u

fjog l
INSTITUTE OF RAIL TRANSPORT
IRT-22
s i

La Fkku
irt
jy

Rail Transport
ub Z
fnY y h

& Management

Module

8
PLANNING, FINANCIAL MANAGEMENT & INVESTMENT POLICIES

Unit 1
Finances on Indian Railways 1

Unit 2
Railways Financial Planning 17

Unit 3
Organisation and Function of the Finance & Account 47
Management of the Railways

Unit 4
Railways, The Public Accountability and Parliament 75

Unit 5
Structure of Railways’ Accounts 95

Unit 6
System of Railway Accounting : Classification and 111
Budgetary Management

Unit 7
Exercising Budgetary Control, Conducting Review 135
of Financial Performance, Statistics & Economics
Analysis, Traffic Costing, Management Accountancy
Performance Budgeting and Zero-base Budgeting
Course Preparation Team
Content Contributor

Shri Purushottom Guha

Former Principal Executive Director (Coaching)
Railway Board
Ministry of Railways

Smt. Amrit K. Brar

Director (Tourism and Marketing)
IRCTC Ltd.,

Course Writer
Course Contributor/ Revised/Updated
Shri Sanjeev Sharma
Director, Finance(AR)
Railway Board
Ministry of Railways
Language Editing Format Editing
Prof. P.R. Ramanujam Prof. P.R. Ramanujam
STRIDE, IGNOU STRIDE, IGNOU

Acknowledgements are due to

Dr. Sanjaya Mishra, STRIDE, IGNOU
for his Co-ordination

Copyright with
Institute of Rail Transport, 2018 (Revised Edition)

All rights reserved. No part of this work may be reproduced in any form, by mimeograph
or any other means, without permission in writing from the Institute of Rail Transport.

Further information about the Institute of Rail Transport and its courses can be obtained
from the Institute’s office at 104, NCRPU Building, Shivaji Bridge, Behind Shankar Market,
Near IRWO office, New Delhi - 110 001

Printed and published on behalf of Institute of Rail Transport by Shri Pramod Uniyal,
Executive Director.

Printed at : Allied Traders, 455, Patparganj Industrial Estate, Delhi-92

IRT-22 : RAIL TRANSPORT AND MANAGEMENT
MODULE - 1 : Overview of the Transport Sector

Unit 1 : Historical Developments - I

Unit 2 : Historical Developments - II
Unit 3 : Characteristics & Role of Different Modes of Transport
Unit 4 : Cost Structure of Different Modes of Transport
Unit 5 : Unit Cost in Indian Railways
Unit 6 : Pricing of Transport Services
Unit 7 : Urban Transport - I
Unit 8 : Urban Transport - II
Unit 9 : Organisational Structure of Indian Railways

MODULE - 2 : Rail Operations Management

Unit 1 : Transportation
Unit 2 : Organisation of Operations
Unit 3 : Passenger Operations
Unit 4 : Goods Train Operations
Unit 5 : Recent Developments in Freight Operations
Unit 6 : Operating Statistics
Unit 7 : Rules of Safety in Railway Operations
Unit 8 : Accidents - Relief Measures, Enquiry into Causes

MODULE - 3 : Marketing & Commercial Policy

Unit 1 : Commercial Organisation

Unit 2 : Coaching Traffic
Unit 3 : Reservation, Luggage and Parcel Rules
Unit 4 : Goods Traffic
Unit 5 : Pricing of Rail Transport
Unit 6 : Passenger Amenities
Unit 7 : Compensations/Claims
Unit 8 : Marketing Strategies

MODULE - 4 : Logistics & Supply Chain Management

Unit 1 : Basic Concepts of Supply Chain Management

Unit 2 : Supply Chain Operations : Planning and Sourcing
Unit 3 : Supply Chain Operations : Marketing and Delivering
Unit 4 : Supply Chain Management in Multi-Modal Transport
Unit 5 : ITS in Logistics and Transportation

MODULE - 5 : Costing & Pricing of Rail Transport Services

Unit 1 : Theory, Traffic Costing in Indian Railway System and

International Practices
Unit 2 : Costing of Freight and Coaching Services
Unit 3 : Pricing Concepts and Indian Railways’ Rating Policy

MODULE - 6 : Human Resource Management in Indian Railways

Unit 1 : Management - Concepts and Evolution

Unit 2 : Structure of Organisations and Management Processes
Unit 3 : Management in Future
Unit 4 : Personnel Management Discipline - An Overview
Unit 5 : Employee Relations and Labour Legislation
Unit 6 : Organisational Behaviour
Unit 7 : Management in the Indian Railways

MODULE - 7 : Legal & Technical Aspects of Railway Functioning

Unit 1 : Signalling - I
Unit 2 : Signalling - II
Unit 3 : Interlocking
Unit 4 : Systems of Train Working
Unit 5 : Modern Signalling Systems
Unit 6 : Locomotives
Unit 7 : Coaches
Unit 8 : Multiple Units and Other Coaching Vehicles
Unit 9 : Wagons
Unit 10 : Electricity in Railways
Unit 11 : Train Lighting
Unit 12 : Air-Condition of Coaches
Unit 13 : Electric Traction
Unit 14 : Role of Telecommunication and Basic Infrastructure
Unit 15 : Modern Telecommunication Systems
Unit 16 : Track
Unit 17 : Railways Act 1989

MODULE - 8 : Planning, Financial Management & Investment Policies

Unit 1 : Finances on Indian Railways

Unit 2 : Railways Financial Planning
Unit 3 : Organisation and Function of the Finance & Account
Management of the Railways
Unit 4 : Railways, The Public Accountability and Parliament
Unit 5 : Structure of Railways’ Accounts
Unit 6 : System of Railway Accounting : Classification and
Budgetary Management
Unit 7 : Exercising Budgetary Control, Conducting Review of
Financial Performance, Statistics & Economics Analysis,
Traffic Costing, Management Accountancy Performance
Budgeting and Zero-base Budgeting
 8
u
fjog l
Institute of Rail Transport
Planning, Financial
s i

La Fkku

irt
jy

ub Z
fnY y h
Management &
Investment Policies

UNIT-1
Finances on Indian Railways

Structure
1.0 Objectives
1.1 Introduction
1.2 Link between Railway Finances and General Finances
1.3 Merger of Rail Budget with Union Budget
1.4 Income Tax and other Taxes
1.5 Railways Assets
1.6 Earnings of the Railways
1.7 Working Expenses
1.8 Operating Ratio
1.9 Social Costs
1.10 Let us Sum Up
1.11 Check Your Progress : The Key
Bibliography
Questions for Study

1
1.0 OBJECTIVES
After studying this unit, you should be able to :

OO state the link between railway finances and general finances;

OO status of Railways for Income-Tax matters
OO Sources of railway earnings
OO Constituents of railway’s working expenses
OO Operating Ratio
OO Social Costs

1.1 INTRODUCTION
You are aware that Indian Railways are a Government owned departmental.
There is a separate Ministry, the Ministry of Railways with Railway Board as its
apex body. This undertaking is both commercial enterprise and a public utility
organisation. To consider Railways purely as a commercial enterprise is not
correct as its capital structure is different from a private company.

In a private company, the capital formation is through floating shares to the

extent of the authorised capital of the undertaking and the capital, for which
the shares have actually been issued and paid for, known as share capital, on
which a dividend is paid annually to the share holders, subject to the company
working profitably. Any additional funds for capital investment required by such
a company are obtained by the issuance of more shares after obtaining the
necessary sanction from Government for increasing the authorised capital or
by way of loans in the form of debentures carrying a fixed and stated rate of
interest, repayable after a specified term. The shares are taken by the public and,
therefore, the companies are usually termed as public limited companies under
the Companies Act.

In the case of public sector undertakings, on the other hand, all or the majority of
the shares are held by the Government. The control of capital investment beyond
certain limits is also vested in the Government. Otherwise, the public sector
undertakings are free to manage their own affairs.

The Indian Railways capital is obtained by loans from General Revenues of

Government. However no dividend is payable by Railways on investment made
by Government in Railways post – merger of the budget. The Railways were
required to pay dividend on capital so invested at stipulated percentage based
on recommendation of Railway Convention Committees. Till 2016-17 i.e. before
merger of Rail Budget with Union budget. Railway also raises money by its own
internal resources and extra budgetary resources.

2
In the present unit, we aim at providing you a detailed picture of finances of
Indian Railways. We shall discuss the history of separation and link between
Railway Finances and General Finances, merger of Railway Budget with Union
Budget in 2017-2018, special status of Railways for Income-Tax matters, sources
of railway earnings, working expenses, operating ratio and social costs borne by
railways.

1.2 LINK BETWEEN RAILWAY

FINANCES & GENERAL FINANCES
In view of the size of the financial transactions of the Railways there is a special
relationship between Railway Finances and the general Finances. This special
relationship dates back to 1924 when on the basis of the recommendations of the
Indian Railway Committee (known as Acworth Committee) the Railway Finances
were separated from General Finance. The main objectives of such separation
were:

i) to render the railway administration independent of the Finance

department.
ii) to secure for the railways a separate budget of their own to be able to
provide for a reserve fund to finance renewals and replacement of assets
in a manner suited to the needs of the commercial enterprise; and
iii) to ensure setting up of an in house accounting organisation.

The Resolution adopted by the Legislative Assembly, on the 20th September,

1924 is termed as Separation Convention. The Resolution had included specific
recommendations regarding the annual contribution to be made; the manner
in which interest on Capital-at-charge and the loss in working of strategic
lines should be dealt with, the sharing of surplus profit, the setting of a railway
reserve and so on. The railway reserve apart from being utilised for securing
payment of the annual contribution to General Revenue was to be employed for
clearing arrears of depreciation, for working down and writing off capital and ‘to
strengthen the financial position of Railways in order that the services rendered
to the public may be improved and rates may be reduced. The creation of the
post of the Financial Commissioner (Railways) followed a few years later by the
separation of the entire accounting machinery from the Accountant General,
Public Works Department and providing for an in-house machinery to exercise
financial control from within the railway organisation instead of from outside and
to ensure for the railway management complete emancipation from the control of
Finance Department of the Government of India.

The working of the ‘Separation Convention’ of 1924 was reviewed in 1943, as

the 1924 convention had not yielded the desired results. The revised Convention
of 1943 provided for a specific sum being paid to the General Revenues for
the year 1942-43, the additions of the portions pertaining to contribution and

3
allocation of surplus from 1.4.1943, the utilisation of the surplus on commercial
lines to repay any out-standing loan from the depreciation fund and thereafter
the balance being divided in the proportion of 1:3 between Railway Revenue
and General Revenue, with loss on strategic lines being recovered from General
Revenues and the allocation for subsequent year being decided on a year to
year basis. A further review of convention of 1924 was undertaken in 1949. The
railway finances continued to remain separated from General Finances and the
general taxpayer was accorded the status of a sole share holder in the railway
undertaking. The convention of 1949 stipulated that Railway Finances should pay
a dividend at 4% of the capital-at-charge to General Revenues, the payment was
significantly termed as dividend as it included an element of contribution over and
above the average rate of interest. The rate of dividend for subsequent years was
decided on the recommendations of Railway Convention Committees.

It may be the mentioned that these rates are applied to capital after excluding
segments of capital qualifying for total exemption and others to which
concessional rates apply as in the case of residential quarters (3.5 per cent),
New lines (Average Borrowing Rate) Dividend relief were recommended
by various Convention Committees, and continued/modified by subsequent
Committees.

To enable the Railways to follow a development policy, the Development Fund

was created to be fed from revenue surplus (in which was absorbed the previous
Betterment Fund) to meet expenditure on passenger amenities, on labour welfare
works & on projects which are necessary but not directly assessable as being
remunerative. With a view to arresting the tendency to over capitalisation, the
1949 convention modified the rules of allocation of expenditure between Capital,
Revenue and Depreciation Reserve Fund, by enjoining that the Depreciation
Reserve Fund would bear the full costof replacement of asset including both
the element of increase in prices and the element if any, of improvement in the
assets thus emphasising the financing of as much as possible out of revenue
surplus in line with commercial principles.

1.3 Merger of Rail Budget with Union Budget

The Government has decided to merge Rail Budget with the Union Budget from
budget year 2017-18. The merger of Railway Budget with General Budget is
based on the recommendations of the Committee headed by Shri Bibek Debroy,
Member, NITI Aayog and a separate paper on ‘Dispensing with the Railway
Budget’ by Shri Bibek Debroy along with Shri Kishore Desai. A Committee with
representatives from Ministry of Finance and Ministry of Railways examined the
issues involved and worked out the procedural details. The salient features of
merger and the benefits likely to accrue therefrom are broadly given below:-

i. Ministry of Railways will continue to function as a departmentally run

commercial undertaking;

4
ii. A separate Statement of Budget Estimates and Demand for Grant will be
created for Railways;
iii. A single Appropriation Bill, including the estimates of Railways, will
be prepared and presented by Ministry of Finance to Parliament and
all legislative work connected therewith will be handled by Ministry of
Finance;
iv. Railways will get exemption from payment of dividend to General
Revenues and its Capital-at-charge would stand wiped off;
v. Ministry of Finance will provide Gross Budgetary Support to Ministry of
Railways towards meeting part of its capital expenditure;
vi. Railways may continue to raise resources from market through Extra –
Budgetary Resources as at present to finance its capital expenditure;
vii. The presentation of a unified budget will help present a holistic picture of
the financial position of the Government;
viii. Merger of Rail Budget with Union Budget would facilitate multimodal
transport planning between highways, railways and inland waterways;
and
ix. It will allow Ministry of Finance greater elbow-room at the time of mid-year
review for better allocation of resources, etc.

The budgetary support allocated to Railways by the General Exchequer and

dividend paid by the Railways to the Government is given below:-

Year Budgetary Support (Rs. In crore) Dividend and interest paid

2011-12 20013.44 5784.28
2012-13 24131.90 5466.50
2013-14 27072.40 8008.67
2014-15 30121.16 9173.55
2015-16 29,007.87 8722.51

After merger the Capital at charge of the Railways on which annual dividend is
paid by the Railways has been wiped off. Consequently, there will be no dividend
liability for Railways from 2017-18 while Ministry of Railways continue to get
Gross Budgetary support for capital expenditure. This will save Railway from the
liability of payment of approximately Rs.10,000 crore as annual dividend to the
Government of India which after adjusting the subsidy in payment of dividend
would give a net benefit of about Rs. 5000 crore to the Railways.

1.4 INCOME-TAX AND OTHER TAXES

The Indian Railways are not liable to pay Income Tax. Apart from exemption from
paying income tax the Indian Railways enjoy no other privileges in the matter of
general taxation and are treated as a commercial concern with liability to pay all

5
other taxes and levies such as customs duty, cess charges, GST municipal taxes
on buildings, etc..

The railway finance is not affected by the manner in which resources are
raised by the General Finance, whether they are through taxation or by
borrowing in India or from abroad through the agencies of the International
Bank for Reconstruction & Development or through other external assistance
programmes. This is the position also in respect of expenditure from the
Depreciation Reserve Fund and from the Development Fund. For the
Depreciation Reserve Fund, the money becomes available to railway finance out
of their own reserve lying with the General Finance; for the Development Fund
provision exists in the Convention for Railways to borrow their requirements
temporarily from General Finance at the average borrowing rate, if the balances
in the Development Fund are not sufficient.

In any case the rate at which loans are obtained from external sources will have
only a slight bearing on a relatively small portion of the total Capital-at-charge
of the Indian Railways as the average rate is worked out on a weighted basis
having regard to the total public debt and the total interest charged.

It is necessary to explain that in spite of the separation of Railway Finance from

General Finance, the ways and means position of the Government of India
as a whole is still the controlling factor for expenditure of a capital nature, i.e.
“Works expenditure” on the general economy of the country. On the Revenue
expenditure side, the pay and allowances of railway staff, which account for
about 52 percent of the total annual revenue expenditure, follow the pattern set
for other Central Government Staff.

The investments on the Railways are not merely from the loan capital obtained
from General Revenues but a portion of investments on assets of a capital nature
are financed from Railways own generation of internal resources. As in any other
commercial undertaking, Railways are also providing for depreciation on the
various assets utilised in railway operations. Certain facilities are created every
year for the railway users which may not be remunerative from any point of view.
The cost of these facilities charged to Development Fund financed from annual
surplus of working of the Railways. There is yet another source of financing of
assets of a capital nature in respect of certain types of safety works such as
automatic warning system, lifting barriers level crossings and a number of safety
signalling devices etc., and also certain types of amenities for passengers. These
were financed from what is called Accident Compensation, Passenger Amenities
and Safety Fund which is financed from a surcharge on passenger tickets. This
Fund has, however, been abolished effective from 1993-94, and the expenditure
on safety works hither to charged to ACSPF is now met from Development
Fund. Further w.e.f. 1992-93 a new reserve fund namely Capital Fund has been
created to be funded from surplus remaining after appropriation to Development
Fund repayment of loan to Development Fund and interest thereon and payment
of deferred dividend if any, W.e.f 2015-16. Open Line works Revenue has been
abolished and the expenditure earlier being charged to OLWR is now charged to
Depreciation Reserve Fund or Development Fund as the case may be. Further,

6
w.e.f. 2017-18, a new fund namely Rashtriya Rail Sanraksha Kosh (RRSK) has
been created for part financing safety related works. We will study the various
reserve funds operated by Railways, in detail in next unit

1.5 RAILWAYS ASSETS

The total investment on the Railways has gone up to Rs. 4,30,285.57 crores to
end of 2015-16. Out of this, the share of the Capital-at-charge is Rs. 2,54,887.91
crores. The value of block assets created from all sources on the Railways as on
31st March 2016 is as under:-

Table 1.0 Railway Assets as on 31.03.2016

Rs. in crore
Category Amount
Land 16,590.39
Buildings and Track 221,885.04
Rolling Stock 91,894.27
Plant & Equipment 50,219.41
Inventories 16,936.90
Other Assets 32,759.56
Total 4,30,285.57

1.6 EARNINGS OF THE RAILWAYS

The gross traffic receipts of the Railways during 2015-16 amounted to Rs.
1,64,333.51 crores. Out of this, the passenger earnings were Rs. 44,283.26
crores. Indian Railways carried 8107 million passengers during the year i.e.
on an average 2.2 crore passengers a day over 7216 stations. The average
lead i.e. the average distance travelled by a passenger was 32.6 Kms. on the
Suburban and 273.5 Kms. on the Non-suburban sections, thereby giving an
average lead of 141.0 Kms. The Passenger kilometres during the year were
1143039 million. On the freight side, Indian Railways lifted a total of 1108.62
million tonnes of traffic during 2015-16 out of which the revenue earnings
tonnage was 1101.51 million tonnes. Total goods earnings during the same year
amounted to Rs. 1,09,207.65 crores.

1.7 WORKING EXPENSES

The working expenses of the railway during 2015-16 totalled up to Rs.
1,47,835.93 crores. Of these, the wage bill of the staff was of the order of
Rs. 56,115 crores, fuel bill Rs. 25,730 crores and the balance on account of
materials, Miscellaneous and Appropriation to Pension Fund, Depreciation
Reserve Fund. In working out the financial results in any year, net of certain
miscellaneous expenditure and receipt is added on to the working expenses such
as the expenses on surveys for new construction and projects, the expenditure

7
on the Railway Board establishment and the ancillary organisations like RDSO,
training institutions, etc.. The difference between the Gross traffic receipts and
the expenditure after adjusting the amount of net miscellaneous receipts is called
the Net Revenue. The surplus or deficit for a year is obtained after deducting the
dividend payable to General Revenues (not payable w.e.f 2017-2018) from the
net Revenue. Financial results of the Indian Railways for the years 2004-05 to
2015-16 are given in Appendix-I.

1.8 OPERATING RATIO

One of the indicators to judge the efficiency of the working of Indian Railways
has been the ratio of working expenses to total earnings-otherwise known
as operating Ratio. The operating ratio for the year 2015-16 expressed as a
percentage of working expenses of Rs. 1,48,205.51 crores to the total earnings
of Rs. 163,790.95 crores came to 90.5%. This means that for earning of Rs.
100/- during the year the Railways had to spend Rs. 90.5. The traditional concept
of operating ratio as an index for judging the financial well-being of the Railways
system has recently been a subject of examination. It is thought that as a result
of changing politico-socio-economic mileau after independence, the indicator
has assumed a new perspective. In other words, while judging the efficiency
of the Indian Railway system on the basis of operating ratio, the limitations of
several other components constituting the index have to be fully appreciated.
Weightages/corrections have to be applied where necessary to make the end
results truly indicative of railway’s efficiency. Factors like fluctuating provisions
for Depreciation Reserve Fund, Appropriation to the Pension Fund do affect the
financial projections.

CHECK YOUR PROGRESS 1 :

1. How is Capital structure of IR different from a private company?

2. Investments in assets on Railways is financed from.

8
 3. From where does Indian Railway obtain its Capital? Does it pay
anything in lieu thereof?

4. What were the main objectives of separation convention?

5. What are the expected benefit from merger of Rail Budget with Union
Budget.

6. What is Operating Ratio?

1.9 SOCIAL COSTS

Indian Railways being a public utility undertaking have to discharge certain
obligations which involved certain cost. These social costs eat into the major
chunk of revenue earned by Indian Railways. For the year 2015-16 as much
as Rs. 27,026.61 crores were incurred on social costs excluding staff welfare

9
cost (Rs. 5,099.35 crores) and Law & order Cost (Rs.3833.63 crores.) The main
elements of Social Costs as identified by Indian Railways are losses relating to:

OO Essential commodities carried below cost;

OO Passenger and other coaching services;
OO Operation of uneconomical branch lines.
OO New lines opened for traffic during the last 15 years.

Essential commodities carried below cost

There are certain commodities which are required for consumption by the poorer
section of the society. Food-grains, edible oils, fodder, firewood, charcoal, salt,
fruits and vegetables, sugarcane, kerosene oil, live stock, paper etc. are some of
the commodities included in this category. Tariff for live stock has also been low
keeping in view the requirements of rural poor. The total losses on the movement
of these commodities in 2015-16 amounted to Rs. 41.20 crore.

Passenger and other coaching services

Analysis of profitability of coaching service for 2015-16 has revealed an overall

loss of Rs. 35,918.39 crores of which net suburban losses in Chennai, Kolkata
and Mumbai provided with EMU and Non-EMU services contributed Rs. 5,200.28
crores. Losses are also been incurred due to:

Low second class ordinary fares for short distance passenger traffic:- Non-
subruban commuters availing season ticket concessions for travel between two
station up to a distance of 150 kilometers. These journeys constituted 22.1%
of non suburban traffic; but provided only 1.3% of non-sub-urban passenger
earnings.

Commuters availing concessional monthly and quarterly season tickets on

suburban sections of Mumbai, Kolkata and Chennai, Journeys performed
by passengers holding season tickets formed 61.5% of suburban traffic; but
provided only 44.7% of suburban passenger earnings.

Concessions in fare extended to students, sportsmen, professional and

amateur artists, scouts and guides, deaf & dumb persons, blind and otherwise
handicapped persons, TB/ Cancer/Leprosy patients, war widows.

Concessions are also granted to military traffic, postal traffic, transportation of,
seeds, milk etc. and traffic to North East.

Operation of Uneconomical Branch Lines

Despite attempts to enhance earnings from branch lines, most of these lines
remain commercially unviable. The Railway Reforms Committees recommended
closure of 40 such lines but due to stiff public resistance and opposition of State
Governments towards withdrawal of such services only 15 line have been closed.
A review of financial results of existing 101 uneconomic branch lines for the year

10
2015-16 shows that on an original investment of Rs. 4091 crore on these lines,
losses during the year amounted to Rs.1895 crore.

New Lines opened for traffic during the last 15 years

Periodic reviews have revealed that return from several lines opened for traffic
during the last 15 years was below expectations. Review of 18 lines opened for
the development of the backward areas revealed that all 18 lines are showing
either negative or un-remunerative return.

1.10 LET US SUM UP

In this unit we have discussed the capital structure of Indian Railways the history
of separation of Railway Finance from General Finances, recent merger of
Rail Budget with Union Budget, relation with General Finances special status
accorded to railways for income-tax matters, structure of railway assets, source
of earnings, constituent of working expenses, operating ratio and costs incurred
an social service obligations.

11
 APPENDIX - I

Financial Results

(Rs. in Cr.)
Sl.No. Description 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
1 Investment
a Capital at Charge 48957 53062 58145 63981 72238 87655 104545 122772 144812 170168 197992 224685
b Investment from Capital Fund 10390 12816 17886 24540 32063 35346 38676 38676 38676 38676 44125 50450
c Investment in MTP Projects 4264 4476 4728 5130 5807 6422 6972 7954 9158 10065 11068 12414
d Investment in National Projects 1888 2888 3738 4634 5245 6125 7070 7821 8709 9513 10807 13388
e Investment from SRSF 6925 9494 10789 11954 11954 11954 11954 11954 11954 11954 11954 11954
d DFFCIL 4401
Total 72424 82736 95286 110239 127307 147502 169217 189177 213309 240376 275946 317292
2 Traffic Receipts
a Passengers 14113 15126 17225 19844 21931 23488 25793 28246 31323 36532 42190 44283
b Other Coaching 990 1152 1718 1800 1972 2235 2470 2717 3054 3679 3998 4371
c Goods 30778 36287 41716 47435 53433 58502 62845 69548 85263 93906 105791 109208
d Sundry Others 1157 1839 1712 2566 2501 2880 3418 3643 4261 5721 5093 5929
e Total Traffic Earnings (a to d) 47038 54404 62371 71645 79837 87105 94526 104154 123901 139838 157072 163791
f Suspense 332 87 361 75 25 -141 10 -43 -169 -208 -361 543
g Gross Traffic Receipts (e&f) 47370 54491 62732 71720 79862 86964 94536 104111 123732 139558 156711 164334
3 Working Expenses
a Ordinary Working Expenses 33426 35003 37458 40977 54732 65888 68080 74660 84184 98135 106331 108106
b Suspense -37 27 -25 56 -383 -78 59 -123 -172 -564 -335 -370

12
 Sl.No. Description 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

13
Ordinary Working Experience with
c 33389 35030 37433 41033 54349 65810 68139 74537 84012 97571 105996 107736
Suspense (a & b)
Appropriation of Depreciation Reserve
4 2700 3604 7416 5450 7000 2187 5515 6520 6850 7900 7775 5600
Fund
5 Appropriation of Pension Fund 6670 6940 4198 7979 10490 14918 15820 17670 20710 24850 299225 34500
6(a) Total Working Expenses (3a+4+5) 42796 45547 49072 54406 72222 82993 89415 98790 111744 130885 143331 148206
Total Working Expenses with suspense
(b) 42759 45574 49074 54462 71839 82915 89474 98667 111572 130321 142996 147836
(3c+4+5)
7 Net Traffic Receipt (2g-6b) 4611 8917 13685 17258 8023 4049 5062 5444 12160 9237 13715 16498
8 Miscellaneous Receipts 1676 1824 2054 1557 1797 2265 2145 2135 2448 3656 4307 4046
9 Miscellaneous Expenditure 1014 2736 1286 480 645 770 861 796 993 1144 1183 1315
10 Net Revenue (7+8+9) 5273 8005 14453 18335 9175 5544 6346 6783 13615 11749 16839 19229
11 Dividend Payment to General Revenues 2716 3005 3584 4239 4718 5543 4941 5656 5349 8009 9174 8723
12 Payment of Deffered Dividend 483 663 663 664
13 Excess / Shortfall (10-11-12) 2074 4337 10206 13432 4457 1 1405 1127 8266 3740 7665 10506
14 Appropiation to Development Fund 1842 1853 1880 2359 1391 1 1405 610 7815 3075 1375 1220
15 Appropriation to Capital Fund 0 2417 8326 11072 3066 517 451 500 6233 5798
16 Appropriation to Railway Safety Fund 132 67 0
Appropriation to Special Railway Safety
17 100 0 0
Fund
18 Appropriation of Debt Service Fund 0 0 0 165 57 3488
Appropriation to Rashtriya Rail Sanraksha
19 0 0 0
Kosh
20 Operating Ration (6a/2e) 91.0 83.7 78.7 75.9 90.5 95.3 94.6 94.8 90.2 93.6 91.3 90.5
Ratio of Net Revenue to Capital Charge
21 8.9 12.2 19.0 20.7 8.8 4.5 4.4 4.2 7.4 5.6 7.0 7.0
and Capital Fund (10/(1a+1b)
1.11 CHECK YOUR PROGRESS : THE KEY
CYP 1 :

1. In a private company, the capital formation is through floating shares to

the extent of the authorised capital of the undertaking and the capital,
for which the shares have actually been issued and paid for, is known
as share capital, on which a dividend is paid annually, subject to the
company working profitably, to the share holders. Any additional funds
for capital investment required by such a company is obtained by issue
of more shares after obtaining the necessary sanction from Government
for increasing the authorised capital or by way of loans in the form of
debentures carrying a fixed and stated rate of interest and repayable
after a specified term. The shares are taken by the public and, therefore,
the companies are usually termed as public limited companies under the
Companies Act.
In the case of IR the ownership vests in Central Government and capital
is obtained by way of loans from General Revenues of Government.
Railways also raises money by its own internal resources and extra
budgetary resources.
2. All Railway Assets on Railways is financed either from Capital (loan
from General Revenues) or Capital Fund or from Depreciation Reserve
Fund or Development Fund or Railway Safety Fund or Rashtriya Rail
Sanraksha kosh
3. The Indian Railways capital is obtained by way of loans from General
Revenues of Government on which the Railways was required to pay
dividend at a fixed percentage rate for perpetuity.However after merges of
Rail Budget with Union Budget, no dividend is payable for 2017-2018
4. The main objectives of Separation Convention were:
i) to render the railway administration independent of the Finance
department.
ii) to secure for the railways a separate budget of their own to be able
to provide for a reserve fund to finance renewals & replacement of
assets in a manner suited to the needs of the commercial enterprise.
And
iii) to ensure setting up of an in-house accounting organisation.
5 Merger of Rail Budget with Union Budget
The Government has decided to merge Rail Budget with the Union
Budget from budget year 2017-18 based on the recommendations of
the Committee headed by Shri Bibek Debroy, member, NITI Aayog and
a separate paper on ‘Dispensing with the Railway Budget by Shri Bibek
Debroy along with Shri Kishore Desai.

