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Indian Railways' Finances Would be Much Worse Without PSUs' Help, Says CAG 

The Indian Railways received advances from PSUs to tide over its operating ratio by coming out with a scheme that allowed its customers to pay in advance in return for enjoying a fixed tariff over the next corresponding year.

New Delhi: The Comptroller and Auditor General has noted that Indian Railways’ finances would have been extremely poor in FY’18 if it wasn’t bailed out by other public sector units (PSUs) like NTPC and IRCON. 

In its latest assessment of the national transporter’s accounts, the national auditor has noted that the Indian Railways posted its worst operating ratio (OR) in ten years in the financial year ending March 2018.

However, the financial picture could have been even worse if not for advances received by NTPC and IRCON.

“During the year 2017-18, the net revenue surplus decreased by 66.10% from Rs 4,913.00 crore in 2016-17 to Rs 1,665.61 crore in 2017-18… Indian Railways would, in fact, have ended up with a negative balance of Rs 5,676.29 crore instead of surplus of Rs 1,665.61 but for the advance received from NTPC and IRCON. Similarly, OR would have been 102.66%,” CAG noted.

“Audit further observed that IR had received freight advance of Rs 5,000 crore (inclusive of GST of Rs 238.10 crore) in March 2018 from NTPC. This was towards transport of coal during the financial year 2018-19. IR treated it as goods earning for the year 2017-18. The inclusion of the advance freight in the goods earning for the financial year 2017-18 was justified on the ground that Government Accounts are prepared on cash basis,” the audit report added.

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The Wire was the first to exclusively report on how the Indian Railways received advances from PSUs to tide over its operating ratio by coming out with a scheme that allowed its customers to pay in advance in return for enjoying a fixed tariff over the next corresponding year.

While there is nothing wrong with this practice, it is noteworthy that not many private customers opt for this. More importantly, a number of PSUs that fork over money in advance to the Indian Railways do so at the cost of their own financial health.

For instance, in FY’19, state-run Container Corporation of India made an advance freight payment of Rs 3,000 crore to the railways by taking out a working capital loan and liquidating its investments.

Thus, sources say, it is more of a bailout and less a standard business practice that benefits both parties.

In its latest report, the CAG has noted that the OR of 98.44% in FY’2018 was the highest it has been in a decade. 

An OR of 98.44% means that for every Rs 100 in earnings the railways got, it had to spend Rs 98.44. The ratio is a key metric of expenditure against revenue, and shows how efficiently the railway is operating. 

An audit analysis also revealed a declining trend of revenue surplus and the share of internal resources in the capital expenditure.

According to the report, the net revenue surplus decreased by 66.10% from Rs 4,913.00 crore in 2016-17 to Rs 1,665.61 crore in 2017-18. The share of internal resources in total capital expenditure also decreased to 3.01% in 2017-18. This resulted in greater dependence on Gross Budgetary Support and Extra Budgetary Resources.

The report also contains audit observations on the impact of concessions allowed to passengers on Railways earnings and effectiveness of the existing internal control mechanism to check misuse of concessions.

The Indian Railways was unable to meet its operational cost of passenger services and other coaching services. Almost 95% of the profit from freight traffic was utilised to compensate the loss on operation of passenger and other coaching services. One of the contributing factor in this regard has been free and concessional fare tickets/ passes and Privilege Ticket Orders (PTOs) to various beneficiaries.

A review of the impact of concessions allowed to passengers revealed that 89.7% of the revenue forgone towards concessions was on account of concession to senior citizens and Privilege Pass/PTO holders.

CAG also noted that the response to the “Give Up” scheme from senior citizen passengers was not encouraging. The annual rate of growth in terms of number of passengers travelling in AC classes in all the categories of concessions was higher than that of the non-AC classes.

Also read: As Buzz Builds Around IRCTC’s Tejas Express, Will Privatisation Take Wing?

The national auditor also points towards several instances of misuse of passes and irregular grant of concessions on medical certificates.

“Passenger Reservation System lacks adequate validation controls to validate age of freedom fighters and to prevent irregular multiple booking on the same privilege pass,” CAG said in its latest report.

The Wire had reported in April that the OR had touched the 110.83% mark by the end of December 2018, and improved to 105.4% by the end of January 2019, according to review prepared by the national transporter’s financial wing. Since the OR was still above the promised mark, the only option was to ask PSU customers to give advances and show next year’s earnings as revenue earned in the current fiscal. 

A higher OR also makes it harder to generate surplus funds that could be used for capital investments such as laying new lines and manufacturing more coaches. Despite many new services like Tejas, Humsafar and the recently-introduced Vande Bharat Express, the loss in the passenger business is about Rs 30,000 crore.

Arun Kumar Das is senior journalist who covers the Indian Railways can be contacted at akdas2005@gmail.com.