Story Of The Week

Centre decides to do away with separate Rail Budget

The practice of a separate Railway Budget dates back to 1924, when the network was a major industrial asset and revenue earner for the British government. During the British Raj, Railway Budget made up for 85 percent of the country’s General Budget. Now, it accounts for only 15 percent. Therefore, it was decided to merge the Railway Budget with the General Budget. The Cabinet headed by Prime Minister Narendra Modi also approved the advancing date for presentation of the General Budget by a month, instead of unveiling it at the end of February, with a view to get all the legislative approvals for the annual spending and various tax proposals before the beginning of the new financial year. However, Finance Minister Arun Jaitley said that the actual dates for Budget presentation will depend on the calendar of the state elections. Changes in Budget presentation have been made before in 2001 by the NDA government when the time of presentation was changed to 11am from 5pm.The Cabinet has also decided to do away with the distinction of planned and non-planned expenditure so as to keep the accounts simpler and transparent. Railway minister Suresh Prabhu said that although the merger ceases a separate Rail Budget, nevertheless, the railway will continue to enjoy its functional autonomy.



There are various advantages of the merger:

  • After the merger, the railways will not have to pay the government a dividend. It will also help the cash-strapped Indian railways, in tandem with the targeted roll-out of the GST Bill, to give the States and the Centre early access to funds for construction activities in summer.
  • The common Budget will allow a seamless national transportation policy, insulating the railways from political pressures.
  • The move was also welcomed by the railway unions as it would help bail out the PSU which was reeling under fund crunch.
  • Also, it would make the system more transparent as every expenditure will now be recorded in the books of accounts as capital or revenue expenditure. It would increase the focus on reducing the revenue deficit and enhancing capital spending, setting the stage for improvement in the quality of the fiscal deficit.



There are, however, a few drawbacks which need to be taken care of:

  • Once the Railway Budget is merged with the main Budget, all the rail related expenditure will also become part of the Union Budget. Therefore, a fall in general revenue or gross receipts will lead to cuts in expenditure by the finance ministry in the railways too.
  • There is also an underlying threat of railways losing its commercial character as it will become just another government department.
  • The government will also be hamstrung as it would not be able to hike fare price due to the risk of losing votes.
  • Also, with no fare hike, fuel, salaries and equipment costs would suffer.
  • FDIs in railways will suffer a major blow after the merger.


Despite these hurdles, the government is positive about the merger move. If the benefits the merger offers are used efficiently, the government will be able to control the expenditure and therefore, the revenue deficit of the Railways.




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