14
 The Capital at charge of the Railways n which annual dividend is paid
by the railways will e wiped off. Consequently, there will be no dividend
liability for Railways fron 2017-18 while Ministry of Railways continue
to get Gross Budgetary support for capital expenditure. This will save
Railways from the liability of payment of approximately 10,000 crore as
annual dividend to the Governkment of India which after adjusting the
subsidy in payment of dividend would give a net benefit of about 5000
crore to the Railways.
6. The ratio of working expenses to total earnings is known as operating
Ratio.
Bibliography

1. Indian Railways Administration & Finance - an introduction

2. Budget Speech of Finance Minister 2017-18

3. Indian Railways Year Book 2015-16

Questions for Study

1. What are the various resources for capital expenditure on Indian Railway?
2. What is ‘Separation Convention’? How does it define the relationship
between Railway Finances and General Finances?
3. What are the Salient features and expected benefits from merger of Rail
Budget with Union Budget.?
4. How does the method of financing Capital investments on the Indian
Railways differ from that of Public Sector Companies and Private Sector
Companies?
5. Are the Railways liable to pay income tax or other taxes?
6. What is Operating ratio? How is it worked out? Give an example with
reference to any one Year’s financial results. Do you think Operating
Ratio is the only indicator of judging the efficiency of the Railways?
7. What are ‘Social Costs’? What is the total burden of such costs in the
Railway? Should Railways bear these?

15
16
 8
u
fjog l
Institute of Rail Transport
Planning, Financial
s i

La Fkku

irt
jy

ub Z
fnY y h
Management &
Investment Policies

UNIT-2
Railways Financial Planning

Structure
2.0 Objectives
2.1 Introduction
2.2 Financial Planning
2.3 Railway Planning Process
2.3.1 Freight Traffic Projections
2.3.2 Passenger Traffic Projection
2.3.3 Planning process Post Jan, 2015
2.3.4 Railway Development Programme
2.4 Financing of the Plan Expenditure
2.4.1 Sources of Railways Capital
2.5 Reserve Funds on the Railways
2.5.1 Depreciation Reserve Fund
2.5.2 Revenue Reserve Fund
2.5.3 Development Fund
2.5.4 Accident Compensation, Safety and Passenger Amenities Fund
2.5.5 Capital Fund
2.5.6 Railway Safety Fund
2.5.7 Special Railway Safety Fund
2.5.8 Railway Debt Service Fund
2.5.9 Rashtriya Rail Sanraksha Kosh
2.5.10 Pension Fund
2.5.11 State Railway Provident Fund
2.5.12 Staff Benefit Fund
2.6 Non-Budgetary Resources
2.6.1 Indian Railway Finance Corporation
2.6.2 Private Public Participation
2.7 Let us Sum up
2.8 Check Your Progress : The Key
Bibliography
Questions for Study

17
2.0 OBJECTIVES
After studying this unit, you should be able to :

OO discuss financial planning of Indian Railways;

OO describe railways planning process;
OO explain railway development programme
OO explain financing of the plan expenditure
OO describe the railways assets; and
OO explain the non-budgetary resources of Indian Railways.

2.1 INTRODUCTION
In the previous unit we have discussed the capital structure of railways, link
between Railway Finances and General Finance, exemption from Income- Tax,
structure of Railway assets, sources of its earnings, constituents of its working
expenses, concept of operating ratio and social costs incurred by railway. In the
present unit we shall discuss, the financing planning, development programmes,
sources of investment in railway assets, railway funds and modes of alternative
financing through non-railway sources.

2.2 FINANCIAL PLANNING

Till 2016-17, Railway planning was geared to the Five-year Planning system
adopted by the Government of India for national development as a whole.
Alternatives to the Five Year Railway Plans were made, when necessary, at the
Government’s mid-term review and the railways investment plans were reviewed
annually by the Railway Board. These processes suited the circumstances of
the Railways in the short term. However,specific long term objectives were also
required, so that a clear framework existed as a basis for Five Year Planning.
For this purpose long term Corporate Plan identifying corporate objectives and
strategies for the next 15 Years were formulated. The plan provide guidelines
for Zonal Railways and other units in preparation of their Five Year and Annual
Plans. In order to implement the plan, an action plan was developed. The action
plan would contain time bound investment programmes and targets/goals to be
achieved by Zonal Railways and other units. A review would essentially be made
at the end of every plan to incorporate changes in objectives and strategies
which may become necessary within the frame work of National Five Year Plans
and other changes.

18
2.3 RAILWAY PLANNING PROCESS
The Railways’ Planning Process, whether in building up the long-term plan, or for
the purpose of forecasting the transport requirements for the Short Term Plans,
commences with the task of:

(a) Forecasting the growth of passenger and freight traffic area wise,
(b) Identifying and removing bottlenecks in the flow of traffic which may have
already developed,
(c) Anticipating likely bottlenecks with the future growth of traffic and to make
timely provision for execution of line capacity works,
(d) Working out the requirements of rolling stock for the traffic anticipated at
the end of the plan period, and
(e) Assessing the programme of replacement of averaged assets keeping
in view, at the same time, the importance of import substitution so as to
achieve self-sufficiency.
(f) Adopting the State-of-Art technology to keep pace the technology up
gradation.

The obvious first step would be to arrive at a fairly well modulated forecast of
passenger and freight traffic. This was done under the aegis of the Planning
Commission by means of integrated studies conducted in conjunction with
various economic Ministries, Governmental and other/concerned agencies.

The Planning Commission used to initiate the exercises well in advance at the
com- mencement of the Five Year Plan concerned. The modus operandi was to
appoint Steering Groups consisting of top level representatives of the various
Economic Ministries and the Planning Commission. These, in turn, had Working
Groups and Sub-Groups reporting to the main functional Steering Group. Such
Working Groups and Sub-Groups were constituted to cover various facets of
Plans; for example, assessment of financial resources conducting systems
analysis, and study of Mineral and Petroleum industries, Power, Coal and Lignite,
Metallurgical industries, engineering industries, including transport equipment
and agricultural machinery, power genera-tion, metallurgical, mining, fertilizer and
chemical equipment, iron-ore and the ferrous group of minerals etc. All these,
had a Railway representative on each of these Groups.

The main Steering Group in the Transport and Communications Sector generally:

(a) Identified areas in which working groups were required to be set up to

undertake ‘in depth’ studies of parameters connected with formulation
of Five Year Plans in the field of Transport and Communications, and
broadly determined their scope of work and composition,
(b) Provided broad guidelines of the Groups in their work, and reviews
progress from time to time, and

19
(c) Ensured necessary measure of co-ordination between different related
fields.

Each Ministry in turn used to set up different Working Groups under the aegis
of the Planning Commission. The Ministry of Railways would be generally the
conveners of the Working Groups on:

(a) Freight traffic projections,

(b) Passenger traffic projections, and
(c) Formulation of railway development programmes.

The Working Groups included representatives of the Economic Ministries,

and major industries in the Public Sector such as the BHEL, RITES, the
Fertilizer Corporation of India, the Indian Oil Corporation, the National Mineral
Development Corporation, the National Coal Development Corporation,
Department of Coal, Central Electrical Authority, Department of Steel,
Department of Industrial Development and representation on Ministries of
Defence, Transport, Petroleum etc.

2.3.1 Freight Traffic Projections

Freight traffic forecasts are generally sub-divided into those for general goods,
and bulk commodities such as coal, finished steel and raw materials for steel
plants, foodgrains, mineral ores, iron and steel, cement petroleum products and
fertilizers. The share of bulk commodities in the total revenue earning traffic,
reckoned in terms of originating tonnage has been going up progressively. In
respect of general goods, the growth is anticipated on the basis of past trends.

In respect of bulk commodities, the information furnished by the various

Economic Ministries relates to their anticipated production, the quantum of
exports and imports, the detailed linkages between sources of supply and
consumer destinations, and the direction-wise requirements of rail transport,
the demand projections and the rail transport requirements are then formulated
commodity-wise for each of the major commodities, and the anticipated
originating tonnage arrived at.

One of the primary functions of the Railways is to move goods traffic from one
place to the other. The Railway’s ‘workload’ has thus two distinctive elements,
viz., the quantum of traffic and the distance (i.e., lead) over which the traffic
moves. It has been customary to express freight traffic targets in terms of
‘originating tonnes’. A more precise measure of traffic would be the net tonne
kilometre (NTKM) which takes into account both the weight and distance factors.
However, there are difficulties in regard to reliable estimation of future ‘lead’ of
traffic, because many forces act and react in producing transport service.

While the target for freight traffic on the Railways has so far been expressed
in terms of originating tonnage, the anticipated net tonne kilo-metres are also
worked out for the Plan period. This exercise is carried out in two different ways.
Firstly, the future level of ‘originating tonnage’ and ‘lead’ is arrived at on the basis

20
of the past trends. In the alternative exercise, details of likely movements of
selective bulk commodities like coal, iron ore, cement, POL, fertilizer, etc., which
account for a dominant share of the Railways’ freight traffic, are traced from the
likely or known source to the various consumption points on the basis of available
information. Only the residual traffic in the second exercise is assessed on past
trends. These alternative methods enable a good cross check on each other for
final forecasting of the transport requirements.

2.3.2 Passenger Traffic Projection

The growth of passenger traffic is anticipated on the basis of past trends,
separately for suburban and non-suburban traffic. In regard to non-suburban-
traffic, the extent of overcrowding at present on long distance trains on trunk
and other major routes is assessed. In regard to suburban traffic, the studies
conducted from time to time in respect of population projections, as also studies
in connection with the various Metropolitan Transport Schemes, are taken into
account. With these are also correlated the studies of national income and the
growth of rail passenger traffic. This takes into account passenger distribution of
different gauges, for different leads of movement, and for each individual class of
travel, as also separately by Mail/Express Passenger train services. The resulting
analysis of additional passenger traffic and passenger kms are used to arrive at
the additional vehicle kms requirements based on progressively improving norms
of vehicle usage and availability.

After the total freight and passenger traffic to be carried is thus worked out on
the basis of sectoral analysis and the rate of growth analysis, the traffic targets
are fixed at the overall level and exercises are undertaken to determine the
approximate requirements on an overall basis of rolling stock in respect of
wagons, coaches and locomotives.

2.3.3 Planning process post Jan 2015

On 1st January, 2015, the National Institution for Transforming India or NITI Aayog
came into existence as the Government’s premier think tank. Subsequently, the
Prime Minister’s Office advised the NITI Aayog to prepare Fifteen Year Vision,
Seven Year Strategy and Three Year Action Agenda documents. The said Vision,
Strategy and Action Agenda exercise represents a departure from the Five Year
Plan process, followed with a handful of discontinuities until the fiscal year 2016-
17. The 12th Five Year Plan was the last of these plans. It has been felt that with
an increasingly open and liberalized economy, it was considered necessary, to
rethink the tools and approaches to conceptualizing the development process.
The proposed shift represents an important step in this director. Accordingly
NITI Aayog has prepared the Action Agenda as an integral part of the exercise
leading to the Vision and Strategy document and work on the Vision and Strategy
document is in progress. For holistic development, all ministries and departments
must progress simultaneously and harmoniously.

21
Accordingly, the Minister of Railways, Shri Suresh Prabhakar Prahu while
presenting the Railway Budget 2016-17 in Parliament announced the
Sashaktikaran – improving our planning practices. Shri Prabhu announced
Railway Planning & Investment Organisation for developing and revitalizing
the existing infrastructure and drafting medium and long term corporate plans
and based thereupon, identify projects which fulfill the corporate goal. The
organistation will also conduct market intelligence and support preparation of
feasibility studies or detailed project reports based on standard methodology and
assumptions, besides proposing innovative financing mechanisms for identified
projects.

Need for the National Rail Plan

The Indian Railway Network is a key component of the Country’s Transport

System. Transporting goods and passengers on a massive scale, the Indian
Railways plays a critical role in India’s economic as well as social fabric, not to
mention the security and cross-border strategic linkages. Pragmatic development
of Indian Railway Network as part of the country’s overall multi-modal transport
system is therefore, very important. In view of the above, National Rail Plan (NRP
2030) was announced in Railway Budget 2016-17 which states that: “112.

National Rail Plan : In order to provide long-term perspective to planning for

augmenting the railway network, we have decided to develop ‘National Rail
Plan’ (NRP 2030) in consultation with all the stakeholders including State
Governments, public representatives and other relevant Central Ministries.
NRP-2030 will endeavour to harmonise and integrate the rail network with
other modes of transport and create synergy for achieving seamless multi-
modal transportation network across the country. This will also achieve the
Hon’ble Prime Minister’s vision of integrated planning and cost optimization of
the transportation network by laying the new railway lines and new highways
together in tunnels and over mega-bridges”.

Accordingly, a National Rail Plan 2030 is being formulated to suggest Railway

Infrastructure to be created by 2030 with a horizon year of 2050, keeping in view
the following important aspects:-

i) Railway Infrastructural deficiencies in various parts of the country.

ii) Movement of coal, iron ore, food grains, fertilizers, petroleum oils based upon
sources and destinations like location of refineries and power plants etc.
iii) Future freight corridors
iv) Strategic requirements on Indo-China, Indo-Pakistan borders.
v) Connectivity to ports (existing, and upcoming) and waterways.
vi) Connectivity to tourist, religious and commercially important places.
vii) Faster movement between important cities of the country

22
viii) Integration of multi-modal transportation.
ix) Trans-Asian Rail (TAR) network.

Overall Objectives of the NRP Study

The overall objective of the study is to prepare a comprehensive strategy and

master plan for the rail sector in India which will

1. Facilitate easy movement of freight and passengers, and access to

resources and services with reliability, safety and convenience to secure
an environmentally efficient and long term sustainable rail transport
system.
2. Stimulate economic growth by way of creating required rail infrastructure
in conjunction with other mode of transport.
3. Promote social integration and stability, and be responsive to local,
national, regional and international demands and / or any socioeconomic
growth strategy.
4. Provide a prioritized rail transport investment plan and implementation
schedule for the whole country as well as specific national and regional
spatial development corridors.
5. Draw out a plan for Trans-Asian Rail network.
6. Meet the strategic requirement along international border.
7. To build an economically competitive rail transport system.

Specific Objectives of the NRP Study

The specific objectives of the study are

1. In line with the national integrated transport policy, identify relevant

strategic actions that will contribute to the social and economic
development of the country.
2. Formulate a co-ordinated, integrated and prioritized master plan for the
rail transport sector making the optimal use of its comparative advantages
and technical characteristics.
3. Promote a multi-modal approach / integrated multi-modal infrastructure
facilities development plan.
4. To study the rail Infrastructure deficiencies in various parts of the country
and to suggest ways to overcome the same after considering the efficacy
of existing and planned transport infrastructure.
5. Plan the Railway Network in the border and remote areas giving due
consideration to strategic requirement.
6. Plan connectivity to ports (existing and upcoming) duly incorporating the
network planned in Sagarmala Project of Ministry of Shipping.

23
Future Roadmap

National Rail Plan envisages:

i. Identification of various traffic originating and terminating points including

upcoming Power Plants, new coal mines, Ports, Industrial hubs, Smart
cities etc.
ii. Identification of missing links in the existing rail network to provide
alternative routes parallel to congested routes.
iii. Need for new lines to connect infrastructure – deficient area including
naxal affected territories.
iv. Need for 3rd / 4th line and future provision of new DFC corridors
v. Integrated planning of High Speed Rail network in the country keeping in
view the time of Point to Point travel of about 6 hours. This may include
“Spoke and Hub” approach keeping central place like Nagpur as hub and
developing various routes such as :
a. Delhi – Nagpur
b. Ahmedabad – Mumbai – Nagpur
c. Chennai – Nagpur
d. Kolkata – Nagpur
e. Patna – Nagpur
f. Bangalore – Nagpur
g. Bhubaneswar – Nagpur

Draft NRP will be put on the website of Indian Railways for consultations/ view
of various stake holders. It will also be shared with the State Governments,
federations like CII, FICCI etc. for suggestions.

CHECK YOUR PROGRESS 1

What is need for the National Rail Plan–NRP 2030

24
2.3.4 Railway Development Programme
The next step is to determine the resources by way of Rolling Stock, Line
Capacity Works, New Lines and Conversions, as necessary, Electrification plans
are dovetailed, and provision is made for works in the field of Signalling etc.
Thus, the Railways’ development programmes for Plan period are formulated.

The methodology of planning involves not only the assessment of overall

rolling stock requirements for the Plan period, but also the determination of the
approximate requirements broadly assessed under the various Plan heads,
such as:

1100 - New Lines (Construction)

1400 - Gauge Conversion
1500 - Doubling
1600 - Traffic facilities -Yard remodeling & others
1700 - Computerisation
1800 - Railway Research
2100 - Rolling Stock
2200 - Leased Assets – Payment of Capital Component
2900 - Road Safety works – level crossings
3000 - Road Safety works – Road over/Under Bridges
3100 - Track renewals
3200 - Bridge works
3300 - Signalling and Telecommunication works
3500 - Electrification Projects
3600 - Other Electrical Works
4100 - Machinery & Plant
4200 - Workshops including Production Units.
5100 - Staff quarters
5200 - Amenities for Staff
5300 - Passenger amenities
Investment in Government Commercial Undertakings – Public
6200 -
Undertaking
6300 - Investment in Non-Government Undertakings – including JVs/SPVs
6400 - Other specified Works
6500 - Training / HRD
7100 - Stores Suspense
7200 - Manufacture suspense
7300 - Miscellaneous Advance
8100 - Metropolitan Transport Projects
8200 - Transfer to special Railway Safety Fund.

Under each of the above Plan heads, the Planning Directorate co-ordinates the
requirement and lays down targets for the Plan period.

25
The draft is taken up for detailed discussions at which adjustments may be made
depending upon the financial resources available. In this way emerges the final
plan. It is subjected to a periodical review based on the growth of the expected
traffic, and shortfalls and fluctuations are analysed and necessary alterations
made in the plan.

The Railways’ Plan is implemented through action-oriented Annual Plans.

Tentative outlays for the various Railway Zones and Production Units are
communicated to them each year, so that they can prepare an annual list of
projects for consideration. After scrutiny and finalisation, a draft Annual Plan for
the entire system is prepared. This is discussed with Finance Ministry. The extent
of availability of resources for the particular year is indicated. The Annual Plan
as then finalised forms the basis of the Demands for Grants in respect of works
expenditure which is voted by Parliament through the Union Budget. Till 2016-17
separate Railway Budget was presented per Parliament approval. The ultimate
distribution of funds and choice of projects are communicated to the Zones after
the Budget approval.

Before we proceed further, let us do some activities.

CHECK YOUR PROGRESS 2 :

1. How are the freight & passenger traffic projection are made?

2. How is Annual Plan finalized before incorporating it in Demand for

Grants for presenting to parliament?

26
2.4 FINANCING OF THE PLAN EXPENDITURE
All expenditure on Railways (other than the ordinary working expenses) is
financed either from Capital (loan from General Revenues) or Capital Fund or
from Depreciation Reserve Fund or Development Fund or Railway Safety Fund
or Rashtriya Rail Sanraksha Kosh.

The sources, from which any particular type of expenditure is to be financed,

are determined in accordance with the rules of allocation as approved by the
Parliament on the recommendation of the Railway Convention Committee.
Presently, apart from the construction of new lines which in all cases are
financed from Capital provided by the General Revenues, all works which when
completed would yield a specified return on the investment are also charged to
Capital. Replacements and renewals of the Railway’s assets by improved assets
at current costs are met out of Depreciation Reserve Fund. The Development
Fund bears the cost of works which are not directly remunerative as Railway
Users’ Amenities, Staff Quarters (Specified), safety items hithertofore financed
from ACSPF, amenities and also certain Operating improvements which are
not expected to yield return on investment. Railway Safety Fund bears the
expenditure on conversion of unmanned level crossings into manned level
crossings, and construction of railway over bridges/under bridges at busy level
crossings. The Rashtriya Rail Sanraksh Kosh bears expenditure on safety
related works.

A list of the types of works of railway users amenities chargeable to Development

Fund as well as the list of safety works and passenger amenities works which
were earlier chargeable to ACSPF is given in Appendix II (a) and II (b).

Ministry of Railways also generate funds through public borrowing (IRFC’s

Bonds) and through Private Public and Public- Public Partnerships forming
Joint Stock Companies and Special Purpose Vehicles (SPVs) to finance its
development Plan.

The Railways’ Plan outlay involves both rupee and foreign exchange expenditure.
For foreign exchange, the Railway depends entirely on the allocation made by
the Ministry of Finance out of the country’s overall foreign exchange earnings or
from foreign borrowings. Irrespective of the source of foreign exchange, however,
the Railway must find the rupee equivalent of the sum required in foreign
exchange (currency), so that ultimately the entire expenditure is reflected under
one or the other source mentioned in above paras.

In the present years, Railways have also generated funds through borrowing
from International Financial institutions such as World Bank, Asian Development
Bank through Ministry of Finance. In aggregate, the plan outlay (capital
expenditure) of the Railways is financed as follows:-

27
a) Internal generation of resources are :
(i) appropriations made to the Depreciation Reserve Fund,
(ii) appropriations from railway surplus and funds to Rashtriya Rail
Sanraksha Kosh
(iii) retained surplus (which may be transferred to Development Fund or
Capital Fund or),
(iv) interest on the fund balances.
b) Capit al provided by General Revenues in the form of

(i) increase in the Capital-at-charge of the Railways,

(ii) temporary loans for financing expenditure chargeable to
Development Fund and/or Capital Fund.
(iii) Funds from Central Government out of Central Road Fund to part
finance Railway Safety Fund, and
(iv) Dividend free budgetary support for Rashtriya Rail Sanraksha Kosh
c) External Resources/non-budgetary resources: The external sources
consist of BOLT, OYW, Funds provided by IRFC for acquisition and
replacement of rolling stock, and railway projects which is leased to
Railways against payment of lease charges (charged to Operating
Expenses). Railways have also moved over to private-private and private-
public financing route for funding the railway projects. Konkan Railway
Corporation, Pipavav Railway Corporation, Gujrat Adani Port Limited, Rail
Vikas Nigam and upcoming Dedicated Freight Corridors, etc, are a few
example of this new scheme of project financing.
In order to be able to develop the transport infrastructure for carrying to
projected volume of traffic and also to meet the development needs of the
nation’s economy, the Indian Railways prepares long term Corporate Plan
to cover the respective plan period.

2.4.1 Sources of Railways Capital

The Indian Railways capital is obtained by way of loans from General Revenues
of Government prior to merger of Rail Budget with Union Budget. Railways
were required to pay dividend at a fixed percentage rate for perpetuity. However
after merger of the two budgets (wef 2017-18) no dividend on such capital
investment is payable. Railways are also required to raise money by its own
internal resources. Over a period of time, the share of Railway’s own capital is
going up and that from the General Revenues is going down. From 75% in 1979-
80 it came down to 58% during the Sixth Plan period and 42% in the Seventh
Plan has further gone down in the Eight Plan to 23%. In the Ninth Plan period
it increased slightly to 32% but again dipped to 25% tenth plan. The Indian
Railways are therefore expected to generate resources on their own to meet

28
their requirement of Capital. 77% of Railways Capital generation therefore as at
present is from internal resource and extra budgetary measures.

2.5 RESERVE FUNDS ON THE RAILWAYS

In this section, we shall discuss various type of reserve funds on the railways.

2.5.1 Depreciation Reserve Fund

This fund was introduced w.e.f. 1st April, 1924 to provide for the cost of renewals
and replacement of railway assets. The fund is credited with the estimated
amount equal to the anticipated expenditure on replacements and renewals of
the various asset of the Railways to keep it in perfect condition to perform task
of transportation as a charge to the working expenses on the basis of Railway
Convention Committee’s recommendations; value of released material replaced
at the cost of DRF; and interest on fund balance. The fund bears the cost of
replacements and renewals including inflationary trends and improvements in
accordance with the rules of allocation of the funds. The fund balance is carried
forward from year to year.

2.5.2 Revenue Reserve Fund

As payment of dividend to the General Revenues was a compulsory obligation,
the Railway created a Revenue Reserve Fund to provide for the contingency
of lean surpluses or deficits in working in any year to enable the obligation of
payment of dividend to be met. The Revenue Reserve Fund was financed from
the surpluses of successful years to enable any shortfalls in the payment of
dividend to be met in those years in which the net revenue was too small. The
Fund was initially started as Railway Reserve Fund in 1924 in persuance of the
“Separation Convention.” In years when the Revenue Surplus exceeded Rs. 3
crores, only 2/3rds of the amount in excess of Rs. 3 crores was to be transferred
to the fund and the remaining 1/3rd had to be credited to general revenues.
This fund was renamed as Revenue Reserve fund from 1.4:1950 and was to
be credited from year to year with such appropriations out of the surplus as
may be voted by parliament through the Demands for Grants. Upto the end of
the financial year 1977-78 the obligation to pay the dividend was compulsory
irrespective of the quantum of net revenue of the working results of the Railways.
If there was no balance in the Revenue Reserve Fund and if the net revenue
was too small to enable the dividend being paid fully, the Railways had to borrow
from the General Revenues to make the full payment of the dividend. From
1978-79 onwards as a result of the acceptance of the recommendation of an
Expert Group on the Capital Structure of the Railways, the Railways were made
liable to pay dividend in full if the net revenues permit the payment, otherwise
only to the extent net revenue was available. There was no need, therefore, also

29
to borrow from the General Revenues in order to meet the dividend obligations.
Any unpaid dividend in a bad year was to be carried forward as an arear dividend
liability (*without any interest) to be met during the future years. The Fund thus
lost its utility with the introduction of deferred dividend liability in 1978. This
Fund has been abolished with effect from 1.4.93 with its balances transferred to
Development Fund.

