the government. The national transporter pays about INR 10,000-crore dividend a year to the Centre, but deferral involves a process of approval. Given the gravity of the financial situation, it is likely that the Railways will seek a waiver spanning several years.

Given that INR 10,000 crore hardly makes up a third of the additional yearly burden, the Railways is considering some options, such as asking the government to make good a part of the annual losses in the passenger segment of about INR 31,000 crore every year.

Another option is seeking a bridge loan from the Centre, as done earlier. However, exercising some of these options would require approval from Parliament’s Railway Convention Committee. However, Prabhu was unwilling to disclose details about his discussions with the Finance Ministry.

The Minister said the Seventh Pay Commission places a huge pressure on the cost side as well as the revenue side, due to the fall in prices of commodities such as steel and cement.

He added that “There are two externalities — controllable and uncontrollable. Any organisation has to deal with challenges — internal and external. We are facing two external challenges (pay panel and low commodity cycle).”

“For the first time in the Railways’ history, we are lowering the cost of electricity, say, by INR 3,000-4,000 crore. We may save INR 5,000 crore next year. That is what we are doing, we are trying to optimise the electricity cost,” he said, adding that even diesel prices, which account for larger share of the Railways’ fuel bill, had declined.

Recalling that the 6th Pay Commission had a cumulative impact of Rs 1 lakh crore on the railway’s finances from 2008 onwards, a railway official said the current pay panel’s impact could also linger for long.

The finance ministry may have to revise its FY17 fiscal deficit target of 3.5% of GDP given the lagging private investment and the decline in nominal GDP growth, which could dent the revenue buoyancy. The demand from the railways for a higher GBS to meet the pay panel obligations would add to the Centre’s fiscal stress.

IR’s earnings up to October this fiscal were lower than its own internal target for the period by Rs 9,086 crore or 9%, resulting in a worrisome operating ratio (OR) of 97%. Although the transporter had ambitiously projected a 52% jump in its ‘Plan Budget’ of Rs 1 lakh crore for the current fiscal year, budgetary capital spending during April-October this year was Rs 17,520 crore, down 4.6% from the same period last year. Total capital spending — which includes spending from extra-budgetary sources — stood at Rs 37,758 crore in the first seven months of the fiscal, up 6.8% from the year-ago period.


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