2.5.3 Development Fund

Railways have certain obligation as a model employer to provide for staff welfare
as to meet the expenditure on the creation of facilities for railway users, both
passengers as well as those booking goods freight. There are occasions when
the Railways have also to undertake certain essential works to improve the
operations although the benefits may not be immediately quantified to prove its
remunerativeness. So this type of unremunerative expenditure is met out of the
Development Fund. The Development Fund is financed from the net surplus of
the Railways every year after meeting the dividend payment. If in any year the
net surplus is inadequate to provide for the full value of estimated expenditure
chargeable to Development Fund the deficiency is made good by borrowing from
General Revenues, such loans to Development Fund are charged at the average
borrowing rate as applicable to State Government, i.e., at a lower rate than the
interest rate at which loans are made to public sector organisations, etc. It also
earns interest at average borrowing rate. Consequent upon abolition of Accident
Compensation, Safety and Passenger Amenities Fund (ACSPF) w.e.f. 1st April
1993 on recommendation of RCC (1991), the existing balance under ACSPF
as on 31.3.1993 have also been transferred to D.F. The scope of D.F. has also
enlarged in sequel to the above change and is now classified as under:

DF I - Passenger and other Railways users amenity works.

DF II - Labour Welfare Works.
DF III - Unremunerative works for improvement of operational efficiency.
DF IV - Safety Works

2.5.4 Accident Compensation, Safety &

Passenger Amenities Fund
This Reserve Fund was created with effect from 1.4.1974 and was financed
by a surcharge at the rate of 5 paise per passenger travelling by second class
(and with higher rates from passengers of upper classes) included in the fares
of tickets. The earnings from this surcharge were credited to this Reserve Fund
while the expenditure on Accident Compensation, Safety works and certain
passenger amenities works were met from this fund.

The ACSPF has been abolished effective from 1993-94 and the expenditure
charged to ACSPF, has been re-allocated as under:

30
i) ACSPF (a) Accident Compensation to Revenue Demand No 12- Subhead
250-Accident Compensation.
ii) ACSPF (b) Safety works to DF-IV
iii) ACSPF (c) Passenger Amenity and allied works to DF-I

2.5.5 Capital Fund

In view of the dwindling budgetary support (i.e. loan capital from general
Revenues) it became imperative for the Railways to partly meet with the cost
of works chargeable to ‘capital’ out of their own internal resource generation.
Accordingly, a fund called Capital Fund (Railways) has been set up from 1992-93
for this purpose.

Capital Fund is credited with:

(i) the amount from out of the surplus after appropriation to Development Fund.
(ii) the cost at debit of Capital Fund of an asset which is abandoned or
disposed of without being replaced;
(iii) the difference between the cost at debit of Capital Fund of a replaced
asset (other than an replacement is chargeable to the Depreciation
Reserve Fund, and is less than the cost at debit of Capital Fund;
(iv) the cost of labour originally incurred in laying the assets or parts thereof,
when such items are subsequently transferred for use on a new work;
(v) the original cost at debit of Capital Fund (estimated if not known) of
specified asset replaced at the cost of the Depreciation Reserve Fund; and
(vi) the amount of interest earned on the balance of fund.

Capital Fund bear:

(i) the capital component of IRFC lease charges, provided that the capital
component of IRFC lease charge shall be charged to Capital, if adequate
funds are not available under Capital Fund.
(ii) all other expenditure chargeable to Capital Fund as per allocation
projected in yearly Pink Book. The distribution of the expenditure between
Capital and Capital Fund from 1998-99 onwards is to be done as per
allocation indicated in yearly Pink Book. In case of on-going works for
which source of allocations is changed in the intervening years, booking
already made shall be frozen.
(iii) Inventories will continue to remain under GBS portion of Capital.

2.5.6 Railway Safety Fund (RSF)

In order to strengthen safety and minimise accidents at level-crossing,
construction of Road over/under bridges and conversion of unmanned level-

31
crossing to manned ones necessary. To ensure adequate funding and focus
greater attention to such works, two new plan heads namely, Road Safety Works
- conversion of unmanned level-crossing into manned crossing and Road Safety
Works - Conversion of level-crossing into Road over/under bridges have already
been created. To cater to these plan-heads exclusively a new allocation head
namely, the “Railway Safety Fund” has been created.

This fund is credited with

(i) Railway revenues out of the excess left in the financial results after
payment of dividend to General Revenues;
(ii) transfer of funds by Central Government from Central Road Fund; and
(iii) the present 20% contribution which is made by the Ministry of Railways
to the existing Railway Safety Works Fund out of the dividend paid to the
General Revenues.

This is a non-interest bearing fund.

2.5.7 Special Railway Safety Fund (SRSF)

Pursuant to the recommendation of the Railway Safety Review Committee (1998)
a Special Railway Safety Fund with a corpus of Rs. 17,000 crores was been
set up in the year 2001-02 to wipe out arrears of replacement and renewals of
over aged railway assets within a fixed time frame of 6 years. For this purpose,
as approved by the Government, Rs. 12,000 crores was to be provided by the
Ministry of Finance and the balance Rs. 5,000 crores was to be mobilised by the
Railways through levy of safety surcharge on passenger fares. The allocation
of Fund was intimated by Railway Board to Zonal Railways for appropriation to
Fund. This Fund was created under Demand No. 16. The main objectives of
creation of the Fund was as under:

(i) Replacement of age old assets.

(ii) Liquidation of arrears of Track renewals.
iii) Rebuilding and Rehabilitation of bridges under distress.
(iv) Replacement of overaged Signalling and Telecommunication equipment.

This fund was credited with:-

i) Special surcharge levied by Railways on passenger fares for this fund;

ii) additional budgetary support as investment in Railways from the General
Revenues provided as Dividend Free Capital; and
iii) appropriation from railway surplus.

This was a non-interest bearing fund and was abolished in 2008.

The fund received total credits of Rs. 16915.42 crore (Rs 11954 crore from
General Revenues and Rs. 4,961.42 crore from Railway Revenues) and total

32
expenditure of Rs. 16317.64 crore was incurred from this fund. The balance
amount of Rs. 597.78 crore as on 31.03.08 was transferred to Depreciation
Reserve Fund on abolition of this fund.

2.5.8 Railway Debt Service Fund

Railway Debt Service Fund has been created w.e.f. 2013-14 from Railway’s
Revenues to provide for committed liabilities towards debt servicing of loans
taken from World bank / JICA etc for Railway projects received through
General Revenues and payment of arrears of pay and allowances, pay
commission arrears etc. Amounts will be appropriated to this Fund from
Revenue from the ‘Excess’ after meeting requirements of Capital Fund and
Development fund. The withdrawal will be made from the Fund when the
liability becomes due for payment. The balance in the fund will fetch the same
rate of interest as Capital Fund.

2.5.9 Rashtriaya Rail Sanraksha Kosh

(RRSK):
Hon’ble Minister of Finance in his Budget Speech 2017-18 has announced
setting up of Rashtriaya Rail Sanraksha Kosh (RRSK) with a corpus of Rs. 1
lakh crore over a period of five years. Accordingly, RRSK has been introduces
for financing safety related works. RRSK will be credited by contribution from
General Revenues under Capital, Central Road Fund funds received for RSF
and contribution by Railways.

In 2017-18, RRSK was credited by contribution from General Revenues

under Capital (Rs. 5000 cr), CRF funds received by RSF (Rs. 10000 cr) and
contribution by Railways (Rs. 5000 cr). Contribution by Railways of Rs. 5000 cr is
in turn funded through as under:-

a. Rs. 1000 cr. from Revenue surplus and

b. Rs. 4000 cr out of DRF

Apart from the above funds which are utilised for planned expenditure the
following funds are also maintained. The sources of receipt to these funds and
the objects for which withdrawal therefrom is permitted are also given below :-

2.5.10 Pension Fund

There is another Reserve Fund called the Pension Fund which was created
on 1st April, 1964, to reflect not only the amount actually paid as pension each
year but also the potential cumulative liability for the pension benefits earned by
every year of service so as to avoid the inconvenience of a fluctuating burden. A
specific amount calculated on the basis of an actual analysis is put into this fund

33
annually by charging the contribution to the Working Expenses of the Year. All
Pension Payments in respect of employees governed by the Pension Rules and
retired from the Railways are met out of this Fund.

As in the case of the Depreciation Reserve Fund, all these Funds are kept with
the General Revenues of the Central Government and the Railways are given
a rate of interest equal to the rate of dividend paid to the General Revenues.
Since the accretions & withdrawal from the funds are more or less of the same
magnituded no investments as such is made, the fund has lost much of its
intended significance.

The position of various funds as on 31st March 2016 as compared to that on 1st
April 2015 is as under:-

Contribution
Balance as Withdrawals Balance
Name of Fund to Fund during Interest
on 1.4.2015 due’s 2015-16 31.3.2016
2015-16
Depreciation
1786 5800 7589 36 33
Reserve Fund
Development
2008 1220 2932 94 390
Fund
Capital Fund 1389 5798 6325 45 907
Debt Service
236 3488 -- 79 3803
Fund
Railway Safety
106 2510 2601 -- 16
Fund
Pension Fund 1361 34,860 30701 138 5638
Total 6886 53,676 50,147 391 10,807

2.5.11 State Railway Provident Fund

This fund is credited with recoveries of transactions relating to State Railway
Provident Fund both contributory and non-contributory. The temporary/
permanent withdrawals from the fund and settlement at time of retirement/
cessation of service are debited to the fund. The balance earns interest at rate
stipulated by Government.

2.5.12 Staff Benefit Fund

It is operated in accordance with SBF rules and is credited with receipts from
fines, all receipts from forfeited Provident Fund bonuses other than those of
gazetted Railway servant, an annual grant from the Railway Revenue at per
capita rate in respect of each non-gazetted Railway employee on the Railway
other than in capital construction project at the end of previous year and
interest earned on the balance of fund. It is utilised to aid education, recreation,
amusement, relief to staff & their children and other objects as approved by the
General Manager.

34
CHECK YOUR PROGRESS 2 :
1. What are the various internally generated resources of Indian
Railways to meet plan expenditure ?

2. What purpose does the reserve funds serve on IR.

3. Depreciation Reserve Fund is financed from

4. How is Capital Fund financed?

5. Development fund bears

35
2.6 NON BUDGETARY RESOURCES
The external sources consist of BOLT, OYW, Funds provided by IRFC for
acquisition and replacement of rolling stock, which is leased to Railways against
payment of lease charges (charged to Operating Expenses). Railways have also
moved over to private-public financing route for funding the railway projects.
Konkan Railway Corporation, Pipavav Railway Corporation, Gujrat Adani Port
Limited, Rail Vikas Nigam and upcoming Dedicated Freight Corridors etc are a
few example of this new scheme of project financing.

2.6.1 Indian Railway Finance Corporation

Indian Railway Finance Corporation(IRFC), a Public Sector enterprise, was
set up in December, 1986 the by Government of India primarily to raise funds
from the Capital market to part-finance the Plan outlay for developmental needs
of Indian Railways. IRFC is owned and controlled by the Ministry of Railways
and enjoys full backing and technical and financial support of Indian Railways.
The company started with an authorised capital of Rs. 200 crores and paid up
capital of Rs. 100 crores contributed by Indian Railways. The authorised capital
on 31.03.2016 stands at Rs. 15000 crore and the paid up capital now stands
at Rs. 6526.46 crores including fresh equity infusion of Rs. 2400 crores during
2015-16.

IRFC raises funds through issue of taxable and tax free bonds, term loans
from banks/financial institutions and through external commercial borrowings/
export credit. At the end of financial year 2015-16 IRFC has total borrowings
amounting to Rs.81,827 crores. The money raised is used for acquisition of
assets which are leased by IRFC to the railways. It has leased assets worth Rs.
1,37,037 crores to Indian Railways upto 2015-16. In addition, the company has
provided funding support of Rs. 3,575 core to other Railway entities such as Rail
Vikas Nigam Ltd, Railtel Corporation etc. Besides,it has funded select capacity
enhancement works to the extent of Rs. 2,078 crore during 2011-12. Further
IRFC was assigned the additional task of funding Railway projects through
Institutional Finance, against which a sum of Rs. 9,430 crore has been provided
to Indian Railway during 2015-16. Thus the cumulative funding to the Rail Sector
till 31st March 2016 by IRFC stands at Rs. 1,52,121 Crore. The railways in turn
reimburse IRFC through payment of lease charges on a half-yearly basis. The
lease charges are sufficient to cover interest in bonds & redemption.

Since inception, IRFC has been consistently earning profits and till 2015-16 it has
paid Rs. 2,220 crores as dividend to Ministry of Railways.

2.6.2 Private-Public Participation

Public Private Participation arrangements are basically contracts between a
private sector entity and the government that call for the private partner to deliver

36
a desired service and assume the associated risks. In return for agreeing to
provide the service, the private partner receives payment (in the form of a fee,
tariff or user charge) according to certain standards of service and other criteria
as specified in the contract. The Government is relieved of the financial and
administrative burden of providing the service, but retains an important role in
regulating and monitoring the performance of the private partner.

Need for PPP on IR

In recent years, governments in emerging markets have been turning with

increasing frequency to the private sector for help in developing and delivering
critical services. International experience shows that, if properly designed, Public
- Private Participation arrangements can bring dramatic improvements in the
quality, availability, and cost effectiveness of services. The potential benefits of
PPP that can be achieved by Indian Railways are:

(i) access to private sector finance

(ii) managerial expertise
(iii) access to new markets
(iv) new technology
(v) better project design and implementation and
(vi) more efficient use of resources
(vii) improvement in accountability by clarifying the responsibilities of each
party. The scorching pace of growth in recent years make this one of the
most exciting period in the history of Railways. This has not only renewed
the public confidence in the Railway’s ability to respond to the challenges
of our rapidly developing economy and deliver against the exacting
standards of globalised trade and commerce, it has also strengthened
the self belief among railwaymen to look forward to the future with a spirit
of optimism. Vibrant growth in traffic volumes, revenues and surpluses,
particularly over the last two years, has demonstrated that in the era
of globalisation and reform, employees and citizens at large could all
emerge winners in an inclusive and win-win business model.

It needs no mention that there is immense scope and demand for new Railway
lines in India and also need for planned development of the existing system. This
calls for huge capital investment. The capital support to Railways from General
Revenue is inadequate if not dwindling. Further owing to tight market situation it
is becoming increasingly difficult to raise resources through IRFC even though
it is already costlier. Fares are not enough to repay the cost of building and
maintaining the lines. As a result, the Railway revenues are not sufficient to cover
the cost of operation and maintenance.

As the economy expands, the transport sector must keep pace to sustain the
growth rates of the economy. The 8% growth in GDP has triggered significant
expansion plans on the Indian Railway, as it gears up to handle the substantial

37
increases in volume in both the passenger and freight businesses. The Indian
Railway is today in a position to generate substantial resources to finance this
expansion but the projected requirements are significantly higher than the current
pace of expansion. Thus the Railway has been seeking instruments such as PPP
to fund this expansion. A dedicated PPP cell has been opened in the Railway
Board to closely monitor the PPP arrangements of the Indian Railways.

The main aim of the growth agenda would be to look at all options to augment
the infra structure growth to prevent any bottleneck to growth and augment
capacity to match the requirement.

The investment strategy over the next 5-10 year period would accord top most
priority to low-cost, rapid payback and high return investments with the emphasis
on accelerating the identified works. A large role has been given to PPP in the
attainment of the strategic goals outlined above. In the past Indian Railways had
made several attempts to rope in private participation in the field of catering,
wagon ownership and leasing and joint ventures for Rail infrastructure projects.
These efforts were limited in scale and hope. The current strategy is to leverage
capital through PPPs to the maximum extent in areas, which are amenable to
PPPs to improve efficiencies and control costs. Indian Railways has chalked out
a well-planned strategy that would accelerate investment in infrastructure. The
following projects have been identified to be implemented on PPP route:

Dedicated Freight Corridor (DFC)

A decision has been taken to construct a new Dedicated Freight Corridor (DFC),
initially covering about 2700 route kms equivalent to over 5000 of Track kms at
an approximate cost of Rs.22,000 crores, linking the ports of western India and
the ports and mines of Eastern India to Delhi and Punjab. The construction will
be implemented through a mix of Engineering Procurement and Construction
(EPC) and PPP methods. Indian Railways is in the process of selecting a global
consultant to advise the concession agreement, principles of track access
charges and other financing and bidding issues. It is envisaged that innovative
ideas on design, construction and maintenance of railway to achieve optimal life -
cycle cost would be forth coming through PPP especially as the work progresses
on the initial two corridors and further corridors are taken up. The concessionaire
could also tap additional ancillary revenue streams through commercial
exploitation of land, construction of freight terminals/logistic parks/ICDS etc.
Further after firming up a wagon design for the DFC, private investment for its
manufacture also would be encouraged.

Development of stations, passenger amenities and commercial utilisation

of land

The Railway Ministry is planning to modernise the Metro Railway Stations like
Delhi, Mumbai etc. to provide world-class passenger amenities and services to
the large multitude of passengers. This work will be done by attracting private
investments in the area by allowing the areas around the stations and the air
space above the platform to be developed while operational/passenger - handling

38
areas are separated from such commercial areas as in the case of airports.
The concessionaire is expected to construct and maintain the operational and
passenger areas free of cost by sharing the revenue earned from the real estate
created and hand over the same after the concession period. The pilot project for
the New Delhi Station is on the anvil.

It is also being planned to develop the vacant land around railway stations
and in Railway colonies especially in Metro and other important cities/ towns
with potential of being used commercially to generate revenue as well as
capital for modernisation and capacity addition. An authority namely, Rail Land
Development Authority (RLDA) has been set up under the Railway (Amendment)
Act 2005 to pursue, inter alia, the main objectives of generating revenue, up
grading railway assets and providing world - class state - of - the - art passenger
facilities/ services at stations.

Operation of container trains, construction of private sidings, inland

container depots and warehouses

Licenses have already been awarded to private players. Model Container

Agreement for private players to participate in container business under PPP
mode has been developed. Ministry of Railways intends to partner with state
governments, private logistic operators and infrastructure providers to establish
multi modal logistic parks equipped with rail sidings with sheds, large inland
container depots, office buildings for logistics operators, highway connectivity,
and smaller assembly units for processing imported raw materials for export.
These hubs may be strategically located to capture agro- industrial produce
in the hinterland and to provide competitive transport to expand the access to
markets for industries in the covered areas. These hubs could be developed as
mini-freight villages or as logistic parks depending on the turnover. In the event
of a large turnover, there is scope for accommodating a gamut of value added
facilities like warehousing, refrigerated store houses, cranes and other handling
facilities, packing/ repacking, assemble, repairs, maintenance, financial services,
agro marts, electronic centres, etc. These hubs can be developed on PPP basis
on Build- Own-Operate basis as state of art 24x7 service centres.

CHECK YOUR PROGRESS 3 :

1. What are the external sources to meet with plan expenditure on IR?

39
 2. How does IRFC helps IR?

3. What is relevance of Private Public Participation on IR?

Wagon investment scheme

The response towards wagon investment Scheme with provision for freight
rebates and supply of a guaranteed number of rakes over period ranging from
7 - 15 years of various categories of wagon has been very good. There is need
for review on the basis of feed back from the subscribers and the continuity of the
scheme may also be assured.

Port connectivity and other infrastructure projects through Rail Vilkas

Nigam Limited(RVNL)

RVNL a SPV under Ministry of Railways was incorporated on 24th January 2003,
and became functional by March 2005, has been entrusted to undertake capacity
augmentation and port connectivity projects by establishing Special Purpose
Vehicles (SPVs). RVNL is directly executing a number of important projects on
fast track basis for strengthening the Golden Quadrilateral and its diagonals and
Rail connectivity to ports by adopting the PPP funding model.

Parcel Services

Piece meal licensing of parcel vans in important mail express trains are already
being carried out in Indian Railways. A comprehensive policy of leasing full parcel
vans and luggage space in trains between identified origins & destinations has
been finalised.

Catering services, budget hotels and food plazas

Indian Railway Catering and Tourism Corporation (IRCTC), a IR owned company,

has already been mandated to develop catering services, budget hotels and food

40
plazas at major stations through the involvement of private entrepreneurs. Letters
of acceptance have been issued for two budget hotels at Madurai and Vijaywada.
IRCTC intends to take up around 100 such Budget Hotel projects in the next five
years with Public Private Participation (PPP).

IRCTC is also opening new Food Plazas in Railway premises with private
participations. The license period for food Plazas is of nine years with a
provision of extension of three years. Already 37 such Food Plazas have been
commissioned and five more are awaiting commissioning.

In the field of catering and on board services, Ministry of Railways is in the

process of carrying out an examination of the scope of need based ‘Base
Kitchens’ and ‘Launderettes’ with Public Private Participation to strengthen the
infra structure for on board services. Call centres are also being planned under
PPP by IRCTC to cater to the need for information dissemination to the railway
customers. Apart from the above projects for which IReTC would act as a anodal
agency, Indian Railways is also planning to launch new services for the luxury
tourism segment on the pattern of ‘Palace on Wheels’ in partnership with other
States who may evince interest.

2.7 LET US SUM UP

In this unit we have discussed the salient features of Railway’s planning process,
financial planning for railways projects, various reserve funds maintained by
railways, resource mobilization for financing the railway infrastructure projects.
We have also discussed that development of Rail Infrastructure require
substantial investment. The traditional source of investment in Rail Project so far
had been budgetary support from General Revenues and internal generation of
funds. Both of these sources are not enough to meet with the growing needs of
railway projects. Therefore, railway has to find non-budgetary sources of finances
in the form market borrowals through IRFC, Public/Private participation through
Own yours Wagon Scheme (OYW); ‘Build Own Lease Transfers Projects (BOLT);
Build Own Transfer Projects (BOT); Special Purpose Vehicles (SPVs) etc. At the
end we have discussed some of the important projects planned to be executed
under PPP route.

APPENDIX - IIA

LIST OF PASSENGER AMENITIES AND OTHER RAILWAY USERS

AMENITIES

1. PASSENGER AMENITIES
1.1 Provision of overhead and/or ground level arrangements at stations
for filling water in carriages, water supply at stations for the use of

41
 passengers, including not only general water supply arrangements which
are used for providing water in carriages but also purification plants
installed, water coolers-electric or otherwise, water trollies etc., provided
for use of passengers.
1.2 Provision of waiting accommodation including reinforced cement
concrete and other types of benches at statiONs including extension
or improvements to existing arrangements to meet the requirements of
Railway passengers.
1.3 Refreshment Rooms, Retiring Rooms and Vendors’ stalls of all
descriptions at stations provided for catering to railway passengers,
except those which the vendors are required by contract to provide at
their own cost.
1.4 Provision of improvement of latrines provided for railway passengers at
stations.
1.5 Miscellaneous improvements, viz., provision of seats, hedges, shady
trees on platforms, at stations to cater to the needs of railway passengers.
1.6 Provision of bathing facilities at stations for use of passengers.
1.7 Provision or improvement of approaches and circulating areas at stations
including improved lighting, tonga-car-taxi-cycle rickshaw stands to cater
to the requirements of railway passengers.
1.8 Improvement to existing carriages such as provision of fans, improved
lighting and lavatories special insulation in roofs, bigger water tanks in
carriages, better fittings etc., intended to provide improved facilities to
railway passengers. Cost of additional coaches to compensate the loss in
seating capacity when old coaches are replaced by new coaches which
have a lower carrying capacity due to provision of better facilities for
passengers.
1.9 Improved lighting and provision of fans on platforms or in waiting halls
and sheds or vendor’s stalls at stations to cater to the requirements of
railway passengers.
1.10 Exhibition of time tables in glass fronted frames at stations, to serve the
requirement of passengers.
1.11 Works under all the above heads meant to cater railway passengers
provided in connection with meals and required for periods exceeding 6
months.
1.12 Any other works considered essential for meeting the requirements of
railway passengers at any station, etc., provision of information Offices or
Kiosks, provision of public announcement system etc.

42
 OTHER RAILWAY USERS’ AMENITIES

2.1 Arrangements for drinking water including water coolers, water trollies etc.
2.2 Waiting accommodation, including provision of various types of benches.
2.3 Refreshment rooms and vendor’s stalls except those that a contractor has
to provide at his own cost.
2.4 Latrines
2.5 Miscellaneous improvements, namely; provision of seats, hedges and
shade-trees.
2.6 Approach roads, circulating area, bullock and other cart sheds and water
troughs etc.
2.7 Lighting arrangements and provision of fans.
2.8 Any other work considered essential, e.g., Enquiry Offices/Information
Centres etc.
2.9 Works under the above heads provided in connection with meals and
required for period exceeding 6 months.
APPENDIX – IIB

LIST OF WORKS WHICH WERE EARLIER CHARGEABLE TO ACSPF

Expenditure on the following items of safety works:-

i) Track circuiting or axle counters (including the cost of new wooden

sleepers).
(ii) Automatic Warning System (AWS)
(iii) Vigilance Control Device
(iv) Provision of lifting barriers at level crossings.
(v) Interlocking of level crossing gates with signals.
(vi) Provision of scotch light of reflective materials on sighting/warning boards.
(vii) Road over/under Bridge in lieu of Level-Xings
(viii) FOB/FUB across yards.
(ix) Manning/upgrading unmanned level crossings.
(x) Raising, extending, widening, surfacing, covering or other improvements
on platforms at stations except when such works are required for other
than passenger amenity reasons, e.g., extension of platforms at big
stations to accommodate full length trains, carrying additional coaches
is provided to relieve over crowding, provision of additional platforms to
facilitate crossing of trains.

43
(xi) Provision of additional foot-over bridges, improvement and covering of
existing foot over bridges or subways within station premises to connect
platforms or offices at stations, parcel offices, goods sheds etc., to serve
the needs of railway Users.

Expenditure on the following specific works of passengers amenities:-

(i) Provision of goods platforms and covers over goods platforms.

(ii) Train indicator boards at important stations of suburban and non-
suburban sections; and
(iii) Rest shelters for licensed porters.

Accident Compensation Safety & Passengers Amenities Fund (ACSPF) has

been abolished effective from 1993-94 charging the incidence of accident
Compensation directly to Revenue & by clubbing the portion of expenditure
of certain specific amenities for user of Railway Transport under ACSPF
with Passengers users amenities under Development Fund (DF-I) and the
expenditure on safety works which is generally of unremunerative nature
allocated to a separate new head under Development Fund as DF-IV.

2.8 CHECK YOUR PROGRESS : THE KEY

CYP 1 :

1. In case of freight projection, this exercise is carried out in two different

ways. Firstly, the future level of ‘originating tonnage’ and ‘lead’ is arrived
at on the basis of the past trends. In the alternative exercise, details likely
movements of selective bulk commodities like coal, iron ore, cement,
POL, fertilizer, etc., which account for a dominant share of the Railways’
freight traffic, are traced from the likely or known source to the various
consumption points on the basis of available information. Only the
residual traffic in the second exercise is assessed on past trends. These
alternative methods enable a good cross check on each other for final
forecasting of the transport requirements.
The growth of passenger traffic is anticipated on the basis of past
trends, separately for suburban and non-suburban traffic. In regard to
non-suburban-traffic, the extent of overcrowding existing at present
on long distance trains on trunk and other major routes is assessed.
In regard to suburban traffic, the studies conducted from time to time
in respect of population projections, as also studies in connection with
the various Metropolitan Transport Schemes, are taken into account.
With these are also correlated the studies of national income and the
growth of rail passenger traffic. This takes into account passenger
distribution of different gauges, for different leads of movement, and

44
 for each individual class of travel, as also separately by Mail/Express
Passenger train services. The resulting analysis of additional passenger
traffic and passenger kms are used to arrive at the additional vehicle kms
requirements based on progressively improving norms of vehicle usage
and availability.
2. Tentative outlays for the various Railway Zones and Production Units are
communicated to them each year, so that they can prepare an annual
list of projects for consideration. After scrutiny and finalisation, a draft
Annual Plan for the entire system is prepared. This is discussed at a
meeting with the Planning Commission at which the Finance Ministry is
also represented. The extent of availability of resources for the particular
year is indicated. The Annual Plan as then finalised forms the basis of the
Demands for Grants in respect of works expenditure which is voted by
Parliament through the Union Budget. The ultimate distribution of funds
and choice of projects are communicated to the Zones after the Budget
approval.
CYP 2 :

1. Internal generation of resources consist of the following:

(i) appropriations made to the Depreciation Reserve Fund,
(ii) appropriations from Railway surplus and funds to Rashtriya Rail
Sanraksha Kosh. This fund also receives dividend free budgetary
support from General Revenue,
(iii) retained surplus (which may be transferred to Development Fund or
Capital Account),
(iv) interest on the fund balances.
2. The Railway Reserve Funds are built up from internally generated
resources and contribution from Central Government to meet with the
expenditure as per rules of allocation.
3. Depreciation Reserve Fund is financed from ordinary working expenses.
4. Capital fund is created with appropriation of the balance surplus after
meeting appropriations to :-
(i) Payment of interest of loan to Development Fund,
(ii) Development Fund,
(iii) Payment of deferred dividend,
(iv) Repayment of loan to Development Fund.
(v) interest on fund balance at dividend rate as per extant
recommendation of RCC.

45
5. Development funds bears expenditure on :

DF I - Passenger and other Railways users amenity works. DF II - Labour Welfare

Works.
DF III - Unremunerative works for improvement of operational efficiency.
DF IV - Safety Works

Bibliography

(1) Indian Railways Administration & Finance-an-introduction.

(2) Budget Speech of Railway Minister 2004-05.
(3) Explanatory Memorandum on the Railway Budget 2004-05.
(4) Indian Railways Year Book 2004-05.
Questions for Study

1. Describe the process of financial planning on Indian Railway.

2. What are the non budgetary resources for Indian Railways to meet with
the capital expenditure requirements? Describe relevance and need for
private participation.
3. Write a short note on Indian Railway Finance Corporation. What is its
main activity?
4. What are the Reserve Funds provided on the Indian Railways? Also
describe criterion for determining the source of financing.
5. What is Pension Fund?
6. What is Capital Fund ? How is it funded ?

46
 8
u
fjog l
Institute of Rail Transport
Planning, Financial
s i

La Fkku

irt
jy

ub Z
fnY y h
Management &
Investment Policies

UNIT-3
Organisation and Function of the Finance
& Account Management of the Railways

Structure
3.0 Objectives
3.1 Introduction
3.2 Accounts Department
3.3 Finance Function
3.3.1 Items Requiring Consultation with Finance
3.3.2 Issue of Sanctions
3.3.3 Cannons/Standards of Financial Propriety
3.4 Budget Function
3.5 Financial Analysis
3.6 Internal Check
3.6.1 Internal Check of Sanctions and Orders
3.6.2 Internal Check of Delegations of Financial Authority
3.6.3 Scrutiny of Receipts
3.6.4 Internal Check of Expenditure
3.7 Internal Audit
3.8 Statutory Audit
3.9 Structure of the Financial Organization
3.9.1 Railway Board Level
3.9.2 Structure of Finance Organization on Zonal Railways
3.9.3 Organization at Divisional Unit Level
3.9.4 Organization for Collecting and Distributing Cash
3.9.5 Organization for other Ancillary and Allied Functions
3.9.6 Data Processing Centres
3.9.7 Non-Gazetted Establishment of the Accounts Department
3.10 Office Procedure
3.11 Let us Sum Up
3.12 Check Your Progress : The Key Books for Study and Reference Questions
for Study

47
3.0 OBJECTIVES
After studying the unit, you should be able to :

OO discuss the basic functions of the Accounts Department of the Indian

Railways;
OO explain the finance function, the basic item involved in this function;
OO discuss the nature of scrutiny exercised in the finance department of the
Indian Railways;
OO describe the internal audit function; and
OO describe the structure of the financial organization of the Indian Railways.

3.1 INTRODUCTION
In the previous unit we have discussed various issues related to finances of
Indian Railways. In the unit we shall discuss organisation and functions of the
finance and accounts management of the Indian Railways.

3.2 ACCOUNTS DEPARTMENT

It is a well-known fact that the accounting and finance functions of any
undertaking are most important. The Accounts and Finance organisation on the
Railways performs the following functions :-

i) The basic accounting functions,

ii) Financial scrutiny of all investment, proposals,
iii) Preparation of Budget,
iv) Expenditure control, and
v) Preparation of statistical data regarding cost of operation/ production on
the Railways.

The Accounts Department of a Railway Administration is mainly responsible for:-

i) Keeping the accounts of the railway in accordance with the prescribed

rules,
ii) The check with reference to rules or order (known as “Internal Check”) of
transactions affecting the receipts and expenditure of railway,
iii) Prompt settlement of proper claims against the railway,
iv) Tendering as part of its important functions, advice to the administration
whenever required or necessary in all matters involving railway finance,

48
v) Compilation of Budget in consultation with other departments and
monitoring the budgetary control procedures as may be laid down in the
relevant orders and code rules from time to time,
vi) Generally discharging other management accounting functions such as
providing financial data for management reporting, assisting inventory
management, participation in purchase/contracting decisions and surveys
for major schemes in accordance with the relevant rules and orders, and
vii) Seeing that there are no financial irregularities in transactions of the
railway.

3.3 FINANCE FUNCTION

The basic finance function on the Railway differs slightly from that of a
commercial undertaking where the management of cash is relatively a more
difficult problem as compared to the Railways, which are a Government
departmental undertaking. Unlike the commercial undertakings, such as
private companies or public sector companies, the Railways do not have the
powers to invest surplus cash according to their own plan or avail of over- draft
facilities from banks and other financial institutions to facilitate working capital
and other cash required for investments. All money received is put into the
Consolidated Fund of India and all money required for expenditure is drawn
from the Consolidated Fund of India after observing the prescribed constitutional
requirement of obtaining Parliament’s vote, President’s sanctions etc. However,
for purposes of internal financial control, an “exchequer control system” has been
evolved on the railways according to which budget of cash requirement for the
year as a whole and broken up into each quarter, is required to be compiled by
each Zonal Railway and after scrutiny at the level of the Ministry, allotments of
funds are made available every quarter. The Railways are required to adhere to
the ceilings of cash allotments thus made.

3.3.1 Items Requiring Consultation with

Finance:
As a general rule all proposals involving financial implication except those which
have been specifically exempted for this purpose, should be referred to Finance
Branch for advice before they are sanctioned by the competent authority. But
the proposals for fresh expenditure which are governed by rules and regulations
e.g. grant of increment, sanction to officiating promotion, grant of leave etc. do
not require consultation with Finance Branch unless the proposal involves any
variation of the rule or departure from the sanctioned procedure. The main items
in which prior consultation with Finance Branch is necessary may be broadly
classified as under:

49
(i) Establishment
(ii) Works
(iii) Estimates
(iv) Tenders
(v) Contracts
(vi) Stores Indents & Purchase Orders
(vii) Delegation of Powers
(viii) Commercial Matters
(ix) Foreign Exchange
(x) Miscellaneous Matters.

Establishment: Expenditure on staff constitutes the major portion of the working

expenses of a Railway. As such proposals for creation of additional posts should
be carefully examined and before such proposals are agreed to all avenues
of effecting economy by adopting alternative means for meeting the situation
such as, re-arrangement of work and duties, elimination of unnecessary work,
simplification of procedures and rationalisation of works etc. should be fully
explored. Generally the following types of cases in Establishment matters require
prior consultation with Finance:

(a) Creation of additional posts,

(b) Extension of term of temporary posts,
(c) Grant of advance increment and fixation of initial pay by higher than that
admissible under rules,
(d) Revision of time scales of pay,
(e) Grant of additions to pay
(f) Grant of honorarium,
(g) Annual review of cadres in which higher grade posts are regulated by
percentage,
(h) Conversion of temporary posts into permanent ones,
(i) Grant of conveyance allowance, motor-car allowance etc.,
(j) Re-imbursement of legal expenses to staff, and
(k) Fixation of consolidated travelling allowance.

For proper appreciation of the proposal for creation of additional posts, it is

necessary that it should be accompanied by a proposition statement showing
the particulars of the existing- staff, the proposed staff and the increase or
decrease in each category of post, so that total picture can be taken into account
in its proper perspective. The creation of additional posts etc. would of course

50
be subject to the availability of funds and on a scrutiny whether the additional
expenditure can be found from the existing sanctioned budget allotment.

In the present day context of greater delegation of authority and to avoid the
financial scrutiny of petty establishment proposals it may become necessary to
dispense with prior consultation with Finance where funds are allotted for specific
projects/objectives and give a break up of establishment charges and other
charges. Within such financial limits, the Departmental Officer can exercise his
discretion to sanction the expenditure without consulting Finance.

Works: All proposal for expenditure on works are required to be scrutinized with
regard to its necessity, utility and financial prospects as per prescribed rules.

Estimates: Apart from the financial scrutiny of the proposals for expenditure on
works, the duty of verification of estimates for works devolves upon the Finance
Branch. It has to be seen that the details of the scheme as worked out are
satisfactory and the cost has been estimated from reliable data and is likely to
be reasonably accurate. Finance Branch has also to examine the incidence and
allocation of each item in the estimate and verify the budget provision.

Tenders: Finance Officer at the headquarters/divisional level has to function as a

member of the Tender Committees constituted for this purpose with the approval
of the competent authority. It is the duty of the Financial Adviser to check the
statement of tenders compiled by the Executive Officer and also the Briefing
Note. He should render his financial advice to the Tender Committee and suggest
the tender which is most beneficial to the Railway administration.

Contracts: The concurrence of the Finance Branch is necessary:

(a) to the commencement of a work or of supplies prior to the execution of

contracts;
(b) to the variation of the standard conditions of contracts and to the inclusion
of any provision in the contract involving an uncertain or indefinite liability
or of any condition of unusual character;
(c) to the incorporation in the contract of a ‘Price variation clause’;
(d) to the material alteration of any terms of a contract after it has been
entered into;
(e) to the variation of the condition of the contract after it has been entered into;
(f) to the variation of the rates, to the extension of the date of execution
of the contract viz., to extend the delivery period of the supplies or
completion of the work, where necessary, as per extant rules; and
(g) any other item where such concurrence is necessary under rules or
orders.
Stores Indents: All stores indents for procurement of stores are scrutinized by
the Finance Branch in respect of reasonableness of the quantity to be procured.
Financial Advisers have to play an important role in the area of Inventory

51
Control on the Zonal Railways as well as Production Units with a view to keep
the inventories at the optimum level. Apart from checking the reasonableness
of the quantity of stores, it is also the duty of the Financial Adviser to certify the
availability of funds in the sanctioned budget allotment of the year in which the
bills for supply of stores are likely to be received for payment or adjustment.

Delegation of Powers: The concurrence of the Finance Branch is necessary to

all proposals for the re-delegation of powers to subordinate authorities. In such
cases, apart from seeing that the re-delegation of power is permissible under the
extant rules, it has to be ensured that the re- delegation of power is necessary for
the efficient performance or duties.

Commercial Proposals: The commercial proposals requiring financial

concurrence will be mainly the following:

(a) Changes in rates for Coaching Goods Traffic.

(b) Changes in rates for handling any Goods and Coaching Traffic at Stations
and transhipment points.
(c) Agreement for handling contracts, lease of land at stations, terminal tax
etc.
(d) Opening of new stations, booking offices and out agencies, halts etc.
(e) Writing off/refund of wharfage and demurrage charges beyond certain
limits.
(f) Payment of Compensation Claims on goods lost or damaged or injury to
person.
(g) Any other proposal or claim which may affect earnings or expenditure of
the Railway.

Check of Purchase Order : All Purchase Orders valuing more than prescribed
value are vetted by the Finance Branch. The scrutiny is exercised in all respects,
particularly in respect of quantities, rates and agreements in accordance with
the instructions laid down in the Indian Railway Code for the Stores Department.
After vetting, the Accounts copy of the Purchase Order should be signed by the
Finance Officer whose specimen signature should be supplied to the Accounts
Officer entrusted with the duties of check and payment of the bills for the stores
supplied.

In respect of Purchase Orders valuing not more than the prescribed limit, a 100%
test check should be exercised in the Accounts Office.

Foreign Exchange Commitments: All proposals involving foreign exchange

commitments should be scrutinized in Finance Branch with a view to ensure
that the purchases from abroad are absolutely unavoidable. It should be further
examined as to why the requirement cannot be met from indigenous sources.
The ceiling limit up to which foreign exchange commitments can be sanctioned
by the Railway Administration during a period is fixed by the Railway Board from

52
time to time. The Financial Adviser and Chief Accounts Officer may approve of
commitment being made from the foreign exchange angle, provided the amount
of foreign exchange including c.i.f. value does not exceed the monetary limits
fixed by the Railway Board.

Miscellaneous Matters: The following types of proposals involving financial

implications require financial scrutiny:

(a) Write off of losses of cash, tools and plants, stores, irrecoverable dues
etc.
(b) Telephone connections.
(c) Purchase of typewriters.
(d) Purchase of electrical energy from outsiders.
(e) Cash imprest.
(f) Printing work given to outside Presses.
(g) Reimbursement of legal expenses to staff.

Finance Branch has also to examine the Annual Works Programme, the Rolling
Stock Programme and the M & P Programme.

3.3.2 Issue of Sanctions

The sanction issued after consultation with the Finance Branch should mention
that it issues in consultation with the Finance, alternatively the sanction itself
should be endorsed by the Finance Officer so that the Accounts Officers
entrusted with the internal check should ensure that all matters where financial
concurrence is necessary have been seen in the Finance Branch.

The General Manager in consultation with the Financial Adviser and Chief
Accounts Officer may lay down certain items of expenditure not requiring prior
concurrence by Finance Branch for expeditious disposal of work.

3.3.3 Canons/Standards of financial propriety

In the exercise of their financial powers, the sanctioning authorities must pay due
regard to the following principles:

(1) The expenditure should not prima facie be more than the occasion
demands, and that every Government servant should exercise the same
vigilance in respect of expenditure incurred from public moneys as a
person of ordinary prudence would exercise in respect of the expenditure
of his own money.
(2) No authority should exercise its powers of sanctioning expenditure to
pass an order which will directly or indirectly be to its own advantage.

53
(3) Public moneys should not be utilized for the benefit of a particular person
or section of the community unless:
– the amount of expenditure involved is insignificant; or
– the claim for the amount could be enforced in a court of law; or
– the expenditure is in pursuance of a recognised policy or custom.
(4) the amount of allowances, such as travelling allowances, granted to
meet expenditure of a particular type, should be so regulated that the
allowances are not on the whole a source of profit to the recipients.

The other important functions of Finance Management on the Railways are

budget, financial analysis, internal check & internal audit.

CHECK YOUR PROGRESS 1 :

1. What function are performed by the finance organization?

2. What is internal check?

3. Which proposals need to be referred to finance

54
 4. What are the canons of financial property?

5. What is productivity test?

3.4 BUDGET FUNCTION

The budget is a very important management tool. It is usually defined as a
statement of anticipated income and expenditure and the net results expected for
the undertaking as a result of the operations during the accounting period, which
is usually a year.

The budget is used both as a means of obtaining the approval of Parliament as

a constitutional requirement as well as a management control mechanism on the
operations. The details of budget compilation will be discussed in the separate
lesson. It would suffice to mention here that for the purpose of management
control, the budget sets the targets for various functions, programmes and
activities of the Railway both quantitatively and financially and the performance
of the various departments in charge of the different functions is watched through
these targets.

The Financial management also is responsible for periodical reviews of the

budget with reference to the actual performance and for putting up requests for
changes in the allotments of money to the Parliament through supplementary
demands. The reviews of the budget, therefore, introduce a certain amount of
flexibility in regard to allotment of funds and with reference to the physical targets
of performance set before the railways. Flexibility in budgeting is a modern trend
even for purposes of control but at the same time this should not be carried

55
beyond certain optimum limits; otherwise budgetary control, as a management
tool would become meaningless.

3.5 FINANCIAL ANALYSIS

Financial Analysis involves :

i) Scrutiny of all proposals for investment adopting modern methods and

techniques such as Discounted Cash Flow Techniques,
ii) Analysis of financial results of operations (earnings and expenditure)
regularly for managements, and
iii) Putting up reviews for the local management as well as for the Board.

In scrutinising the proposals for investments on works, the financial scrutiny

should include comments regarding the following items :-

i) desirability of undertaking the work,

ii) reasonableness of the data and expected financial return,
iii) priority for the work, and
iv) likely availability of funds.

The details of scrutiny should cover :

i) nature and objectives of the project,

ii) details of investment (including reasonableness of the cost estimates) and
its time factor,
iii) provision for stores, spare parts and contingencies etc.,
iv) sources of finance (e.g., external loans or internal plan funds etc.),
v) annual expected income and working expenses over the life of the
project,
vi) rate of return and financial justifications,
vii) mode of execution of the work - by contract or departmentally, viii)
allocation of source of funds. viz., Capital, DRF etc.,
ix) Whether the proposals are included in the investment plan of the
Railways and if not, special reasons for their exclusion during the current
plan.

COSTS OF OPERATIONS

Analysis of Financial results of operations should also include working out the
operational costs of different types of traffic operated and carried, such as freight,
passenger, special movements. etc.

56
3.6 INTERNAL CHECK
The check exercised by the Accounts Officer on the financial transactions of the
railway on behalf of the Railway Administration is called internal check. It is so
called to distinguish it from the audit conducted by the Pr. Director of Audit of the
Railway on behalf of the Comptroller and Auditor General. The internal check
should be conducted with reference to:

(a) Rules and orders issued by the President, the Railway Board, General
Managers of Railways and other subordinate authorities to whom the
power to issue rules or orders has been delegated,
(b) the instructions contained in Indian Railway Codes and any further
instruc-tions issued from time to time by the Railway Board; and
(c) the recognised standards of financial propriety.

Unless an exception is specially permitted in any particular case, all transactions,

whether relating to receipts or expenditure, should be checked cent per cent and
no transactions should be brought into account before they have been completely
checked.

3.6.1 Internal Check of Sanctions and Orders

The Accounts Officer should examine every rule, order or sanction whether
issued by the President or the Railway Board or any subordinate authority in
order to see:

(a) That the authority framing the rule or according the sanction is competent
to do so;
(b) That the sanction is definite and thus needs no reference either to the
sanctioning authority itself or to any higher authority;
(c) That the rule or order or sanction does not contravene any general or
special orders of any higher authority: and
(d) That in all orders conveying sanctions to expenditure of definite amounts
or upto specified limits, the amounts sanctioned are always expressed
both in words and figures.

3.6.2 Internal check of Delegations of

Financial Authority
All orders of delegation of financial authority should be scrutinized carefully to
see that the delegation is made by a competent authority and only where the
rules or orders of higher authority approve of such delegation, as once they have

57
been accepted, the internal check of sanctions as well as of expenditure or other
transactions may be conducted against them for an indefinite length of time.
They should receive the personal attention of the Accounts Officer and should be
formally accepted by him before they are admitted in internal check.

3.6.3 Scrutiny of Receipts:

In scrutinizing receipts. it should be seen that

(a) the amounts due to the railway for services rendered, supplies made or
for any other reason, are correctly and promptly assessed and recovered
as soon as they fall due;
(b) all receipts are properly brought into accounts; and
(c) all receipts are correctly classified and, if they represent amounts due to
more than one railway, they are correctly apportioned among the railways.

3.6.4 Internal check of Expenditure

Pre-check and Post-cheek-All claims against the railway should be checked by
the Accounts Officer before payment is made (i.e. pre-checked). As exceptions
to this general rule, the following payments may be made before such check,
but they should all be checked in the Accounts Office after payment is made (i.e.
post-checked):-

(a) Payments from imprest;

(b) Payments from station earnings when permitted under rules;
(c) Commission deducted by auctioneers from sale proceeds under their
agreement;
(d) payments of certain classes of pay bills. muster sheets and labour pay
sheets of open line staff specially permitted to be made by the Financial
Adviser and Chief Accounts Officer, and
(e) payments made in advance to Executive Officers for purchase of stores
etc. pending render-ing of the accounts and vouchers.

Scrutiny of Expenditure.-All claims against the railway should be scrutinized to

see:

(a) that the expenditure is incurred by an officer competent to incur it;

(b) that the remission of revenue has been sanctioned by competent
authority;
(c) that all prescribed preliminaries to expenditure have been observed, e.g.
that proper estimates have been framed and approved by competent
authority for works expenditure;

58
(d) that it is covered by the grant at the disposal of the officer incurring it or by
funds reapprop-riated by competent authority for the purpose;
(e) that the expenditure docs not contravene any rules and orders in force, or
any general or spe-cial orders issued by competent authority;
(f) that the expenditure does not involve a breach of the canons of financial
propriety;
(g) that the expenditure sanctioned for a limited period is not admitted
beyond that period without further sanction:
(h) that, in the case of recurring charges which are payable on the fulfilment
of certain con-ditions or till the occurrence of a certain event a certificate
is forthcoming from the drawing officer to the effect that the necessary
conditions have been fulfilled or the event has not yet occurred;
(i) that the expenditure has been properly and fully vouched for and that
payment has been so recorded as to render a second claim on the same
account impossible;
(j) that the charge has been correctly classified; and
(k) that if a charge is debitable to the personal account of a contractor,
employee or other individual or is recoverable from him under any rule or
order, it is recorded as such in a pre-scribed account

Check of bills - All bills should, in so far as they represent claims against the
railway, be scrutinized as required in the preceding paragraph. They should, in
addition, be checked to see:-

(a) that they are in the prescribed form, are written in ink and are in original;
(b) that they are in English/Hindi or if in any other language, have been
rendered into English/ Hindi:
(c) that their totals are given both in words and in figures, that there are no
erasures, and that any alterations in the totals are attested as many times
as they are made:
(d) that Fund and Income-tax deductions, where applicable have been
correctly made;
(e) that they bear a certificate, wherever necessary, from the departmental
officer that the ser-vices for which the payment is claimed have been
actually rendered;
(j) that if the proof of the correctness of a claim docs not accompany the bill
(e.g. the leave account of a subordinate for whom leave salary is drawn),
a certificate is furnished that the c1airn has been checked with the
relevant document and found correct;
(g) that if the bill is for tools or other articles of equipment for which an
inventory is prescribed, it has been certified by the departmental officer
that the necessary entries have been made in the relevant Stock Account.

59
Check of Paid Vouchers.-Paid vouchers and bills on which no more payments
can be made are received from the Pay Department. On receipt of the paid
vouchers and bills in the Accounts office, the column relating to “Date of return
by Pay Department”, of the Bills Register should be filled up. Bills which were
not pre-checked should then be sorted out and sent to the section concerned for
internal check,

All bills, whether under the pre-check or the post-check system, on which
payment has been made should be checked to see:-

(a) that the acknowledgements of payments are in English or in Hindi and if

in any other language. have been rendered into English or Hindi;
(b) that the names of payees mentioned in the bills tally with the signatures
obtained in ack-nowledgement of the amount paid;
(c) that the payment has been witnessed, where so required, by the official
named in the bill and that the acknowledgement is unqualified and that
prima facie, the voucher is a full acquittance of the amount due so that a
second claim against the railway on the same account is impossible;
(d) that where a person other than payee himself has received the amount,
the payment has been made under proper authority;
(e) that vouchers are stamped ,where necessary;
(f) that if the amounts are not acknowledged by payees, such as wages paid
to workshop staff through box payment system, the departmental officer
has certified that payment has been made by him or in his presence; and
(g) that each voucher has been cancelled efficiently and prominently.

CHECK YOUR PROGRESS 2 :

1. Define budget?

2. How is Financial analysis carried out?

60
 3. State the parameters against which internal check is carried out.

4. Why do we check paid vouchers?

3.7 INTERNAL AUDIT

Besides the accounting and finance functions, the Finance and Accounts
Management on the Railways also incorporates the internal audit function. This
is usually termed ‘Inspection’. Inspection is conducted on the initial documents
in the offices of the executives which compile returns for submission to the
Accounts Office for check and consolidation in the accounts. The Inspection
would cover all the railway stations and practically every executive and senior
subordinate on the Railways. The periodicity of the inspection depends upon
the magnitude, volume and importance of the transactions and is laid down
in the relevant codes. As compared to the internal audit of any commercial
undertaking, the organisation of the railways also cover the internal audit
functions in respect of :

(a) Revenue, i.e., traffic receipts and miscellaneous receipts;

(b) inventory; and
(c) expenditure ;

and is intended :
(a) to check - apart from the veracity of initial documentation - that the system
and procedures prescribed by the Management are followed.
(b) and to suggest improvement in procedures, practices and systems so that
the operations can be improved.

61
3.8 STATUTORY AUDIT
The Comptroller and Auditor General of India is the final audit authority in India.
His functions and powers are derived in the main from Articles 149 to 151 of
the Constitution of India. The Comptroller and Auditor General is responsible
for the audit of the accounts of the Indian Railways but has no responsibility
for the compilation of these accounts. The form in which the accounts of the
Indian Railways should be kept and changes in accounts classification affecting
the recording of expenditure in the Finance and Revenue Accounts of the
Government of India are, however, subject to his approval. He may also require
such compiled accounts to be submitted to him as are required to enable him to
carry out his statutory obligations.

In all matters relating to the audit of Railway Accounts, the Comptroller and
Auditor General of India is assisted by the Deputy Comptroller and Auditor
General (Railways). Subordinate to him are the Principal Directors of Audit who
are responsible for conducting audit of the accounts of the Indian Railways.

The responsibility of the Audit Officers for the audit of the accounts is, briefly, as
follows:

(a) it extends, in respect of expenditure transactions, to all expenditure

incurred in India;
(b) in respect of receipt, it includes receipt of Indian Railways, whether under
construction or open to traffic, including receipt relating to accounts of
manufacture; and
(c) it includes stores and stock accounts to the except prescribed by the
Comptroller and Auditor General of India.
Object of Statutory Audit:- The Statutory Audit by the Comptroller and Auditor
General of India has a three-fold purpose. Firstly, it is an accountancy audit, i.e.
to check the accuracy of arithmetical calculations and to see that all payments
are supported by receipted vouchers. In this res-pect it is some what akin to the
audit by company auditors whose objectives are detection of fraud, detection of
technical errors and the detection of errors in principle. It assesses the adequacy
of the accounting system and the system of internal check in the organisation.

Secondly, statutory audit is an appropriation audit i.e. to check the classification

of expenditure to ensure that expenditure and receipts have been charged to the
proper heads of account and further that the voted appropriations under these
heads have not been exceeded. Appropriation audit is applied as a measure of
parliamen-tary control. Consequently it has to be full and complete.

Thirdly, statutory audit is also an adminis-trative audit i.e., audit of sanctions

to check that expenditure has been incurred according to prescribed rules and
regulations of where not so covered it has been sanctioned by a competent
authority.

62
These objects are generally secured by a percentage check to be applied to
the vouchers and connected accounts records of the Accounts Office and by
inspection, on the spot, of initial records and documents in the offices in which
the transactions originate. Accounts Officers should afford all facilities to Audit
Officers in the discharge of their audit duties.

3.9 STRUCTURE OF THE

FINANCIAL ORGANISATION
From the functions of the Finance and Accounts Management as have been
outlined in the foregoing paragraphs, it is obvious that the structure of the
Organisation is to cater to the following work:

Pay roll and establishment charges and current staff welfare, PF, Pension and
retirement benefits,

Engineering accounts and expenditure, Stores-purchases and accountal,

stocking-verification of stock, sale, auction of stores, etc., Accounts compilation

usually called the Books section, Budget,

Financial scrutiny of investments and expenditure,

Revenue receipts (Traffic accounts),coaching, goods and station inspection

Traffic Costing. Statistics,

Data Processing,

Inspection and Efficiency audit

The financial organisation on the railways was evolved through the following five
stages:

Stage 1 : The stage prior to the appointment of the Financial Commissioner for
Railways, when the Railway Financial administration was a part of the Finance
Department of the Government of India. The accounting work was done by the
Accountant General, Railways, under the administrative control of the Auditor
General.

Stage II : Appointment of the Financial Commissioner of Railways was in April,

1923. This was on the basis of the recommendation of the Acworth Committee
and as a preliminary step for the separation of Railway Finance from general
Finance.

Stage III : Completion of the process of separation of the Accounting and

Auditing Functions of the Railways in 1929 as a sequel to the recommendations
of the Acworth Committee supported in the report of Sir Arther Lowes Dickinson

63
(August 1927). Under this arrangement, the post of Accountant General
(Railways) (then under the administrative control of the Auditor General) was
replaced by :

(i) The Controller of Railway Accounts responsible to the Financial

Commissioner, Railways; and
(ii) The Director of Railway Audit under the Auditor General. At the Railway
level also the two functions were separated by appointing a Chief
Accounts Officer answerable to the Controller of Railway Accounts, and a
Chief Auditor responsible to the Director of Railway Audit. This incidentally,
marked the beginning of the Indian Railway Accounts Services as a cadre
distinct from that of the Indian Audit and Accounts Service.
Stage IV : Placing of the Railway Accounts Department under the General
Manager where upon the Chief Accounts Officer was placed under the
administrative control of the General Manager instead of the Financial
Commissioner, Railways. This organisational change was recommended by
the Indian Railway Enquiry Committee, 1937, (more commonly known as the
Wedgwood Committee) on the pattern of the British Railway Practice to ensure
full contact and adequate coordination between the General Manager and his
Chief Accounts Officer. While making this change on the Indian Railways, the
Chief Accounts Officer was redesignated as the Financial Adviser and Chief
Accounts Officer.

Stage V : Setting up of distinct Finance Branch under the Financial Adviser and
Chief Accounts Officer for placing at the disposal of the General Manager an
improved machinery for financial advice and control.

3.9.1 Railway Board Level

The Financial Commissioner, Railways is the professional head of the Railway
Financial Organisation and represents the Government of India, Finance
Department, on the Railway Board. In his capacity as ex-officio Secretary to the
Government of India in the Ministry of Railways in financial matters, he is vested
with full powers of the Government of India to sanction Railway expenditure
subject to the general control of the Finance Minister. This arrangement
is intended to ensure that financial control over operations of the Railway
Department is exercised from within the Organisation by an officer who shares
with the Members of the Railway Board and the Chairman the managerial
responsibility as a senior partner in the common enterprise of efficient and
economic working of the Railway undertaking. In the event of a difference of
opinion between the Financial Commissioner and other Members of the Board,
the former has the right to refer the matter to the Finance Minister through
Minister of Railways.

He is assisted by Additional Member (Finance), Additional Member (Budget),

Principal Executive Director / Finance, Principal Director / Accounts, Executive

64
Directors, Directors, Joint Directors, Deputy Directors, Senior Accounts Officers
and Account Officers besides supervisory and clerical staff working in various
Finance Directorates of Railway Board. All these officers deal with Budget, tender
financial advice in regard to decisions and transactions of high value nature being
decided in Railway Board, compile the Annual Accounts of the Indian Railways as
a whole and provide the requisite professional guidance, direction and control in
respect of the financial accounting organisations of the individual Zonal Railways,
Production Units, etc.

Statistics and Economic Cell is also under the control of the Financial
Commissioner.

3.9.2 Structure of Finance Organisation on

Zonal Railways
On each Zonal Railway the organisation is headed by the Principal Financial
Adviser who coordinates the work of other Accounts and Finance Officers. At
present there are a number of FA & CAOs on each Railway. They are designated
according to the function they are in charge, e.g., FA & CAO (WST), FA & CAO
(Budget & Expenditure), FA & CAO (Const.)., etc. The Principal Financial Adviser
co-ordinates the work of all these FA & CAOs and is known as Principal Head of
the Department. The FA & CAOs are assisted by Deputy Chief Accounts Officers
and Deputy Financial Advisers who are in Selection Grade / Junior Administrative
grade of the service. There are Senior Assistant Financial Advisers, Assistant
Financial Advisers below them.

Indian Railway Accounts Service

Many of these Class I officers are drawn from the Indian Railway Accounts
Service, the recruitment to which takes place through Civil Services competitive
examination conducted by UPSC. In addition to these direct recruits, there are
officers promoted from ranks who are manning the senior level posts in the
Accounts department of the Railways.

3.9.3 Organisation at Divisional Unit Level

The Senior Divisional Financial Managers are the representatives of principal
Financial Adviser at the divisional level. He is, in fact, Financial Adviser & Chief
Accounts Officer of the division and combines in him the function of an Account
keeper as well a Financial Adviser to the Divisional Railway Manager of the
Division. He partakes in the management at Divisional level through periodical
meetings of Divisional Officers. He is aided by Divisional Financial Managers,
Assistant Divisional Financial Managers. Bulk of the Railway’s staff payments,
work contractor’s payments and miscellaneous payments are arranged through

65
the Divisional Financial Managers. Each DFM has a small inspection cell with
the help of which, offices of all functionaries in the division are inspected on a
programmed basis with a view to scrutinies the basic records that do not come to
Accounts Office.

Indeed, it is the Divisional Accounts Offices through which much of the

expenditure takes place, the rest being through Workshop and Stores Accounts
Offices. They, therefore, constitute the basic formation of the accounting
organisation where the primary books of accounts are kept which together with
the accounts of earnings finally lead to consolidation and compilation of the
annual accounts of operation, profit and loss and a balance sheet of assets and
liabilities at the end of the year.

3.9.4 Organisation for Collecting and

Disbursing Cash
FA & CAO Traffic is incharge of the Cash & Pay Department also, which is a,
sort of treasury branch of his office. At the headquarters level, FA & CAO has a
Dy. Chief Accounts Officer/ Cash & Pay, Chief Cashier & Pay Master assisted
Assistant Chief cashiers, Divisional or Regional Cashiers who receive the cash
from stations etc., shroff it, and remit the same to the Bank or the Government
treasury. The most common method of transmitting of earnings by the Station
Masters (apart from crediting them in the nearest bank or treasury) is that of
putting their cash bags in a travelling iron safe placed in a nominated train, daily.

In each Division he has a Divisional Pay Master aided by a large number of Pay
Clerks who, accompanied by armed guards of RPF, take cash disbursement of
emoluments etc., to the railway stations and other places wherever a number of
employees are posted.

3.9.5 Organisation for Other Ancillary and

Allied Functions
The compilation and statistics work, which is a kin and allied to that of accounts
keeping is also under one of the FA & CAO’s. For this, he has a Statistics and
Analysis Officer, who brings out periodical statistics of operations, workshop
repairs, commercial results, stores transactions etc.

Likewise, a Traffic-Costing Officer who may be either from Accounts or from

Commercial department, works under FA & CAO. He works out the cost of each
stream of traffic operation on different gauges and with the three systems of
traction. These cost-studies help deciding up periodical adjustments in freight
and fare structure.

66
 CHECK YOUR PROGRESS 3 :
1. What is internal audit?

2. What is statutory audit?

3. How does statutory audit differ from internal check?

3.9.6 Data Processing Centres

Computers on Indian Railways have been placed under FA & CAOs’
supervision largely because the work taken on computers is such as was earlier
done manually in his offices, e.g., check & compilation of traffic accounts,
mechanisation of payroll, stores accounts etc. For this work each computer
installation has an Electronic Data Processing Manager, Senior Systems Analyst,
and Senior Programmer. They are drawn from Accounts, Stores and Traffic
Departments depending upon availability of computer . trained personnel.

3.9.7 Non-Gazetted Establishment of the

Accounts Department
The subordinate accounts establishment of a railway consists of both indoor
and outdoor staff. The indoor or office staff is divided into two main classes

67
viz. Section Officers (Accounts) and Clerks. Section Officers (Accounts) are
employed as Superintendents in various branches of the Accounts Offices. The
clerks are divided into three classes, Accounts Clerks, Junior Accounts Assistants
and Accounts Assistants, the latter employed on more important work. The
outdoor staff comprises Inspectors of Station, Inspectors of Stores Accounts and
Stock-verifiers. There are, in addition, Finger Print examiners who examine the
finger prints on paid pay bills for comparison with those on service registers.

For cash receipts and disbursements, the subordinate staff dealing with the work
are the Divisional Cashiers, the Assistant Cashiers, Senior Cashiers, Junior
Cashiers, Shroffs and clerical establishments. In addition, there are Inspectors of
Cashiers whose job is to inspect the accounts of the Cashiers.

3.10 OFFICE PROCEDURE

Main Divisions of Work:- The work in a railway accounts office generally falls
under the following main divisions:

OO Administration
OO Booking and Compilation
OO Budget
OO Cash and Pay.
OO Compensation Claims.
OO Engineering Accounts including Construction Accounts & Surveys.
OO Establishment Accounts.
OO Finance and Planning
OO Fuel Accounts.
OO Inspection (Executive and Accounts Offices).
OO Other Expenditure Accounts including Departmental Catering Accounts
OO Provident Fund and Pension.
OO Stores Accounts and Inventory Control
OO Traffic Accounts.
OO Traffic Costing.
OO Workshop Accounts.

In addition to the above, the Statistical Branch and the Electronic Data
Processing Centre are under the professional control of the Financial Adviser and
Chief Accounts Officer. The actual division into branches and sections and the
distribution of work among the Accounts Branch Officers is left to the discretion
of the Principal Financial Adviser in the absence of orders to the contrary as

68
regards any particular charge. The details of work are laid down in the relevant
departmental Codes issued by Railway Board and Office Manuals containing
detailed working instructions in conformity with and subsidiary to the Codes
issued under the authority of the Principal Financial Adviser. The office manuals
contain:

(a) detailed rules of procedure for the conduct of business in the Accounts
Office;
(b) orders defining the duties and responsibilities of the supervising staff; and
(c) instructions for the periodical inspections of the registers maintained in
each section for the test check of some portion of the work done by each
clerk once a month for the submission of progress reports about the state
of work in each section and for periodical reviews of all correspondence
awaiting disposal.

3.11 LET US SUM UP

In this unit we have discussed the basic functions of Accounts Department of the
Indian Railways, their responsibilities, proposals requiring finance concurrence,
standards of financial propriety, scope of internal check of receipt and
expenditure transaction, need for internal audit and statutory audit performed by
office of Comptroller and Auditor General of India.

In the end we have also discussed structure of financial organization on Indian

Railways from its evolution upto the current stage, the official hierarchy and
important branches of the Accounts and Finance department.

3.12 CHECK YOUR PROGRESS : THE KEY

CYP 1 :

1. The Finance organisation on the Railways performs the following

functions
i) The basic accounting functions.
ii) Financial scrutiny of all investment, proposals.
iii) Preparation of Budget.
iv) Expenditure control.
v) Preparation of statistical data regarding cost of operation/ production
on the Railways.
2. The internal check is the check of transactions affecting the receipts and
expenditure of railway with reference to rules or order.

69
3. As a general rule all proposals involving financial implication except
those which have been specifically exempted for this purpose, should be
referred to Finance Branch for advice before they are sanctioned by the
competent authority.
4. The following are the canons of financial propriety to be seen by authority
sanctioning expenditure:
(I) The expenditure should not prima facie be more than the occasion
demands, and that every Government servant should exercise
the same vigilance in respect of expenditure incurred from public
moneys as a person of ordinary prudence would exercise in respect
of the expenditure of his own money.
(II) No authority should exercise its powers of sanctioning expenditure to
pass an order which will directly or indirectly be to its own advantage.
(III) Public moneys should not be utilized for the benefit of a particular
person or section of the community unless:
– the amount of expenditure involved is insignificant; or
– the claim for the amount could be enforced in a court of law; or
– the expenditure is in pursuance of a recognised policy or
custom.
– the amount of allowances, such as travelling allowances,
granted to meet expenditure of a particular type, should be so
regulated that the allowances are not on the whole a source of
profit to the recipients.
5. The productivity test review is conducted periodically by the Financial
Branch in the case of works which have been sanctioned on
considerations of financial return. The object is to compare the earnings
or savings in working expenses eventually realized after the new
expenditure has fructified with that anticipated when the proposal was
embarked upon. After a work has been selected for productivity test
review, it should be noted by the Finance and Accounts Officers for
maintaining separate records of expenditure and earning relating to that
work so that the productivity test/review can be conducted as soon as it
falls due.
CYP 2 :

1. Budget is a statement of anticipated income and expenditure and the net

results expected for the undertaking as a result of the operations during
the accounting period.
2. Financial Analysis involves :-
i) Scrutiny of all proposals for investment adopting modern methods
and techniques such as Discounted Cash Flow Techniques.

70
 ii) Analysis of financial results of operations (earnings and expenditure)
regularly for managements: and
iii) Putting up reviews for the local management as well as for the
Board.
In scrutinising the proposals for investments on works, the financial
scrutiny also include comments regarding the following items :-
i) desirability of undertaking the work.
ii) reasonableness of the data and expected financial return
iii) priority for the work.
iv) likely availability of funds.
3. The internal check is conducted with reference to:-
(a) Rules and orders issued by the President, the Railway Board,
General Managers of Railways and other subordinate authorities to
whom the power to issue rules or orders has been delegated:
(b) the instructions contained in Indian Railway Codes and any further
instructions issued from time to time by the Railway Board; and
(c) the recognised standards of financial propriety.
4. Paid bills are checked to see :-
(a) that the acknowledgements of payments are in English or in Hindi
and if in any other language. have been rendered into English or
Hindi;
(b) that the names of payees mentioned in the bills tally with the
signatures obtained in ack-nowledgement of the amount paid;
(c) that the payment has been witnessed, where so required, by the
official named in the bill and that the acknowledgement is unqualified
and that prima facie, the voucher is a full acquittance of the amount
due so that a second claim against the railway on the same account
is impossible;
(d) that where a person other than payee himself has received the
amount, the payment has been made under proper authority;
(e) that vouchers are stamped ,where necessary;
(f) that if the amounts are not acknowledged by payees, such as
wages paid to workshop staff through box payment system, the
departmental officer has certified that payment has been made by
him or in his presence; and
(g) that each voucher has been cancelled efficiently and prominently.

71
CYP 3 :

1. Internal audit is usually termed ‘Inspection’ conducted on the initial

documents in the offices of the executives which compile returns
for submission to the Accounts Office for check and consolidation in
the accounts. It is intended to check, apart from the veracity of initial
documentation that the system and procedures prescribed by the
Management are followed and to suggest improvement in procedures,
practices & systems so that the operations can be improved.
2. Statutory audit is the audit conducted by the Comptroller and Auditor
General of India under Articles 149 to 151 of the Constitution of India.
3. The Statutory Audit by the Comptroller and Auditor General of India has
following objects:
(i) check of the accuracy of arithmetical calculations and to see that all
payments are supported by receipted vouchers and assessment the
adequacy of the accounting system and the system of internal check
in the organisation.
(ii) check the classification of expenditure to ensure that expenditure
and receipts have been charged to the proper heads of account and
further that the voted appropriations under these heads have not
been exceeded as a measure of parliamen-tary control.
(iii) audit of sanctions to check that expenditure has been incurred
according to prescribed rules and regulations of where not so
covered it has been sanctioned by a competent authority. These
objects are generally secured by a percentage check to be applied to
the vouchers and connected accounts records of the Accounts Office
and by inspection, on the spot, of initial records and documents in
the offices in which the transaction originate.

Internal check on the other hand is the check exercised by the Accounts
Officer on the financial transactions of the railway on behalf of the Railway
Administration. The internal check is conducted with reference to:-

(a) Rules and orders issued by the President, the Railway Board, General
Managers of Railways and other subordinate authorities to whom the
power to issue rules or orders has been delegated:
(b) the instructions contained in Indian Railway Codes and any further
instruc-tions issued from time to time by the Railway Board; and
(c) the recognised standards of financial propriety.
Unless an exception is specially permitted in any particular case, all transactions,
whether relating to receipts or expenditure, are checked cent per cent and no
transactions are brought into account before they have been completely checked.

72
Books for Study and Reference

1) Indian Railways Administration and Finance-Introduction.

2) Indian Railways Accounts Code Volume I & II
3) Manual of Statistical Instructions Volume I & II for the Railways.
4) Indian Railways Year Books.
5) Indian Railways Annual Report and Accounts.
Questions for Study

1) What are the basic functions of the Accounts Department on the railways?
2) In the discharge of the accounting function, state briefly the items of work
involved in the organisation at the headquarters and the divisions of a
Zonal Railway.
3) Describe the finance function, the basic items involved in this function as
well as the nature of the scrutiny exercised in the finance branch of the
Railways.
4) Why is the internal audit function an important component of the finance
and accounts departments?
5) What are the stages through which the financial organisation of railways
was evolved?
6) Describe the Financial organisation at Railway Board’s level.
7) What organisation exists for the receipt and disbursement of cash on the
Railways?
8) In the reports to management, both the quantitative, and financial aspects
of performance are to be projected. To what extent the organisation under
the FA & CAO helps in formulation of such reports and how?
9) What is the difference between internal audit and statutory audit?
10) Describe the scope and the system of internal check.

73
74
 8
u
fjog l
Institute of Rail Transport
Planning, Financial
s i

La Fkku

irt
jy

ub Z
fnY y h
Management &
Investment Policies

UNIT-4
Railways, The Public Accountability
and Parliament

Structure
4.0 Objectives
4.1 Introduction
4.2 Public Accountability
4.3 Accountability to Parliament
4.4 Accountability to Users
4.4.1 Public Relation Office
4.4.2 Public Grievance Cell
4.4.3 User Consultative Forums
4.5 Parliamentary Control on Railways
4.6 Committee System of Parliamentary Control
4.6.1 Railway Convention Committee
4.6.2 National Railway Users Consultative Council
4.6.3 The Public Accounts Committee
4.6.4 The Estimates Committee
4.6.5 Committee on subordinate legislation
4.6.6 Standing Committee on Railways
4.7 Parliamentary Financial Control
4.7.1 Annual Budget
4.7.2 Cut Motions
4.8 Questions in the Lok Sabha and the Rajya Sabha
4.9 Discussion on urgent matters
4.10 Reference from Members of Parliament
4.11 Let us Sum up
4.12 Check Your Progress : The Key
Questions for Study

75
4.0 OBJECTIVES
After studying this unit, you should be able to:

OO discuss how the Government of India is accountable to public;

OO explain how the accountability to Parliament is satisfied by Indian
Railways;
OO describe Railway Users’ Forums ,
OO discuss how Parliamentary controls are exercised over Railways;
OO describe committee system of Parliamentary Control;
OO explain Parliamentary financial control process; and
OO describe types of parliament questions and discussions.

4.1 INTRODUCTION
In the previous section you have learnt about organization and functions of

the finance and accounts management of the Indian Railways. In this section, we
shall discuss issues related to public accountability to users, user consultative
forums, Parliamentary control, committee system of Parliamentary control,
Parliamentary financial control process, parliament questions, discussions and
individual references .

4.2 PUBLIC ACCOUNTABILITY

Public accountability, may be defined as to how the Government of India, is
accountable to people. From the very fact that the Parliament itself, having been
elected by the people, representing the whole country, is accountable to the
public. The Railway Minister, one of the members of Parliament, is accountable
to people, for all problems concerning Railways. Any member of Parliament
may also ask question, for the purpose of obtaining information on the matters
of public importance within the special sphere of Railway Minister to whom it is
addressed for which he and the management under his control are responsible to
answer to the satisfaction of the House.

Further, the powers of approval or vote of action, policies, general and specific,
policy direction rest with Railway Minister. All projects and development are
included in programmes with his approval. Responsibili-ties of co-ordination,
planning activities and the demand of finance on Railway rest with him. Thus,
the Railway Minister is the main instrument of controlling Railway Management

76
and working of Railways and through him Railway Management is accountable
to public.

The Railways are owned and managed by Government of India. The Railway
Management is therefore accountable to the Parliament for the efficient operation
of this vital transport system in the country. The annual revenue budget of the
Railways is based on specific performance/targets for movement of freight and
passenger traffic, and comprises the estimated amount of money required to
be spent to achieve the specified targets. The annual works budget provides
for additions, restoration and replacement of assets to enable the railways
to progressively increase their capacity for meeting the transport needs.
Parliamentary financial control is designed to keep a watch over the performance
of managers entrusted with handling and disposal of public funds. The budget
grants voted by Parliament and the appropriations sanctioned by the President
are thus the limits up to which expenditure can be incurred by the Central
Government during a financial year on the specific purposes for which the grants
and appropriations have been obtained. While it is the duty of the Railway
Board as the controlling authority in respect of the total amount of each Grant
voted by Parliament and appropriations sanctioned by the President, to watch
the progress of expenditure and to restrict the aggregate expenditure within
the amount of grant or appropriation placed at their disposal, individual Railway
Administrations is responsible to exercise similar control over the allotments
made to them.

4.3 ACCOUNTABILITY TO PARLIAMENT

The accountability to Parliament is satisfied through the submission of the annual
Appropriation Accounts, that is to say, records suitably devised for scrutiny,
by Public Accounts Committee and the Comptroller and Auditor General, of
expenditure incurred and adjusted in relation to the grants and appropriations,
so as to ensure authenticity of each item in relation to budget grants and
appropriations. The constitutional principle underlying these Accounts is that the
Parliament approves every year the provision of certain sums of money which
are distributed to the Railway managers for spending on approved objects.
Parliament has, therefore, to be satisfied when the year has ended, that the
moneys have, in fact, been spent as authorized. The certified Appropriation
Accounts show how the revised/final allotments and appropriations vary from the
original ones and the actual expenditure from the final allotment/appropriation.
The Railway Management is thus accountable to Parliament for achieving
the financial targets envisaged in the Budget for realisation of revenues and
restricting the disbursement of moneys and adjustment of expenditure within the
authorized limits.

77
 CHECK YOUR PROGRESS 1 :
1. Why is Railway Management accountable to Parliament?

2. How is this accountability to Parliament is satisfied by IR?

4.4 ACCOUNTABILITY TO USERS

Apart from accountability to Parliament, the Railways are also directly
accountable to the Users, with whom they come in contact and whose comfort
and satisfaction they have to keep uppermost in mind.

4.4.1 Public Relation Office

In order to maintain cordial relations with the press and public, each Zonal
Railway has created an Organisation namely ‘Public Relations Organisation’. The
Public Relations Officer is incharge of publicity and advertisement and arranges
interviews of the eminent Railway Officers in Press, Television and All India
Radio in order to bring before the public the clarifications on various issues and
progress made by Railways.

4.4.2 Public Grievance Cell

In order to pay greater attention to public grievances and providing meaningful
redress instead of treating public complaints in a routine fashion, Public
Grievances Redressal machinery has been set up at Headquarters of each
Zonal Railway as well in the divisions of each railway. This will go a long way to
improve the image of the organisation.

78
4.4.3 Users Consultative Forums
(i) Central Advisory Council:
To enable general public to have adequate voice in the management of
Railways and to remain in close touch with the public opinion, a ‘Central
Advisory Council’ was constituted as far back as 1922. The representation
of interests through the Central Advisory Council was limited in that the
members were drawn only from the Central Legislature. As a result of the
decision of the Government of India in 1952, the practice of constituting
Standing Committee of Parliament including Central Advisory Council for
Railway was abandoned.

The following Consultative Bodies have been established with a view to affording
more frequent opportunities for consultation between Railway Administrations
and Railway Users on matters relating to the service provided by railways and
means of improving the efficiency of such service :

(1) Railway Users’ Consultative Committees at the Divisional levels;

(2) Zonal Railway Users’ Consultative Committee at the Headquarters of
each railway; and.
(3) National Railway Users’ Consultative Council at the Centre.

Apart from the above, there are Suburban Railway Users Consultative
Committees in metropolitan cities and Station Consultative Committees. The
recommendations of these committees are consultative in character.

CHECK YOUR PROGRESS 2 :

1. What are the various users’ consultative forums on Indian Railway ?

2. Is their recommendation mandatory ?

79
4.5 PARLIAMENTARY CONTROL ON RAILWAYS
The control of Parliament over railway finance and policy is exercised as follows:

(a) through periodical examination, of the working of the Railways by the

Railway Convention Committee
(b) through the Estimates Committee which examines such of the estimates
as it may deem fit or are specifically referred to it by Parliament ;
(c) by means of interpellations, resolutions, and discussions when the
Budget is presented, and the railway demands are voted upon; through
the Members of Parliament serving on the National Railway Users
Consultative Council; through the Public Accounts Committee which
examines the accounts showing appropriation of sums granted by the
Parliament for the expenditure of the Government of India, the annual
finance accounts of the Government of India and such other accounts laid
before the Parliament as the Committee may think fit ; and
(d) through the Committee on Subordinate Legislation which scrutinises an
reports to Parliament whether the powers to make regulations, rules,
sub-rules, bye-laws, etc., conferred by the Constitution or delegated by
Parliament are being properly exercised within such delegation through
the Committee on Government Assurances which scrutinises whether the
assurances, promises, undertakings, etc,, given by Ministers from time-
to-time, on the floor of the Lok Sabha and the Rajya Sabha, have been
implemented within the minimum time necessary for the purpose.

In addition, any Member of Parliament may address the Ministry of Railways

(Railway Board) or a Railway Administration on any matter concerning railway
working. Member may also ask questions in both the Houses of Parliament on
issues connected with the Railways.

4.6 COMMITTEE SYSTEM OF

PARLIAMENTARY CONTROL
The Committee System is an essential part of the System of Parliamentary
Control. The object of referring a matter to a Committee by the House itself
is to have the matter better dealt with by a smaller group of members, or in a
body which is not fettered by the technical rules of debate and procedure. The
method of working of the various Committees generally is based on the Rules of
Procedure for the -Conduct of Business in the Lok Sabha.

4.6.1 Railway Convention Committee:

Based on the recommendation of Acworth Committee in 1920-21, a convention
commonly known as “Separation Convention” was adopted by a resolution on

80
20th September 1924 under which this committee was formed, for periodical
examination of Railway Finance and working and also to review the rate
of dividend payable by the Railway to General Revenue. Accordingly, this
committee reviews the railway finance and recommends the changes to be made
in railway finance. However post merger of Rail Budget with Union Budget, no
dividend is payable by Indian Railway to General Revenues.

4.6.2 National Railway Users’ Consultative

Council
In order to give the general public adequate voice in the management of railways
and to remain in close touch with the public opinion, a Central Advisory Council
was constituted in March, 1922. In the Separation Convention adopted by the
Legislative Assembly in September 1924, the constitution of the Central Advisory
Council was altered. The representation of interests through the Central Advisory
Council for Railways was limited in that the members were drawn only from the
Central Legislature. However, as a result of the decision of the Government of
India in 1952, the practice of constituting Standing Committees of Parliament
including the Central Advisory Council for Railways was abandoned. To secure
better representation of Railway Users and afford more frequent opportunities
for consultation between Railways and Railway Users on matters relating to the
service provided by Railways, a National Railway Users’ Consultative Council
was formed in 1953. The members of the National Railway Users Consultative
Council held office for a period not exceeding two years.

The Council consists of persons appointed to it by the Minister of Railways

namely:

(1) Secretaries of each of the Ministries of

(a) Industry (b) Commerce (c) Tourism

(2) Ministry of RailwaysChairman and Members of Railway Board.

(3) Fifteen Members of Parliament, ten from the Lok Sabha and five from the
Rajya Sabha.
(4) A representative each of the Zonal Railway Users Consultative
Committee not being an Official, to !be elected by the representatives of
the Zonal Railway Users’ Consultative Committees.
(5) One member each from the following AH India Associations:—.
OO Federated Chambers of Commerce.
OO Associated Chambers of Commerce and Industry.
OO Indian Jute Mills Association.
OO Indian Sugar Mills Association.
OO All India Manufacturers’ Association.

81
 OO Cement Manufacturers’ Association.
OO All India Travel Agents Association
and similar All India Associations. (Members will be taken by turn from
these Associations).
(6) One representative of the Agricultural Interests.
(7) Two retired officers of the Railways (Members of the Board/General
Managers).
(8) Eminent persons who take interest in Railway Problems (Minister’s
nominees).

The Council may ordinarily meet at least twice a year. The Minister will preside at
the meetings of the Council, and in his absence the Minister of State or Deputy
Minister will act as chairman.

The functions of the Council are to consider—

(1) such matters relating to the services and facilities provided by Railways
as may be referred to it for consideration by the Minister,
(2) such matters being within the scope of the functions of the Zonal
Committees as are referred to it for consideration by such committees,
and
(3) such other matters relating to the services and facilities on Railways
which an individual member of the Council may, with the approval of the
Chairman desire to be included in the Agenda.

The Council will be consultative in character. Questions relating to staff, discipline

and appointments will not be brought before the Council.

4.6.3 The Public Accounts Committee

(1) This is a Parliamentary Committee on Public Accounts for the
examination of accounts showing the appropriation of sums granted by
the Parliament for the expenditure of the Government of India, the annual
finance accounts of the Government of India and such other account laid
before the Parliament as the Committee may think fit.
(2) In scrutinising the Appropriation Accounts of the Government of
India and the report of the Comptroller and Auditor-General thereon, the
Committee is required to satisfy itself :
OO that the moneys shown in the accounts as having been disbursed
were legally available for and applicable to the service or purpose to
which they have been applied or charged,
OO that the expenditure conforms to the authority which governs it and
OO that every re-appropriation had been made in accordance with the
provisions made in this behalf under rules framed by competent authority.

82
(3) It is also the duty of the Committee

OO to examine the statement of accounts showing the income and

expenditure of stats corporations, trading and manufacturing
schemes, concerns and projects together with the balance sheets
and statements of , profit and loss accounts which the President may
have required to be prepared or are prepared under the provision of
the statutory rules regulating the financing of a particular corporation,
trading or manufacturing scheme or concern or project and the report
of the Comptroller and Auditor-General thereon.
OO to examine the statement of accounts showing the income and
expenditure of autonomous and semi-autonomous bodies, the audit
of which may be conducted by the Comptroller and Auditor-General
of India either under the directions of the President or by a statute
of Parliament; provided that the Committee shall not exercise its
functions in relation to such public undertakings as are allotted to
the Committees on Public Undertakings either under the Rules of
Procedure for the Conduct of Business in the Lok Sabha or by the
Speaker, and
OO to consider the report of the Comptroller and Auditor-General in
cases where the President may have required him to conduct an
audit of any receipt or to examine the accounts of stores and stocks.
(4) If any money has been spent on any service during a financial year
in excess of the amount granted by the Parliament for that purpose,
the Committee will examine with reference to the facts of each
case the circumstances loading to such an excess and make such
recommendations as it may deem fit.
(5) The Committee consists of not more than 22 members to be elected by
both the Houses of Parliament every year from amongst their members
according to the principle of proportional representation by means of the
single transferable vote, provided that a Minister shall not be elected as
member of the Committee and that if a member, after his election to the
Committee, is appointed as Minister he shall cease to be a member of
the Committee from the date of such appointment. The term of office of
members of the Committee shall not exceed one year. The Chairman
of the Committee shall be appointed by the Speaker from amongst
the members of the Committee provided that, if the Deputy Speaker
is a member of the Committee, he shall be appointed Chairman of the
Committee.
As a Parliamentary Committee the Public Accounts Committee has its own
Chairman, and its own programme and procedure. The Committee takes up
examination of the Audit Report and Appropriation Accounts after they have
been duly placed before Parliament with the approval of the president. Apart
from taking oral evidence from Government representatives, the Committee
calls for additional information in the form of Memoranda or notes on which it

83
requires further elucidation. The Committee’s findings are recorded in a report
presented to Parliament. Even though the Committee is not an executive body
and its opinions and findings are only recommendatory, Government examines
each of its recommendations with a view to implementing them and report back
to the Committee the action taken when the following year’s accounts come up
for examination. In the exceptional cases in which Government may not be in
a position to implement a recommendation, they place their views before the
Committee to enable it to present a further report to Parliament.

4.6.4 The Estimates Committee

There is a Parliamentary Committee on Estimates for examination of such of the
estimates as may seem fit to the Committee or are specially referred to it by the
Parliament to the Speaker. The functions of the Committee are :

(a) to report what economies, improvements in organisation, efficiency or

administrative reform, consistent with the policy underlying the estimates
may be effected ;
OO to suggest alternative policies, in order to bring about efficiency and
economy in administration ;
OO to examine whether the money is well laid out within the limits of the
policy implied in the estimates; and
OO to suggest the form in which the estimates shall be presented to
Parliament.
The Committee consists of not more than thirty members to be elected by the
Lok Sabha every year from amongst its members according to the principle of
proportional representation by means of the single transferable vote. Provided
that a Minister shall not be elected as member of the Committee and that if a
member, after his election to the Committee, is appointed as Minister, he shall
cease to be a member of the Committee from the date of such appointment.

The terms of office of members of the Committee shall not exceed one year.

The Committee may continue the examination of the estimates from time-to-
time throughout the financial year and report to the House as its examination
proceeds. It shall not be incumbent of the Committee to examine the entire
estimates of any one year. The demands for grants may be finally voted
notwithstanding the fact that the Committee has made no report.

4.6.5 Committee on Subordinate Legislation:

Committee on Subordinate Legislation, which scrutinises and report to
Parliament that the Powers to make regulations, rules, sub rules, bye-laws etc.,
conferred by the Constitution or delegated by Parliament are being properly
exercised .

84
4.6.6 Committee on Government
Assurances:
Committee on Government Assurances, which scrutinises whether the
assurances, promises, undertakings, given by Ministers from time to time, on
the floor of the Lok Sabha and Rajya Sabha, have been implemented within the
minimum time.

4.6.7 Standing Committee on Railways:

The Standing Committee on railways has the following functions:

OO To consider annual report of Railways and make report thereon,

OO To examine the bills pertaining to the Railway as referred to the
Committee by Chairman/Rajya Sabha or Speaker and make report
thereon,
OO To consider national basic long policy documents referred to the
committee and make report thereon,
OO To consider Demands for Grants of Railways and make a report on the
same to the house.
OO The report of the Committee is based on broad consensus. The
committee may avail of expert opinion to make the report. The report of
the Standing Committee has persuasive value and is treated as advice
given by the Parliamentary committees.

CHECK YOUR PROGRESS 3 :

1. How does Parliament controls Railways?

2. What are the functions of National Railway users Consultative Council?

85
 3. Describe functions of Public Accounts Committee.

4. What are the functions of Standing Committee on Railway?

5. What are the functions of Railway Convention Committee ?

4.7 PARLIAMENTARY FINANCIAL CONTROL

4.7.1 Annual Budget

W.e.f. Financial year 2017-18, Railway Budget has been merged with Union
Budget. Under Article 112 of the Constitution, a statement of the estimated
annual receipts and expenditure whether on Capital account or on Revenue
account, commonly known as the ‘Budget’, is laid before both the Houses of
Parliament by the Finance Minister. This is followed by presentation of detailed
demands for grant by the respective Ministries. The proposed expenditure
included in the Budget may be :

(i) Voted, or
(ii) Charged.
The former class includes the items for which the provision of funds is subject
to the vote of the Lok Sabha, while funds for the latter class are sanctioned by
the President and are not to be submitted to the vote of Parliament. The Budget

86
is submitted in the form of “Demands for Grants”, the vote of Parliament, being
necessary only for the “Votable” expenditure. The Parliament, of course, has
the power to assent, or to refuse to assent, to any demand or to assent to any
demand subject to a reduction of the amount specified therein.

4.7.2 Cut Motions

From the date the budget is presented to Parliament, Members of the Lok Sabha
may send in to the Lok Sabha Secretariat their proposals for cuts in the individual
demands or for omission of individual demands.

A motion may be moved in the Lok Sabha to reduce the amount of a Demand in
any of the following Ways :

(a) “that the amount of the Demand be reduced to Re. 1 “, as representing

disapproval of the policy underlying the Demand. Such a motion shall be
known as a “ Disapproval of Policy Cut “.
(b) “that the amount of the Demand be reduced by a specified amount”
representing the economy that can be effected. Such specified amount
may be either a lump sum reduction in the Demand or omission or
reduction of an item in the Demands The motion shall be known as an “
Economy Cut “.
(c) “ that the amount of the Demand be reduced by Rs. 100 “ in order
to ventilate a specific grievance which is within the sphere of the
responsibility of the Government of India. Such a motion shall be known
as a “Token Cut” and the discussion thereon shall be confined to the
particular grievance specified in the motion.

4.8 QUESTIONS IN THE LOK SABHA AND

THE RAJYA SABHA
Any Member of Parliament may ask a question for the purpose of obtaining
information on a matter of public importance within the special cognizance of the
Minister to whom it is addressed. In matters which are or have been the subject
of correspondence between the Government of India and the Government of a
State, no question shall be asked except as to matters of fact, and the answer
shall be confined to a statement of fact.

Questions are of various kinds, viz.

(a) Questions with the usual minimum notice of 10 days. These may be—(i)
“starred” , i.e., questions for oral answers, or (ii) “unstarred”. i.e., replies to
which are laid on the Table of the House, and
(b) “Short notice questions”.
Separate notices are required for starred and unstarred questions falling
under (a) above specifying -

87
the official designation of the Minister to whom the question is addressed, and

the date on which the question is proposed to be placed on the list of questions
for answer.

In regard to starred questions, any Member, when called by the Speaker/

Chairman, may put a supplementary question for the purpose of further
elucidating any matter of fact regarding which an answer has been given,
provided that the Speaker/Chairman shall disallow any supplementary question
if, in his opinion it infringes the rules regarding questions.

A short notice question, relating to a matter of public importance, may be asked

with shorter notice than the usual minimum notice of 10 clear days and if the
Speaker/Chairman is of opinion that the question is of an urgent character, he
may direct that an enquiry may be made from the Minister concerned if he is in a
position to reply and, if so, on what date.

4.9 DISCUSSION ON URGENT MATTERS

Discussion on a definite matter of urgent public importance may be sought by a
Member through an Adjournment Motion or a Calling Attention Notice -

(i) Adjournment motion: A motion for adjournment of the business of

the Lok Sabha for the purpose of discussing a definite matter of public
importance may be made with the consent of the Speaker. The procedure
to be followed in regard to an adjournment motion is governed by the
relevant provisions contained in the Rules of Procedure for the Conduct
of Business in Lok Sabha.
(ii) Calling Attention Notice: A Member may give notice calling the attention
of the Minister to any matter of urgent public importance, with the
permission of the Speaker/Chairman When such notice is received by the
Speaker/Chairman and if he finds the notice admissible under the rules,
he may allow the matter to be raised in the House on the same day or
on a subsequent day on the first available opportunity, as the Speaker/
Chairman may decide.

4.10 REFERENCES FROM MEMBERS

OF PARLIAMENT
Letters are often addressed by Members of Parliament to the Ministers,
Members of the Railway Board, Genera! Managers and Heads of Departments
in connection with public or staff complaints, etc. The subject, matter of such
references should be investigated fully and expeditiously, and reply should be
issued in each case over the signature of the addressee personally. Further, in
order that action is taken in line with the reply issued to a Member of Parliament

88
at the level of the Minister or the Railway Board, a copy of the reply should be
sent to the Railway Administration.

CHECK YOUR PROGRESS 4 :

1. What is Cut Motion?

2. Describe various types of Parliament Questions.

3. What is adjournment motion?

4.11 LET US SUM UP

In this unit we have learnt about accountability of Railway towards users and
parliament, Parliamentary control over Railways, financial control process various
types of Parliament questions, process of discussion on urgent matters in Parliament.

4.12 CHECK YOUR PROGRESS : THE KEY

CYP 1 :

1. The Railways are owned and managed by Government of India. The

Railway Management is therefore accountable to the Parliament for the
efficient operation of this vital transport system in the country.

89
2. The accountability to Parliament is satisfied through the submission of the
annual Appropriation Accounts, that is to say, records suitably devised for
scrutiny, by Public Accounts Committee and the Comptroller and Auditor
General, of expenditure incurred and adjusted in relation to the grants
and appropriations, so as to ensure authenticity of each item in relation to
budget grants and appropriations.
CYP 2 :

1. The various railway user consultative committees are as under :

(i) Railway Users’ Consultative Committees at the Divisional levels;
(ii) Zonal Railway Users’ Consultative Committee at the Headquarters of
each railway; and. (3) National Railway Users’ Consultative Council
at the Centre. Apart from the above, there are Suburban Railway
Users Consultative Committees in metropolitan cities and Station
Consultative Committees.
2. The recommendations of these committees are consultative in character.
CYP 3 :

1. The control of Parliament over railway finance and policy is exercised as

follows: -
(a) through periodical examination, of the working of the Railways by the
Railway Convention Committee
(b) through the Estimates Committee which examines such of the
estimates as it may deem fit or are specifically referred to it by
Parliament ;
(c) (i) by means of interpellations, resolutions, and discussions when
the Budget is presented, and the railway demands are voted
upon ;
(ii) through the Members of Parliament serving on the National
Railway Users Consultative Council ;
(iii) through the Public Accounts Committee which examines
the accounts showing appropriation of sums granted by the
Parliament for the expenditure of the Government of India, the
annual finance accounts of the Government of India and such
other accounts laid before the Parliament as the Committee
may think fit ; and
(d) (i) through the Committee on Subordinate Legislation which
scrutinises an reports to Parliament whether the powers to
make regulations, rules, sub-rules, bye-laws, etc., conferred by
the Constitution or delegated by Parliament are being properly
exercised within such delegation;
(ii) through the Committee on Government Assurances which
scrutinises whether the assurances, promises, undertakings,

90
 etc,, given by Ministers from time-to-time, on the floor of the Lok
Sabha and the Rajya Sabha, have been implemented within the
minimum time necessary for the purpose.
In addition, any Member of Parliament may address the Ministry
of Railways (Railway Board) or a Railway Administration on
any matter concerning railway working. Member may also
ask questions in both the Houses of Parliament on issues
connected with the Railways.
2. The functions of the National Railway users Consultative Council are to
consider:
(1) such matters relating to the services and facilities provided by
Railways as may be referred to it for consideration by the Minister,
(2) such matters being within the scope of the functions of the
Zonal Committees as are referred to it for consideration by such
committees, and
(3) such other matters relating to the services and facilities on Railways
which an individual member of the Council may, with the approval of
the Chairman desire to be included in the Agenda.
3. PAC has following functions:
(i) Examination of appropriation accounts to satisfy itself :
(a) that the moneys shown in the accounts as having been
disbursed were legally available for and applicable to the
service or purpose to which they have been applied or charged,
(b) that the expenditure conforms to the authority which governs it
and
(c) that every re-appropriation had been made in accordance
with the provisions made in this behalf under rules framed by
competent authority.
(ii) It is also the duty of the Committee :
(a) to examine the statement of accounts showing the income and
expenditure of stats corporations, trading and manufacturing
schemes, concerns and projects together with the balance
sheets and statements of , profit and loss accounts which the
President may have required to be prepared or are prepared
under the provision of the statutory rules regulating the
financing of a particular corporation, trading or manufacturing
scheme or concern or project and the report of the Comptroller
and Auditor-General thereon.
(b) to examine the statement of accounts showing the income and
expenditure of autonomous and semi-autonomous bodies,
the audit of which may be conducted by the Comptroller and

91
 Auditor- General of India either under the directions of the
President or by a statute of Parliament; provided that the
Committee shall not exercise its functions in relation to such
public undertakings as are allotted to the Committees on Public
Undertakings either under the Rules of Procedure for the
Conduct of Business in the Lok Sabha or by the Speaker, and
(c) to consider the report of the Comptroller and Auditor-General in
cases where the President may have required him to conduct
an audit of any receipt or to examine the accounts of stores and
stocks.
(iii) If any money has been spent on any service during a financial year
in excess of the amount granted by the Parliament for that purpose,
the Committee will examine with reference to the facts of each
case the circumstances loading to such an excess and make such
recommendations as it may deem fit.
4. The Railway Convention committee reviews the railway finance
periodically and recommends the changes to be made in railway finance.
5. The Standing Committee on railways has the following functions :
(i) To consider annual report of Railways and make report thereon,
(ii) To examine the bills pertaining to the Railway as referred to the
Committee by Chairman/Rajya Sabha or Speaker and make report
thereon,
(iii) To consider national basic long policy documents referred to the
committee and make report thereon,
(iv) To consider Demands for Grants of Railways and make a report on
the same to the house.
The report of the Standing Committee has persuasive value and is treated
as advice given by the Parliamentary Committees.
CYP 4 :

1. Cut Motion is the proposal sent by Members of the Lok Sabha to the Lok
Sabha Secretariat for cuts in the individual demands or for omission of
individual demands from the budget is presented to Parliament.
2. Parliament Questions are of various kinds, viz.-
(a) Questions with the usual minimum notice of 10 days. These may be
- (i) “starred” , i.e., questions for oral answers, or
(ii) “unstarred“. i.e., replies to which are laid on the Table of the House,
and
(b) “Short notice questions“.
3. A motion for adjournment of the business of the Lok Sabha for the
purpose of discussing a definite matter of public importance may be made
by Member of Parliament with the consent of the Speaker.

92
 Questions for Study

1. Describe the control of Parliament over Railways.

2. Describe constitution of National Railway users consultative council.
3. Describe constitution and role of the Public Accounts Committee.
4. How is Parliamentary control exercised over Railway Finances? What is
cut motion?
5. How are urgent matters discussed in Parliament?

93
94
 8
u
fjog l
Institute of Rail Transport
Planning, Financial
s i

La Fkku

irt
jy

ub Z
fnY y h
Management &
Investment Policies

UNIT-5
Structure of Railways’ Accounts

Structure
5.0 Objectives
5.1 Introduction
5.2 Types of Railways’ Accounts
5.2.1 Commercial and Government Accounts
5.2.2 Capital and Revenue Accounts
5.2.3 Government Accounts
5.3 Classification in Government Accounts
5.4 Purpose of Detailed Classification in Administrative Accounts
5.5 Compilation of Railways’ Account
5.6 General Books and Subsidiary Accounts Records
5.6.1 General Books
5.6.2 Subsidiary Accounts Records
5.7 Accounts Current
5.8 Let us Sum Up
5.9 Check Your Progress : The Key
Questions for Study

95
5.0 OBJECTIVES
After studying this unit you will be able to:

OO describe railway accounts;

OO discuss the purpose of detailed classification in administrative accounts;
OO explain the duties of Accounts Officer in compilation of Accounts;
OO describe the general book and subsidiary accounts record; and
OO explain how the capital and revenue accounts current compiled.

5.1 INTRODUCTION
In the previous unit, we have learnt about control of Parliament over railway
finance and policies, various Parliamentary Committees and scope/ subject
looked after by them relating to Railway activities and process. In this unit we
shall discuss the structure of railway accounts, classification in Government
Accounts, various books of accounts and accounting statement generated
periodically.

5.2 TYPES OF RAILWAY ACCOUTNS

5.2.1 Commercial and Government

Accounts:
The financial transactions of a commercial concern should be recorded in such
a way as to show how its capital has been utilised, how it stands in relation to
its debtors and creditors, whether it is gaining or losing, what the sources of its
gains or losses are and whether it is solvent or insolvent. The main requirement
of Government accounting, on the other hand, is that a systematic record of all
receipts and expenditure classified under certain appropriate headings should
be available. The Government owned railways in India are a departmental
Commercial Enterprise. Railways accounts should, therefore, not only secure
the essential requirements of commercial accounting but also conform to the
practices of Government accounting. This objective is achieved by keeping the
accounts of the railways on a commercial basis outside the regular Government
account and by maintaining a link between the two to show how much is coming
into Government revenues through the railways and how much is spent by the
Government, whether as capital or revenue expenditure, in carrying on the
activities of the railways.

96
5.2.2 Capital and Revenue Accounts:
The accounts of a railway presented in such a form as to facilitate a review of
the finances of the railway as a commercial undertaking are known as “Capital
and Revenue Accounts”. The Capital and Revenue Accounts of a railway are
compiled every year and included in the Annual Report of the railway. The
various processes of accounting followed in Railway Accounts Offices lead up to
these accounts.

The financial results of the working of a railway cannot be adequately gauged,

unless separate accounts are maintained of its Capital transactions as
distinguished from its Revenue transactions. Capital transactions may be broadly
described as those which pertain to the acquisition of concrete assets while
Revenue transactions are those which relate to the working of the railways,
comprising both earnings and working expenses.

The expenditure incurred on acquiring concrete asset in connection with : (i)

unremunerative projects, (ii) amenities to passengers and other railway users, (iii)
amenities to staff, and (iv) safety works, financed from the Development Fund,
the Railway Safety Fund and Rashtriya Rail Sanraksha Kosh is accounted for
separately.

The expenditure on renewals and replacements of railway assets is financed

from the Deprecia-tion Reserve Fund and is accounted for accordingly.

Expenditure of a capital nature incurred on railway assets is classified under five

heads viz., Capital, Capital Fund, Depreciation Reserve Fund, Railway Safety
Fund, Special Railway Safety Fund, Development Fund and Rashtriya Rail
Sanraksha Kosh. To give an overall picture of the expenditure of a capital nature
incurred by the Railways as distinguished from the expenditure actually charged
to Capital (loan account) a separate account is compiled namely, a Block Account
which exhibits the entire expenditure of a capital nature irrespective of the head
of account to which it has actually been charged. The Loan Account will give only
the extent of expenditure actually charged to capital.

5.2.3 Government Accounts

The accounts maintained in accordance with the requirements of Government
Accounts are collectively termed as the “Finance Accounts”. The Finance
Accounts of a railway are compiled annually, for the purpose of presenting in a
condensed form, the various tran-sactions brought to account in the books of the
railway duly classified in accordance with the heads of account prescribed for
Government accounting.

According to Article 266 of the Constitution of India, the Central Government

have a consolidated fund entitled the “Consolidated Fund of India” into which flow
all the revenues (for the railways traffic earnings is the main source of income)

97
received by the Central Government, loans raised by the Government by the
issue of treasury bills, loans or ways and means advances, and moneys received
by the Government in repayment of loans and from which all expenditure of the
Central Government is met when so authorised by the Parliament in accordance
with law. The Central Govern- ment have also a public account entitled the
“Public Account of India” into which all other public moneys received by or on
behalf of Government are credited and from which disbursements are made
in accordance with the prescribed rules. The procedure to be followed for the
payment into, and the withdrawal, transfer or disbursement of moneys from,
the Consolidated Fund and the Public Account and for the custody of motleys
standing in that Fund and Account. is regulated by law made by Parlia-ment and
pending such legislation, by the rules made by the President under Article 283 of
the Constitution.

The Central Government have also, as authorised in Article 267 of the

Constitution; a Contingency Fund entitled the “Contingency Fund of India”.

This Fund will be at the disposal of the President to enable advances to he

made by him for meeting unforeseen expenditure, pending authorization of such
expenditure by Parliament under Article 115 or Article 116. The procedure to be
followed for the custody of the payment of moneys into and the withdrawal of
moneys from, the Fund is regulated by law made by Parliament.

Though the transactions of the Railway Ministry form part of the Consolidated
Fund, the Contingency Fund and the Public Account of India, they are accounted
for in the “Railway Fund” which has been created proforma in the books of the
Reserve Bank of India.

CHECK YOUR PROGRESS 1 :

1. What is main requirement of Government accounting?

2. How Railway Account secure the essential requirement of both

commercial and Government accounting?

98
 3. What is Block Account?

4. Define Finance Account?

5.3 CLASSIFICATION IN
GOVERNMENT ACCOUNTS
The Government accounts are kept in the following three Parts:

OO Consolidated Fund of India.

OO Contingency Fund of India.
OO Public Accounts of India.
Consolidated Fund of India:- In this part of the Account there are three main
divisions, namely:-

(1) Revenue, (2) Capital, and (3) Debt (comprising public Debt and Loans and
Advances). The first division deals with the proceeds of taxation and other
receipts, classed as revenue and the expenditure therefrom (in the case of the
Railways, the traffic earnings are the main source .of revenues). The second
division deals with expenditure incurred with the object of increasing assets of
a material character also and also receipts intended to be applied as a set-off
to capital expenditure. The third division comprises, so far as Railway Accounts
are concerned, of loans and advances made by Government together with the
repayments of the former and recoveries of the latter.

Contingency Fund of India:- In this part are recorded transactions connected

with the Contingency Fund set up by the Government of India under Article 267
of the Constitution.

99
Public Account of India:-Here there are two main divisions, namely-(l) Debt
(other than those included in Part 1) and Deposits; and (2) Remittances.

The first division comprises receipts and payments other than those falling under
“Debt” heads pertaining to Part I, in respect of which Government incurs a liability
to repay the moneys received or has a claim to recover the a mounts paid,
together with repayments of the former and the recoveries of the latter such as
Contributory/Non-contributory Provident Fund Accounts, Staff Benefit Fund, and
all Railway Funds like the Development Fund, the Depreciation Reserve Fund etc.
The second division comprises all adjusting heads, such as transfers between
different accounting circles (for transactions appearing in the first instance in the
books of one Accounts Officer but finally transferred to those of another).

Division by Heads of Accounts.- Within each of the divisions mentioned in

above paragraph, the transactions are grouped into sections, further sub- divided
into major heads of account The main unit of classification is the major head
which has been allotted a distinct code number. There are sub- major heads
under some of the major heads. The major/Sub-major heads are divided into
minor heads, the minor heads into sub-heads, and the sub-heads into detailed
heads.

“Commercial” and ‘Strategic : The major and minor heads of account of railway
revenue, capital. debt and deposits, and remittance transactions transactions.-
“Revenue’· and “Capital” transactions are further classified as “Commercial”
and “Strategic” according to the class of section of the railway line to which they
pertain. A similar classification is observed in regard to the Depreciation Reserve
Fund transactions also. A list of Strategic Railway lines is given below:

OO Mukerian-Pathankot Section (Northern Railway).

OO Jaisalmer-Pokaran Section (North Western Railway),
OO Rangapara North-North Lakhimpur- Murkong Selek Section (Northeast
Frontier Railway),
OO New B. G. Line from Raninagar on Siliguri-Haldibari Section to Jogighopa
in Assam and the converted B. G. Section between Siliguri and Haldibari
(Northeast Frontier Railway).

Subject to such detailed instructions as have been prescribed with the approval
of the Comptroller and Auditor General of India, the working expenses are
distributed between Com-mercial and Strategic sections of a Railway.

The actual expenses are to be charged to the Commercial and strategic section
where these can be ascertained. The remaining expenses are to be apportioned
between them on the following basis :

(a) Engineering expenses to be divided in proportion to track kilometrage.

(b) Locomotive expenses to be divided in proportion to engine kilometrage.
(c) Carriage and wagon expenses to be divided in proportion to vehicle
kilometrage

100
(d) Traffic expenses to be divided in proportion to train kilometrage.
(e) Electrical, Signal and Telecommunication expenses to be divided on the
basis prescribed for the department to which the service is rendered, vide
clauses (a) to (d) above. As regards Elec-trical and Signal workshops half
of the expenditure may be apportioned on the basis of engine kilometres
and the ether half in proportion to the wagon/vehicle kilometres.
(f) Expenses of other departments to be divided in proportion to gross
tonne kilometrage. The Stores balances of the Railway are distributed
between “Commercial” and “Strategic” on the basis of the average issues
of stores to the commercial and strategic sections during the preceding
three years. This distribution is shown in the schedule of expenditure
accompanying the monthly capital accounts.

CHECK YOUR PROGRESS 2 :

1. State the parts in which the Government accounts are kept.

2. State the two main divisions under Public Accounts of India.

3. State the three main division of Consolidated Fund of India.

101
5.4 PURPOSE OF DETAILED CLASSIFICATION
IN ADMINISTRATIVE ACCOUNTS
A careful and well planned analysis of all items of receipt and expenditure is a
condition precedent to an effective financial control and is the primary object
of any accounting classification. Such a classification will secure the requisite
degree of uniformity of accounting, amid the volume and variety of the financial
transactions of railways, so as to render the accounts of different railways
comparable over the same time periods and to enable preparation of budget
estimates or forecasts of receipts and payments.

Allocation of receipts and expenditure : The primary responsibility for the

allocation of all receipts and payments rests with the concerned departmental
officers. Each bill or voucher received from them should show the correct
allocation of the receipt/expenditure in the fullest detail. The Accounts
Department is responsible for seeing, to the extent it is possible for them to do
so, that the allocation shown on the initial document is not prima facie incorrect.

Correct classification should be followed in recording the expenditure in accounts

irrespec-tive of whether provision in the budget has been made under correct
budget head. In order, however, to avoid undue variation between the budget
and accounts figures, changes in accounting classification will not ordinarily be
introduced during the course of the year.

Account Heads: Some of the account heads in the railway books are operated
for the pur-pose of maintaining a link between the Commercial Accounts of the
railway and the Government Accounts.

Demands Payable: Unlike Government accounts which record expenditure

only when actually disbursed or receipts only when actually realised the railway
accounts maintained on a com-mercial basis will record the expenditure incurred
or earnings accrued in a month irrespective of whether they have actually been
paid or realised.

On the Expenditure side, the revenue liabilities of the railway for a month, which
are not payable within the same month, are brought to account as working
expenses for the month by taking contra credit to a suspense head called
“Demands Payable”. When the railway’s liabilities are ‘actually dis- charged
by payments, this suspense head is debited with the amount of the payment
so made. Thus, the balance at the end of the month in this suspense head will
represent liability of the railway incurred, but not actually discharged, during that
month.

Labour : The wages and allowances for a month of workshop staff are paid to
them only in the beginning of the following month. However, to ascertain the cost

102
incurred on a job in a month, it is essential that the value of the labour employed
in the shops is charged in the same month to the specific jobs on which the
workshop staff have been engaged. For this and other purposes, therefore, the
operation of a suspense head similar to “Demands Payable” is necessary. The
total wages and allowances of staff employed in the shops during any month
will, in the first place, be credited to a head under the Workshop Manufacture
Suspense termed “Labour”. As the Labour Pay Sheets are passed in the
Accounts Office for payment, the amount passed will be debited in the General
Books of the railway to the head “Labour” by credit to “Transfers Revenue”.
The balance of the account “Labour at the end of the month will consequently
represent liabilities on account of the wages and al1owancs charged, but not as
yet cleared by actual payment to the labour.

Traffic Accounts : This is a suspense head of account under the major head
Indian Railway-Revenue Receipts-Commercial/Strategic lines. This account
serves the same purpose for ear-nings as ‘Demands Payable’ does for
expenses. This head is debited with all earnings for the realisation of which a
Railway Administration is responsible, irrespective of whether the earnings relate
to its own traffic or to traffic inter-changed with-other Railways. This account is
credited with the realisation of all such earnings. The balance in this account thus
represents unrealised earnings either at the stations or in the Accounts Office.

5.5 COMPILATION OF RAILWAY ACCOUNTS

In regard to the compilation of Accounts the duties of the Accounts Officer are :

(i) to collect and bring to account all the receipts and disbursements of the
railway, department, division, etc. to which he is attached, i.e., of his
accounts circle;
(ii) to transfer to other accounts circles the items pertaining to them which
originate in his circle and to adjust in his books of account the items of
expenditure or receipts pertaining to his own circle and transferred to him
by other Accounts Officers;
(iii) to make up a detailed account of his accounts circle monthly;
(iv) to make up a detailed account of his circle for each year; and to prepare
relevant financial reports for management information and action.
(v) Accounting transactions fall under two distinct headings, viz., (i) cash
receipts and disbursements, and (ii) book adjustments.
The latter represent transactions either initially accounted for by another
Accounts Officer as in the case of transfer transactions or adjustments between
one accounting head and another, e.g., for issue of stores from a Stores Depot
for revenue maintenance purposes etc.

103
The initial record for a cash transaction will be a cash voucher or bill. For book
adjustment, it is a journal slip. Cash transactions are rendered in the Cash Book,
while journal slips are entered in the Journal.

5.6 GENERAL BOOKS AND

SUBSIDIARY ACCOUNTS RECORDS

5.6.1 General Books

The Accounts Officer maintains certain essential records for the purpose of
collecting and bringing to account the transactions of his accounts circle and
for compiling the monthly and annual accounts, which are referred to as the
“General Books” of the railway. These comprise:

OO The Daily Abstract of Cash Transactions or the General Cash Book

OO The Monthly Classified Abstract of Cash Transactions or the General
Cash Abstract Book
OO The Journal
OO The Ledger

Daily Abstract of Cash Transactions or the General Cash Book :This record
is intended to bring to account the cash transactions taking place in the circle of
the Accounts Officer. The debit side of the General Cash Book will represent all
cash received and credit side of the Cash Book represents cash payments

The monthly Classified Abstract of Cash Transactions or the General Cash

Abstract Book. : This record is posted daily from the totals in the Daily Abstract
of Cash Transac-tions in two parts, one part for receipts (debits) and the other for
disbursements (credits). It is totalled after the transactions of the last day of the
month have been posted.

The Journal : All transactions which do not involve the actual receipt or
disbursement of cash, are recorded in the Journal. Each entry in the Journal
should be supported by a Journal Slip or voucher duly signed by an Accounts
Officer. Postings in the Journal is totalled up in good time before the date fixed
for the submission of the monthly accounts. The Cash Transactions of the month
as abstracted in the Cash Abstract Book are added. The accuracy of posting the
Journal is proved by drawing up a “Trial Balance” from the totals of debit and
credit under each head of account in the Journal after adding up the figures of
cash transactions.

104
The Ledger: The closing totals of the journal should be posted in the Ledger
by the various heads of account so that it records all receipts and charges of
the accounting circle, under the various heads of account, and also shows the
progressive balances under those heads, at the end of each accounting period.

5.6.2 Subsidiary Accounts Records

In addition to the General Books the following subsidiary records should be kept
by each accounting circle:

(i) Registers of Earnings

(ii) Revenue Allocation Registers
(iii) Registers of Works
(iv) Suspense Registers
(v) Register of works expenditure classified under Capital, Depreciation
Reserve Fund, Development Fund, Capital Fund, Rashtriya Rail
Sanraksha Kosh

These records are of utmost importance in as much as they are designed to

exhibit the details of the transactions under Revenue, Capital Depreciation
Reserve Fund, Development Fund, Capital Fund, Railway Safety Fund Rashtriya,
Rail Sanraksha Kosh and Suspense Heads duly analysed under the prescribed
detailed classification.

These books are posted directly from the Vouchers or from an allocated abstract
or summary statement of a group of vouchers containing similar allocations
immediately after they (the vouchers) have been passed in accounts. In cases
where an allocated abstract (summary) is used for posting the subsidiary
registers, these are filed along with the group of vouchers, which have been
summarised therein.

Closing the General Books : The compiled accounts of a railway are required
to be sub-mitted so as to reach the Railway Board on the 8th of the month
following that to which the accounts relate.

The accounts for the month of March is submitted so as to reach the Board by
the date as may be fixed by the Railway Board.

The General Books of the Railway should, therefore, be closed every month
in good time for the compilation of the Monthly/Annual Accounts. The various
subsidiary registers should be totalled up and reconciled with the General Books
within a week of the submission of the Accounts. The certificate of reconciliation
should be recorded each month in the subsidiary registers under the signature of
an Accounts Officer.

105
CHECK YOUR PROGRESS 3 :
1. What accounts heads are operated in railway books to maintain a link
between commercial accounts of railway and the government account.

2. State the duties of Accounts Officer in regard to compilation of

Accounts.

3. What are the general Book?

4. How many subsidrary records are kept by each accounting circle? Are
they reconciled with General Books and when?

106
5.7 ACCOUNTS CURRENT
Compilation of Accounts Current

After the General Books for a month have been closed and the Ledger has
been written up, the monthly Accounts Current is prepared, from the Ledger
and submitted to the Railway Board together with the prescribed supporting
schedules. An Account Current is simply a statement showing the receipts and
dis-bursements of an accounts circle, duly classified under the prescribed heads
of account. The principle on which the Account Current is prepared is that all
entries should be shown net, i.e., after deduction of the write back adjustments,
against each head of account. On no account should minus results be transferred
as plus result to the opposite side of the account. The column “amount to date” in
the Accounts Current forms should show the transactions from the beginning of
the official year. The cash balances should be opening balance of the year and
the clos-ing balance of the month to which the account refers.

Annual Closing of Book

The books relating to the financial year should, in every case, be closed by
the date as fixed by the Railway Board. The accounts of a year are kept open
after the close of the year so that, as far as possible all the transactions of
the year may be included therein. For any expenditure actually incurred but
bills for which are not accepted or accounted for by the executive, provisional
adjustments should be car-ried out on the basis of readily available allocation.
Such provisional adjustments should be noted down in a manuscript register
for prompt regularization. It is not essential that transactions relating to earlier
years should be booked in the accounts of the latest year, which are still open.
If it is impossible to have any expenditure booked in the accounts of the year
to which it relates owing to the fact that the actual incidence of the expenditure
is under dispute, it ought to be charged to the accounts of the year in which
the final decision is taken, though at the same time, efforts should be made to
expedite the decision as far as possible. Adjustments should not be made in the
accounts of the past year if the disbursements could not have been reasonably
anticipated in time for a grant being obtained from the proper authority. In all
cases, where the expenditure could have reasonably been anticipated as for
example, recurring payment to a State or Department of the Central Government
and payments which, though not of fixed amount, are of a fixed character, etc.,
the Accounts Officer should make the adjustment in the accounts before they are
finally closed.

Final Accounts Current

After the books for a financial year arc closed, Final Accounts Current of the
Capital and Revenue transactions of the railway is prepared and submitted to
the Railway Board so as to reach them not later than the 1st May following or
any other date fixed by Railway Board. These Accounts Current are intended to

107
show the transactions of the railway for the year under the various final heads
of account and the opening and closing balances under the suspense and debt
heads.

Consolidation of Accounts Current

On Railways, where the Accounts Officers, subordinate to the Principal Financial

Adviser submit compiled accounts to the head office, the Accounts Current
(whether monthly or final) submitted by them should be consolidated into
one Account Current for the entire railway. Account Current of receipts and
expenditure for each month and from the commencement of the financial year
to the end of the month is sent to the Railway Board in prescribed Form so as to
reach them not later than the 8th of the month following that to which the figures
relate.

Consolidation in the office of the Railway Board

The Accounts Current received from the various railways are consolidated in the
Accounts Branch of the Railway Board and one Accounts Current is prepared
for the Railway Ministry. This Account Current is sent to the Finance Ministry for
use in the consideration of “Ways & Means” of the Central Government. From the
statement of Gross Receipts and Revenue received from the various Railways,
a consolidated statement for the entire Railway Ministry is prepared for the
information of the Railway Board.

5.8 LET US SUM UP

In this unit we have discussed about salient features of Railway Accounts,
classification of Government Accounts duties of Accounts department in
compilation of accounts, the various books of accounts maintained and
accounting statement generated periodically on the railways.

5.9 CHECK YOUR PROGRESS : THE KEY

CYP 1 :

1. The main requirement of Government accounting is that a systematic

record of all receipts and expenditure classified under certain appropriate
headings should be available.
2. Railway accounts follow the essential requirements of both commercial
and Government accounting. This objective is achieved by keeping
the accounts of the railways on a commercial basis outside the regular
Government account and by maintaining a link between the two to show
how much is coming into Government revenues through the railways and
how much is spent by the Government, whether as capital or revenue
expenditure, in carrying on the activities of the railways.

108
3. Block Account exhibits the entire expenditure of a capital nature
irrespective of the head of account to which it has actually been charged.
It gives an overall picture of the expenditure of a capital nature incurred
by the Railways as distinguished from the expenditure actually charged to
Capital (loan account).
4. The accounts maintained in accordance with the requirements of
Government Accounts are collectively termed as the “Finance Accounts”.
CYP 2 :

1. The Government accounts are kept in the following three Parts :- Part
I-Consolidated Fund of India. Part II-Contingency Fund of India. Part III-
Public Accounts of India.
2. Public Account of India has two main divisions, namely-(l) Debt (other
than those included in Part 1/ Consolidated Fund of India) and Deposits;
and (2) Remittances.
3. The three main divisions in Consolidated Fund of India are as under: (1)
Revenue, (2) Capital and (3) Debt (comprising public Debt and Loans and
Advances).
CYP 3 :

1. The account heads operated in the railway books for the pur-pose of
maintaining a link between the Commercial Accounts of the railway and
the Government Accounts are as under:
(i) Demands Payable
(ii) Labour
(iii) Traffic Accounts
2. The duties of the Accounts Officer in regard to the compilation of
Accounts are as under:-
(i) to collect and bring to account all the receipts and disbursements of
the railway, department, division, etc. to which he is attached, i.e., of
his accounts circle;
(ii) to transfer to other accounts circles the items pertaining to them
which originate in his circle and to adjust in his books of account
the items of expenditure or receipts pertaining to his own circle and
transferred to him by other Accounts Officers;
(iii) to make up a detailed account of his accounts circle monthly; to
make up a detailed account of his circle for each year; and to
prepare relevant financial reports for management information and
action.
3. The Accounts Officer maintains certain essential records for the purpose
of collecting and bringing to account the transactions of his accounts

109
 circle and for compiling the monthly and annual accounts, which are
referred to as the “General Books” of the railway. These comprise:-
(a) The Daily Abstract of Cash Transactions or the General Cash Book
(b) The Monthly Classified Abstract of Cash Transactions or the General
Cash Abstract Book
(c) The Journal
(d) The Ledger
4. The following subsidiary records are kept by each accounting circle :-
(i) Registers of Earnings
(ii) Revenue Allocation Registers
(iii) Registers of Works
(iv) Suspense Registers
(v) Register of works expenditure classified under Capital, Depreciation
Reserve Fund, Development Fund, Capital Fund, Railway Safety
Fund and Rashtriya Rail Sanraksha Kosh
The various subsidiary registers are totalled up and reconciled with
the General Books within a week of the submission of the Accounts.
Questions for Study

1. What is the difference between Commercial and Government accounts?

How does Indian Railways maintain their accounts? How link between the
commercial accounts of railway and Government accounts is maintained?
2. Describe Classification of Government Accounts.
3. What are the duties of Accounts Officer in compilation of accounts?
4. What are general books and subsidiary accounts records?
5. How Accounts Current is compiled?

110
 8
u
fjog l
Institute of Rail Transport
Planning, Financial
s i

La Fkku

irt
jy

ub Z
fnY y h
Management &
Investment Policies

UNIT-6
System of Railway Accounting:
Classification and Budgetary Management

Structure
6.0 Objectives
6.1 Introduction
6.2 System of Railway Accounting Classification and Budgetary Management
6.2.1 Characteristics of Sound Accounting Classification
6.3 Classification of Revenue Expenditure
6.4 Classification of Capital and Other Works Expenditure
6.5 Classification of Earnings
6.6 Merger of Railway Budget with the General Budget
6.7 Budget Formation and the System of Classification in Budget
6.8 Demands for Grants
6.9 Preparation of Budget Estimates
6.10 Presenting Budget Estimates to Parliament for Sanction
6.11 Reviews of Budget
6.12 Monthly Financial Reviews
6.13 Let us Sum Up
6.14 Check Your Progress : The Key
Questions for Study

111
6.0 OBJECTIVES
After going through this unit, you should be able to :

OO State the requirements of a sound accounting classification;

OO Describe the revised classification of capital and works expenditure;
OO Classify the earning of Railways;
OO Describe the process of preparation of the budget by the Indian Railways
and presentation to the Parliament; and
OO Explain the purpose of review of the budget

6.1 INTRODUCTION
In the previous unit, we have learnt about the structure of railway accounts,
classification in Government Accounts, the various book of accounts and
accounting statements generated periodically on Railways. In this unit, we shall
discuss the accounting classification adopted to record expenditure and

revenue transactions, the process of budget formation, system of classification

in budget submission of budget to Parliament and issueance of budget orders to
Railways after the the sanction by Parliament and budgetary reviews.

6.2 SYSTEM OF RAILWAY ACCOUNTING

CLASSIFICATION AND
BUDGETARY MANAGEMENT
The decisions of management are based on past performance, current
performance and the plan for the future performance. Performance has,
therefore, to be identified both quantitatively and financially. The operations of
any undertaking could be characterised by various functions, programmes and
activities and further divided into sub-heads or smaller units of activities. Each
activity or sub-head activity could be evaluated in terms of money expended on
it, by way of salary and wages and allowances of men participating in the activity,
the materials and supplies involved and other miscellaneous expenses incurred.

6.2.1 Characteristics of Sound Accounting

Classification
A sound accounting classification would indicate :

who spent the money on what activities, and on what elements forming the cost,
viz. labour, material etc. of the activity.

112
OO Further, the accounting classification should also provide assistance in
the development of budgets based on anticipated levels of activities.
OO Wherever the facility of data processing through computers exists, the
accounting classification should be such as is suitable for a computer
managed information system.
OO In addition, in keeping with the modern trends of responsibility, accounting
(the characteristics of responsibility accounting are discussed in the next
lesson), the classification should provide the required data for correct
assessment and reporting of costs on major activities.
OO As on the Railways, where an Exchequer control system is in operation,
the classification should also provide information to facilitate the operation
of Exchequer Control.
OO Finally, the accounting classification should aim at a suitable asset-wise
breakup which will facilitate assessment of depreciation on the basis of
life of each type of asset.

On the Railways, revised and improved system of classification was introduced

with effect from 1.4.1979 which fulfils broadly the requirements of an accounting
classification as brought out above. Prior to this revision and reform, the
classification obtaining on the Railways for the revenue working expenses,
no doubt, contained a division by the main departments on the railways; viz.,
General Administration, Engineering, Mechanical, Electrical, Singnalling,
Transportation, Miscellaneous etc. The structure of the classification, however,
itself had mixed up functions, programmes and activities as well as objects of
expenditure resulting in the need for re- alingment of heads of expenditure to
arrive at comparison with budget targets or costs of specific acvities. Further, the
break-up by the objects of expenditure was not complete and was also marked
by the absece of it in respect of certain functions. This classification was not
very helpful in controlling expenditure or in giving any meaningful management
information reports.

The reform and the revision effected from 1.4.1979 were on the basis of the
recommendations of a Task Force constituted at the instance of a parliamentary
committee, viz., Railway Convention Committee and the system now provides an
almost complete alingment of the structure of the accounting classification with
the structure of classification for budgetary purpose and even for presentation to
Parliament so that without having to regroup or recast the heads of classification,
a straight comparison between the actuals and the budget targets is possible.

It may be recalled that the Railway’s accounts are also consolidated with the rest
of the government accounts. For the purpose of link with the Central Government
accounts, the classification upto the limit of the minor head and main head of
classification is dovetailed into the Central Government classification under
selected major heads representing the revenue receipts and expenditure on
the Railways as well as capital outlay on the Indian Railways, separately for
commercial lines and strategic lines. Further, sub- divisions below the main

113
heads of the Government classification are treated as “domestic affair” of
the Railways and the structure is oriented towards the need of the Railways
for control of expenditure and operation of responsibility accounting and
performance budgeting.

6.3 CLASSIFICATION OF
REVENUE EXPENDITURE
The revenue working expenses of the Railways are classified under following
sub- major heads with a separate Abstract for each sub-major heads as follows:

1) Abstract ‘A’ - General Superintendence and Services.

2) Abstract ‘B’ - Repairs and Maintenance of Permanent Way and Works.
3) Abstract ‘C’ - Repairs and Maintenance of Motive Power
4) Abstract ‘D’ - Repairs and Maintenance of Carriage and Wagons.
5) Abstract ‘E’ - Repairs and Maintenance of Plant and Equipment.
6) Abstract ‘F’ - Operating Expenses - Rolling Stock and Equipment.
7) Abstract ‘G’ - Operating Expenses - Traffic.
8) Abstract ‘H’ - Operating Expenses - Fuel.
9) Abstract ‘J’ - Staff Welfare and Amenities.
10) Abstract ‘K’ - Miscellaneous Working Expenses.
11) Abstract ‘L’ - Provident Fund, Pension and other retirement benefits.
12) Abstract ‘M’ - Appropriation to Funds.
13) Abstract ‘N’ - Suspense.
14) Abstract ‘O’ - Government contribution for defined contribution pension
scheme

The sub-major heads are divided into minor sub and detailed heads as shown in
the booklet of classification of accounts expenditure and earnings. The structure
of the accounts classification is such that it corresponds to & is in line within the
revised classification of the Demands for grants.

While the classification upto the detailed head represents only the activity, the
structure of the classification also incorporates a two digit code to represent
the primary unit i.e. the object of the expenditure, indicating on “what” the
expenditure is incurred viz., salary, allowances wages, materials Consumeable
stores etc. The indication of a classification will be complete only if the Abstract
the minor sub and detailed heads of activity as well as the code of the object of
expenditure are given in that order.

The expenditure classification is, therefore, structured to show the following :-

Abstract Minor sub & Object of expenditure

(or sub major) Detailed heads code
(indicating Major activity & (Wages, materials
function) detailed activity contigencies etc.)

114
A few examples of the practical manner of expressing the classification are given
below :-

1) Maintenance of Permanent Way - Trunk routes and main lines on the

metre gauge – manual maintenance
This is expressed as B 261-01

B represents the Abstract “B” indicating the main function ‘Repairs &
Maintenance of Permanent Way and Works’.
200 represents the mainhead indicating the main activity viz. maintenance
of Permanent way.
260 represents that the activity is in respect of trunk route and main lines
on the metre gauge.
261 represents manual maintenance.
1) represents the code for salaries & wages.
If any stores are drawn from stock for the purpose of this activity, the
classification will be B 261-27 (the codes for object of expenditure are
given on page 44 of the booklet on classification of revenue expenditure).
2) Electric Multiple Unit Coaches - Running Repairs - in sheds
The classification is indicated by D 411-27, i.e., drawn from stock for the
activity Repair & Maintenance of Carriages &Wagons - EMU coaches-
running repair - sheds.
3) Operating Expenses in respect of traffic - station operations train control
and passing staff - salaries_ & wages.

This is represented by G 250-01

Dearness allowance paid to the same staff will be indicated by G-250-02 and so
on. It will be noted that the last two-digits show the “object” of expenditure.

CHECK YOUR PROGRESS 1 :

1. What are the main characteristics of sound accounting classification?

115
 2. How many revenue working expenses abstracts are there on IR?

3. Describe the structure of revenue expenditure classification?

6.4 CLASSIFICATION OF CAPITAL AND

OTHER WORKS EXPENDITURE
The various sources of Financing of the works expenditure on Railways are as under:-

Source Numerical Alpha** Minor Detailed Head Primary

Code Code Head Unit
Capital 20 P Plan head Detailed Object of
Capital Fund 25 U (function) head(activity) expenditure
Depreciation Reserve Fund 21 Q code
Revenue (OLWR)* 22 R
Development Fund S
DF 1 23
DF 2 33
DF 3 43
DF 4 53
Railway Safety Fund 26 V
Spl. Railway Safety Fund* 27 W
Rashtriya Rail Sanraksha Kosh 29
*Since abolished
** Not in vogue now

The revised Classification of expenditure on works irrespective of whether they

are charged to Capital, DRF, DF, CF, RSF, or RRSK will come under a single
Demand - 80, namely Assets- Acquisition, construction and Replacement. The
Accounting Classification for works expenditure is in the form of a 8 digit-4
module numerical code. The first module of two digits indicates the source of
fund viz., Capital, CF, DRF, DF, RSF or RRSK as the case may be. The second
module of 2 digits numerical code will represent the standard Plan Heads. The
third module which is also numerical will Represent the 2 digits corresponding
to the sub and detailed heads of classification giving the details of the sets
acquired, constructed or replaced. The last module which is of two digits will
indicate the primary unit, i.e., object of the expenditure.

116
For the purpose of link with the accounts of the Central Government the Plan
Heads will form the Minor Heads of Railways Capital under the Major Heads
“5002 - Capital Outlay on Indian Railways Commercial Lines” and “5003 - Capital
Outlay on Indian Railways - Strategic lines.”

The Minor Heads of Classification are as follows :-

S. No. Plan heads

1. 1100 New Lines (Construction)
2. 1200 Purchase of New Lines
3. 1300 Restoration of dismantled lines.
4. 1400 Gauge conversion
5. 1500 Doubling
6. 1600 Traffic Facilities-
(i) Development & Up-gradation fo Freight Terminals
(ii) Other Works
7. 1700 Computerisation
8. 1800 Railway Research
9. 2100 Rolling Stock
10. 2200- Leased assets- Payment of capital component of lease charges
11. 2900 Road Safety works-conversion of Unmanned Level Crossings
12. 3000 Road Safety Works-Conversion of Level Crossings into Road
13. 3100 Track renewals.
14. 3200 Bridge work
15. 3300 Signaling and Telecommunication works
16. 3400 Taking over of line wires from P. & T. Dept.
17. 3500 Electrification Projects
18. 3600 Other Electrical works excluding Traction Distribution Works
19. 3700- Traction Distribution Works
20. 4100 Machinery and Plant
21. 4200 Workshops including Production unit
22. 5100 Staff Quarters.
23. 5200 Amenities for staff
24. 5300 (i) Passenger amenities
(ii) Other Railway Users amenities.
25. 6100 Investment in Government Commercial undertaking road services
26. 6200 Investment in Govt. Commercial undertaking Public undertakings
27. 63 Investment in Non Government Undertaking Including JVs/SPVs.
28. 6400 Other Specified Works
(i) Nirbhaya Fund Projects
(ii) Other Projects
29. 6500 Training/HRD
30. 7100 Stores suspense
31. 7200 Manufacturing Advances
32. 7300 Miscellaneous Advances
33. 8100 Metropolitans Transport project.
34. 8200 Transfer to RRSK.

The sub and detailed heads give the break-up of the expenditure on assets in
its details such as Preliminary Expenses, Land, Formation, Permanent Way,
Bridges, stations and Buildings etc. In the classification, the details of subheads

117
and detailed heads which have been given for the minor head 1100 - new lines,
will be adopted for the other minor heads depending upon the nature of the asset
being created or replaced to the extent indicated against the respective head.

For example, when track renewals are undertaken, the allocation of expenditure
will be given as 3141 or 3142 for renewal of rails and fastenings or sleepers and
fastenings as the case may be. To these 4 digits will, however, be added the
code for primary unit of expenditure, viz. wages or materials etc., to complete
the allocation, e.g., 3141-01 will indicate the pay and allowances of departmental
establishment engaged on renewals of rails and fastenings. The cost of
Permanent Way materials etc., directly supplied for this work will be allocated to
3141-04 and so on.

If a work of construction workshop alone is undertaken, the workshop buildings

will be represented by 4263 and the workshop equipment by 4275 (assuming the
equipment is for Mechanical Department). The primary unit (or object) code will
be added as the last 2 digits according to the object of expenditure.

The classification of the assets will be indicated by these 6 digits in all the cases
irrespective of whether the expenditure on the asset is chargeable to Capital,
DRF, DF, Revenue (OLWR), CF, RSF or RRSK.

The work on new lines construction (chargeable to Capital) involving the activity
structural engineering works, major bridges, masonry is represented by 20-11 52-
04.

20 represents Capital
11 represents plan head new lines construction
52 represents major bridges masonry; and
04 represents direct supply of material
(2) Provision of a Diesel Loco POH shop on a Railway - Cost of Plant &
Equipment in Mechanical Department.

This will be represented by 20- 4275-03

(3) Replacement of Signalling & Telecommunication Facility in open line of

the Railway.
The classification is indicated by 21- 3377-03

The Pay and allowances of departmental establishment of this work will be

represented by 21- 3377-01 and so on.

6.5 CLASSIFICATION OF EARNINGS

The earnings of Railways are classified under three sub major heads with a
separate abstract for each sub Major Head, viz.,

118
Abstract “X” - Earnings from Coaching traffic

Abstract “Y” - Earnings from Goods traffic

Abstract “Z” - Sundry other earnings.

The sub Major Heads are divided into minor, sub and detailed heads as shown in
Appendix III for abstract ‘Y’ for the sake of illustration.

It is not within the competence of Railway Administration to introduce, abolish,

change the nomenclature or rearrange any of the sub major, minor and sub-
heads. They may, however, introduce or abolish any of the detailed heads under
any of the sub-heads.

The various heads of Classification are referred to by the numbers allotted to

them prefixed by the letter of the Abstract under which they occur. Thus the
detailed head “Season and Zone tickets” will be referred to as “X-122” (X-one-
two-two). X-200 will be special trains and received carriages. Unclaimed and
damaged goods would be Z-510.

CHECK YOUR PROGRESS 2 :

1. What are the four modules of accounting classification for works
expenditure?

2. What are three abstracts under which earning of Railways are

classified?

119
6.6 MERGER OF RAILWAY BUDGET
WITH THE GENERAL BUDGET
In a paper prepared by Shri Bibek Debroy, Member, N1TI Aayog and Shri Kishore
Desai, it was recommended to dispense with the separate Railway Budget. In the
paper, it was recommended mainly that:

OO A portion of surplus (Railway revenues - ordinary working expenses)

may be transferred to Railway Capital Funds. Balance surplus, if any, is
merged with the Consolidated Fund of India.
OO Budgetary support from MoF for capital works to be given to MoR and
its departmental entities in a similar manner as for other Government
departments.
OO The capital-at-charge to be wiped off.
OO Also, a suitable subsidy sharing mechanism may be worked out gradually
for Railways social service obligations.
OO The Union Budget can have a section on railway flnancials.

Subsequent to letter of Minister of Railways to FM agreeing for the proposed

merger, MoF with the approval of Finance Minister decided to merge the Railway
Budget with General Budget from 2017-2018. A committee of officials of MoF and
MoR was constituted to consider and work out the procedural details and other
operational modalities in regard to proposed merger. The committee submitted its
report to MoF on 8th September.

Afterwards, the Union Cabinet has approved the proposals of Ministry of Finance
on the merger of Railway budget with the General budget. The arrangements for
merger of Railway budget with the General budget have been approved by the
Cabinet.

The salient features of merger and the benefits likely to accrue therefrom are
broadly given below:

i. Ministry of Railways will continue to function as a departmentally run

commercial undertaking;
ii. A separate Statement of Budget Estimates and Demand for Grant will
be created for Railways. Accordingly the 16 Demands for Grant of the
Railways will merge into one single Demand. However Railways will
present their detailed Demands for Grant and the key highlights of
Railways will form an integral expenditure Budget Vol. II.
iii. A single Appropriation Bill, including the estimates of Railways, will
be prepared and presented by Ministry of Finance to Parliament and
all legislative work connected therewith will be handled by Ministry of
Finance;

120
iv. Railways will get exemption from payment of dividend to General
Revenues and its Capital-at-charge would stand wiped off;
v. Ministry of Finance will provide Gross Budgetary Support to Ministry of
Railways towards meeting part of its capital expenditure;
vi. Railways may continue to raise resources from market through
Extra-Budgetary Resources as at present to finance its capital
expenditure;
vii. The presentation of a unified budget will help present a holistic picture of
the financial position of the Government;
viii. Merger of Rail Budget with Union Budget would facilitate multi-modal
transport planning between highways, railways and inland waterways;
and
ix. It will allow Ministry of Finance greater elbow-room at the time of mid-year
review for better allocation of resources, etc.
It is not within the competence of Railway Administration to introduce, abolish,
change the nomenclature or rearrange any of the sub major, minor and sub-
heads. They may, however, introduce or abolish any of the detailed heads under
any of the sub-heads.

The various heads of Classification are referred to by the numbers allotted to

them prefixed by the letter of the Abstract under which they occur. Thus the
detailed head “Season and Zone tickets” will be referred to as “X-122” (X-one-
two-two). X-200 will be special trains and received carriages. Unclaimed and
damaged goods would be Z-510.

CHECK YOUR PROGRESS 2 :

1. What are the four modules of accounting classification for works
expenditure?

2. What are three abstracts under which earning of Railways are classified?

121
6.7 BUDGET FORMULATION AND
THE SYSTEM OF CLASSIFICATION
IN BUDGET
Under Article 112 of the Constitution of India, a statement of estimated receipts and
expenditure of the Government of India has to be laid before Parliament in respect
of every financial year which runs from 1st April to 31st March. This is the “Annual
financial Statement” or simply Budget statement. The Budget statement shows :-

i) the total revenue receipts from the Railways.

ii) ordinary working expenses and miscellaneous revenue expenses.
iii) works expenditure,.
iv) the distribution of railways surplus, and
v) the position of various funds that the railways are keeping with the Central
Government such as Depreciation Reserve Fund, Development Fund,
Capital Fund, Pension Fund, Capital Fund, Railway Safety Fund and
Special Railway Safety Fund Rashtriya Rail Sanraksha Kosh.

The railway receipts are classified into earnings from passenger traffic, other
coaching earnings (which include parcel and luggage), earnings from goods
traffic and sundry other earnings, like charges recovered for railway telegrams,
rent from staff quarters etc. There are also other miscellaneous receipts like
interest during construction on deposit works and Government share of surplus
profits which included receipts from subsidised railway companies in which
Government has no capital interest.

The expenditure incurred by the Railways on railway account consists of ordinary

working expenses incurred by various departments on the Railways in their day-
to-day working, other miscellaneous expenditure like the expenditure on Railway
Board, Audit, surveys and other miscellaneous establishments, and payments to
worked lines regulated by contacts with those lines which are not owned by the
Railways but which are either worked by the Indian Railways or by the private
companies themselves. The revenue account also includes the dividend paid by
Railways to General Revenues, appropriation to Depreciation Reserve Fund and
appropriation to Pension Fund.

The Budget statements are in the form of the Government system of accounts
classification, i.e., indicating only the major heads of classification as already
discussed above.

6.8 DEMANDS FOR GRANTS

The estimates of expenditure from Consolidated Fund included in the budget
statements and which are required to be voted by Parliament (Lok Sabha) are

122
submitted in the form of Demands of Grants. Each demand presents a distinct
functional activity on the Railways. The demands for Works Expenditure are
kept distinct from the demands for revenue expenditure. Wherever expenditure
in a demand includes both “voted” and “charged” item of expenditure, the latter
are also included in the demand but the “Voted” and “Charged” provisions are
shown separately in the demand. “Voted” expenditure includes those items for
which the provision of funds is subject to the vote of Parliament while funds for
charged expenditure are sanctioned by the President and are not subject to
the vote of Parliament. Charged, expenditure for Railways includes items like
interest, sinking fund charges, court decrees, salary and allowances payable in
respect of the Comptroller and Auditor General of India. The Demands for Grants
are presented to the Lok Sabha along with the budget statements. On the top of
each demand the details of “voted” and “charged” expenditure in the demand are
indicated separately and the grand total of the expenditure for which the demand
is presented is also given. This is followed by the estimates of expenditure under
different heads. Besides, notes briefly explaining the reasons for thevariations
between the original budget and the revised budget for the current year and
also between the current year’s requirements and the requirements of next year
included in the various demands are appended.

There were 16 Demands for Grants, Demands 1 to 15 dealing with revenue

expenses and appropriations and demand 16 dealing with works expenditure.
Each revenue demand has a 2-way classification by activity and objects of
expenditure, the activity indicating for what purpose the expenditure was incurred
like track maintenance, water supply, periodical overhaul of locomotives and
the primary units of expenditure indicating how the expenditure was incurred-
like salaries, wages overtime, cost of materials etc. This two-way classification
integrates the requirements of performance budgeting which is based on activity
and management control which is based on object of expenditure.

No. Name of Demand

1. Railway Board
2. Miscellaneous Expenditure (General).
3. General Superintendence and Services on Railways.
4. Repairs and Maintenance of Permanent way and Works.
5. Repairs and Maintenance of Motive Power.
6. Repairs and Maintenance of Carriages and Wagons.
7. Repairs and Maintenance of Plant and Equipment.
8. Operating Expenses-Rolling Stock and Equipment.
9. Operating Expenses-Traffic.
10. Operating Expenses-Fuel.
11. Staff Welfare and Amenities.
12. Miscellaneous Working Expenses.

123
No. Name of Demand
13. Provident Fund, Pension and other Retirement Benefits.
14. Appropriation to Funds.
15. Dividend to General Revenues, Repayment of loans taken from General
Revenues and Amortization of over capitalisation.
16. Assets - Acquisition, Construction and Replacement.

However as stated above, after merges of Railway Budget with the General
Budget the 16 DFGS of Railway have been Merged into one single Demand for
Grant in General Budget.

CHECK YOUR PROGRESS 3 :

1. What information does the budget statement show?

2. Can you recall the 16 demands of Railways which are presented for
Parliament sanction?

3. On what basis the estimate of earning of Railway is made?

124
6.9 Preparation of Budget
Preparation of the Revised and Budget Estimates commences at the 'grass root
level' i.e., Division, Workshop, Stores Depot etc., as the case may be. The entire
responsibility for framing the estimates devolves upon the spending/earning
authorities concerned, though the actual work of compilation and scrutiny would
rest with the Financial Adviser and Chief Accounts Officer who would also draw
the attention of the General Manager to matters of purely financial import. The
estimates should be as accurate as possible and, to achieve this object, care
should be taken to see that the data on which the forecast is based is adequate
and reliable and that the conclusions arrived at from the data can be sustained
by past experience and future expectations of likely events. The manner in
which the data required for the preparation of the estimate should be collected
is, therefore, left to the General Managers, but the general principles on the
basis of which the various estimates should be framed are described, wherever
necessary, in the following paragraphs:

The Revised and Budget Estimates are framed by the various concerned
authorities separately for(i) Gross Receipts ; (ii) Ordinary Working Expenses;
(iii) Payments to Worked Lines ; (iv) Appropriation to and expenditure to be met
out of Railway Funds ; (v) Payment to General Revenues (Not relevant now); (v)
Works Expenditure ; and (vii) Civil Estimates .

The estimates of Gross Receipts are prepared in two sets, one on the basis of
originating earnings and the other with reference to apportioned earnings both
for the Revised Estimates for the current year and the Budget Estimates for the
following year.

Coaching Earnings:- Earnings from each class of passenger traffic viz., Air
conditioned , First and Second, is estimated on the basis of passenger kilometres
and the average fare per passenger kilometre for each class separately. The
earnings from parcels traffic is estimated in the same way as for goods traffic,
and from military traffic is assessed on the basis of the previous actuals and the
influence of changing conditions in the future. The earnings from coaching traffic,
other than passenger, parcel and military traffic, is estimated on the basis of a
ratio of the earnings from passenger traffic to be determined with reference to the
previous actuals.

Goods Earnings - Estimate for the commodities which, yield the bulk of the
Railway's revenue, is based on the anticipated net tonne kilometres (NTKM) to
be carried, and the average yield per NTKM, for each commodity. The earnings
from the rest of the commodities is assessed in lump sum, based on the trend of
events in the immediate past, the experience of the past years and, so far as it is
possible to ascertain, the influence of changing conditions in the future.

Sundry Other Earnings:-The miscellaneous earnings of a railway are estimated

on the basis of previous actuals and any other circumstances that may be known
or foreseen at the time

125
Working expenses : The estimates of Working expenses is based on expenditure
of past 3 years with due consideration to distinct features of the ensuing year
under respective demands, viz,

D.No.3 General Superintendence & services on Railways

D.No.4 Repairs & Maintenance of Way & Works
D.No.5 Repairs & Maintenance of Motive Power
D.No.6 Repairs & Maintenance of Carriages & Wagons
D.No.7 Repairs & Maintenance of Plant & Equipment.
D.No.8 Operating Expenses-Rolling Stock & Equipment
D.No.9 Operating Expenses-Traffic
D.No.10. Operating Expenses-Fuel
D.No.11. Staff Welfare & Amenities
D.No.12. Misc. Working Expenses & Suspense.
D.No.13. Provident Fund, Pension & other Retirement Benefits
D.No.14. Appropriation to Funds.

The revised estimate for the current year and the budget-estimate for the next
year are fixed after taking into account the expenditure of the previous year and
comparing the expenditure during the first seven months of the year with the
corresponding period of the previous year. The financial effect of variations on
account of specific reasons are clearly brought out under each Demand.

Works Machinery and Rolling Stock Budget -The revised and budget estimates
for expenditure on construction, acquisition, and replacement of assets (briefly
known as the Works Budget), are prepared in the form of the Works Machinery
and Rolling Stock Programmes. The upper limit on the 'Works Budgef of the
Railways is determined by the resources allocation under various well-defined
Plan heads, such as New lines construction, Rolling stock, Electrification
Projects, Traffic Facilities, Investment in Road Service and Commercial
Undertakings, Metropolitan Transport Projects and Inventories, etc Within this
allocation of resources, the Railway Administrations are required to make out
their programmes, duly vetted by the Principal Financial Adviser for submission
to the Railway Board by a specified date. The programmes are examined by the
Railway Board and discussed, where necessary, with the General Managers
before finalising the revised and budget estimates in respect of the works
Machinery and Rolling Stock programmes.

Inventories -The revised and budget estimates for inventories viz. store in stock,
works-in-process in workshops and production units, other stores transaction
such as purchase, sales and Miscellaneous Advances (Capital) are all part of
Demand No. 16-Assets Acquisition, Construction and Replacement. The value
of the inventory under these heads is held as part of the Railways' Capital-at-
charge. The revised and Budget Estimates for the inventories depend on various
factors. Even though budgeted under Demand No. 16, the operation of the

126
inventories in Zonal Railways depends almost entirely on the revenue operations
as budgeted under the various Demands for Ordinary Working Expenses. In
Production Units, however, the inventory budget has to be closely linked with
the manufacturing operations budget which, in turn, will be dove-tailed with the
Rolling Stock Programme.

6.10 PRESENTING BUDGET ESTIMATES

TO PARLIAMENT FOR SANCTION
As already referred to, according to the provision of Constitution, the estimates of
expenditure are required to be presented to Parliament in the form of Demands
for Grants and each demand presents a distinct functional activity in the
Railways. Therefore, the compilation of budget figures in the manner described
above is made in the form of Demands for Grants. Consolidation of demands of
Zonal Railways is done in the Ministry of Railways.

As regards the budget for investment transactions, the Railway’s requirements of

money for constructing new railway lines, doubling and electrifying the existing
ones, converting metre gauge lines into broad gauge lines and undertaking
other works aimed at increasing the capacity to handle more trains, purchase of
locomotives, carriages and wagons, working capital for inventory and workshop
operations etc., are first worked out by the Zonal Railways in the form of
Programme of Works, Rolling Stock and Machinery, as a preliminary measure.
Every item in this book is based on detailed financial calculations. However,
these investments are juxtaposed with the outlay for the Railways visualised in
the period Plan. Since the funds that would be made available by the government
for investment in railway works are not unlimited, the Zonal Railways preliminary
programme of Works, Rolling Stock and Machinery are pruned by the Railway
Board so as to manage within the total outlay available by giving preference
to items of higher priority. Thereafter, the Zonal Railways prepare their final
programme and the money required for the same is estimated in separate
Demands for Grants. For appreciation of the requirement by the Parliament, two
volumes of the programme of Works, Rolling Stock and Machinery—one giving
the summary and the other giving details are also prepared.

W.e.f. 2017-18, Budget Statement of Railways Stands merged with union Budget
of India presented by the Finance Minister to the Parliament as enjoined in
Article 112 of the Constitution. The Parliament takes up the Budget Estimates
for discussion, demand by demand. During the discussions, Members can table
cut- motions, thereby proposing token cuts in the amounts requested for by
the Minister in respect of any demand. After the demands are voted by the Lok
Sabha, Parliament’s approval to the withdrawal of the amounts so voted from the
Consolidated Fund is sought through an Appropriation Bill. No amount can be
withdrawn from the Consolidated Fund without such an Appropriation Act passed
by the Parliament. Therefore, all this procedure is normally completed before the
new financial year begins from the 1st of April.

127
6.11 REVIEWS OF BUDGET
On the basis of the budget amounts sanctioned, the Railway Board issues
Budget Allotment Order to every Zonal Railway indicating to them the amount
available for them for spending under each demand. From then onwards,
internal budgetary control is to be exercised by the Finance Department. For this
purpose, progress of expenditure under each demand is reviewed from time to
time with reference to proportionate budget allotment:

Earlier (Pre-Merger of Budget), there Budget reviews were carried out as disused
below:-

(i) The first budgetary review was conducted in the month of August; and
was known as“August Review”. This was prepared based on figures
of actual expenditure for the month of April, May and June, to which
the approximate figures of expenditure for July were added. The total
expenditure of these 4 months was compared with reference to the
proportionate budget allotment for 4 months. This monitoring exercise
indicated to the railway administration the area in which they must control
their expenditure so as to remain within the appropriation sanctioned by
the Parliament.
(ii) The next budgetary review was made in the month of November based
on actual expenditure for the first 7 months of the year, i.e., upto October.
The figures of October being approximate. The total expenditure of the
7 months was with the proportionate budget allotment upto that period.
As this coincided with the time for preparing Revised Estimates for the
current year and Budget Estimates for the next year, extra requirements
so assessed were incorporated in the Revised Budget to be presented
to Parliament in the month of February. However, if under the same
Demand, certain Railway required less amount and certain other required
more, the adjustment between them was made by Railway Board who
are authorised to make re-appropriations within the same grant but they
cannot re-appropriate the excess provision available under one demand
to another demand under which more money is required.
(iii) In the month of February, one more review of actual expenditure with
reference to the budget allotment was made so that reappropriation within
the same demand could be made from one Railway to another. In this
connection, the Railways are required to indicate their final modification
to the Railway Board by the third week of February. Any amounts left
surplus, by 31st March would lapse and cannot be carried forward for
expenditure during the next financial year.
Budgetary Reviews after Merger of Budget:-
With the merger of Railway Budget with the General Budget, the first Budget
review is conducted in Month of September to align the budget. finalisation

128
exercise. with schedule prescribed by Ministry of Railway. Accordingly Railways
are required to submit revised estimate for current financial year and budget
estimate for ensuing financial year in month of September.

The above projections are to be made on the basis of four months actual (i.e.
Arpil to July) and one month approximate (i.e. August) accounts

Since the postponement of budget exercise coincides with August Review

Estimates (ARE), the practice of submitting the ARe bu the Railways etc. has
been discontinued from the 2017-18.

6.12 Monthly Financial Reviews

Besides the reviews of expenditure prescribed above, the principal Financial
Adviser of each Zonal Railway gets monthly financial reviews prepared by the
Divisional Accounts Officers in respect of each Division of the Railway. While the
control over expenditure in respect of ordinary working Expenses of the Railway
is exercised with reference to proportionate budget allotment upto the period of
review, the control over expenditure on works is also exercised with reference
to estimates sanctioned in respect of each work. For this purpose, the latter is
recorded in detail in the Register of Works maintained by the Accounts Office
separately in respect of outlay chargeable to Capital, Depreciation Reserve Fund,
Development Fund Railway Safety fund, Rashtriya Rail Sanraksha Kosh.

CHECK YOUR PROGRESS 4 :

1. What are the documents submitted to Parliament with Demands for Grants.

2. What is Budget allotment order?

129
 3. What are the budgetary reviews, when are these made?

6.13 LET US SUM UP

In this unit we have discussed about the salient features of classification of
expenditure and revenue items, scheme of coding thereof, process of budget
formation, basis of budgetary projections, compilation of budget and presentation
thereof to Parliament. We have also discussed the various budgetary reviews
and financial reviews conducted by Railways to ensure that the expenditure and
revenues remain as per budget allotments.

6.14 CHECK YOUR PROGRESS : THE KEY

CYP 1 :

1. A sound accounting classification:-

OO should indicate who spent the money, on what activities and on what
elements forming the cost, viz. labour, material etc. of the activity.
OO provide assistance in the development of budgets based on
anticipated levels of activities. ‘
OO should be compatible for a computer managed information system:
OO should provide the required data for correct assessment and
reporting of costs on major activities.
OO should also provide information to facilitate the operation of
Exchequer Control where an Exchequer control system is in
operation, the classification.
OO should aim at a suitable asset-wise breakup which will facilitate
assessment of depreciation on the basis of life of each type of asset.
2. There are thirteen revenue abstracts on Railways, namely

1. Abstract ‘A’ General Superintendence and Services

2. Abstract ‘B’ Repairs and Maintenance of Permanent Way and
Works

130
 3. Abstract ‘C’ Repairs and Maintenance of Motive Power
4. Abstract ‘D’ Repairs and Maintenance of Carriage and
Wagons
5. Abstract ‘E’ Repairs and Maintenance of Plant and
Equipment
6. Abstract ‘F’ Operating Expenses - Rolling Stock and
Equipment
7. Abstract ‘G’ Operating Expenses – Traffic
8. Abstract ‘H’ Operating Expenses - Fuel.
9. Abstract ‘J’ Staff Welfare and Amenities.
10. Abstract ‘K’ Miscellaneous Working Expenses
11. Abstract ‘L’ Provident Fund, Pension and other retirement benefits

12. Abstract ‘M’ Appropriation to Funds

13. Abstract ‘N’ Suspense

3. The revenue expenditure classification is structured to show the

following:-
Abstract Minor Sub & Object of expenditure code
(or sub major) Detailed heads
(indicating Function) Major activity & (Wages, materials Function
detailed activity contingencies etc.)

CYP 2 :

1. The Accounting Classification for works expenditure is in the form of a

7digit-4 module alpha-numerical code. The first module which is the alpha
indicates the source of fund viz., Capital, CF, DRF, DF, RSF or RRSK
as the case may be. The second module of 2 digits which is numerical
will represent the standard Plan Heads. The third module which is also
numerical will Represent the 2 digits corresponding to the sub and
detailed heads of classification giving the details of the sets acquired,
constructed or replaced. The last module which is of two digits will
indicate the primary unit, i.e., object of the expenditure.
2. The earnings of Railways are classified under following three abstracts:
Abstract “X” - Earnings from Coaching traffic
Abstract “Y” - Earnings from Goods traffic
Abstract “Z” - Sundry other earnings.
CYP 3 :

1. The Budget statement shows :-

i) the total revenue receipts from the Railways.

131
 ii) ordinary working expenses and miscellaneous revenue expenses.
iii) works expenditure,
iv) the distribution of railways surplus, and
v the position of various funds that the railways are keeping with
the Central Government such as Depreciation Reserve Fund,
Development Fund, Capital Fund, Pension Fund, Capital Fund,
Railway Safety Fund Rashtriya Rail Sanraksha Kosh.
2. The 16 demands of Railways which are presented for Parliament sanction
are as under:

No. Name of Demand

1. Railway Board
2. Miscellaneous Expenditure (General).
3. General Superintendence and Services on Railways.
4. Repairs and Maintenance of Permanent way and Works.
5. Repairs and Maintenance of Motive Power.
6. Repairs and Maintenance of Carriages and Wagons.
7. Repairs and Maintenance of Plant and Equipment.
8. Operating Expenses-Rolling Stock and Equipment.
9. Operating Expenses-Traffic.
10. Operating Expenses-Fuel.
11. Staff Welfare and Amenities.
12. Miscellaneous Working Expenses.
13. Provident Fund, Pension and other Retirement Benefits.
14. Appropriation to Funds.
15. Dividend to General Revenues, Repayment of loans taken from
General Revenues and Amortization of over capitalisation.
16. Assets - Acquisition, Construction and Replacement.
3. Every Zonal Railway makes an estimate of its earnings on the basis of the
quantum of traffic expected to be carried by it in the ensuing year.
CYP 4 :

1. Budget Statement of Railways are merged in Union Budget presented by

the Finance Minister to the Parliament as enjoined in Article 112 of the
Constitution.
2. Railway Board issues Budget Allotment Order to every Zonal Railway
indicating to them the amount available for them for spending under each
demand on the basis of the budget amounts sanctioned by Parliament.
3. The first budgetary review is conducted in the month of September for
projection of the revised estimate of the current financial year and budget
estimate for next - Financial year. These estimates are prepared based on

132
 actual figures of four month (i.e. April to July) and one month approximate
(on August).

The next budgetary review is made in the month of November. At this stage, the
Accounts department supplies the figures of actual expenditure as booked in
their register for the first 7 months of the year, i.e., upto October. (Here also the
figures of October are approximate). The total of the 7 months actual compared
with the proportionate budget allotment upto that period.

In the month of February, one more review of actual expenditure with reference
to the budget allotment is made so that reappropriation within the same demand
could be made from one Railway to another. Finally, Railways are required
to indicate their final modification to the Railway Board by the third week of
February.

Questions for Study

1. What are the requirements of a sound accounting classification?

2. Describe the basic structure of the revised accounting classification and
state how it will help performance budgeting.
3. Describe with illustrations the revised classification of Capital and Works
Expenditure.
4. How are the earnings of Railways Classified?
5. How the budget on the Railways compiled? Describe the preparation of
the budget by the Railways upto the stage of presentation to Parliament.
6. What is budget statement and whom it is submitted?
7. What are Demands for Grants? Why is it necessary to correlate Demands
for Grants with the accounting classification?
8. What are voted and charged expenditure?
9. How many reviews of the budget are made and when?
10. What purpose is served by reviews of the budget?

133
134
 8
u
fjog l
Institute of Rail Transport
Planning, Financial
s i

La Fkku

irt
jy

ub Z
fnY y h
Management &
Investment Policies
UNIT-7
Exercising Budgetary Control, Conducting
Review of Financial Performance, Statistics
& Economics Analysis, Traffic Costing,
Management Accountancy Performance
Budgeting, Zero-base Budgeting and
Accounting Reforms

Structure
7.0 Objectives
7.1 Introduction
7.2 Scope of Budgetary Control
7.2.1 Three Stages of Budgetary Control
7.3 Annual Reviews of Financial Performance
7.4 Statistics and Economic Analysis
7.5 Traffic Costing
7.5.1 Difficulties in Making the Cost of Account of Traffic Services
7.6 Management Accountancy
7.7 Performance Budgeting
7.8 Zero-base Budgeting
7.9 Accounting Reforms
7.10 Let Us Sum Up
7.11 Check Your Progress : The Key
Questions for Study

135
7.0 OBJECTIVES
After studying this unit, you should be able to :

OO define the meaning of budgetary control;

OO describe the stages of budgetary controls;
OO explain when and how the budgetary review is conducted;
OO discuss how the traffic costing is done on the Indian Railways;
OO explain the meaning and purpose of the performance budgeting; and
OO explain the zero-base budgeting.
OO details of accounting reforms initiative

7.1 INTRODUCTION
In the previous unit, you have learnt about the system of classification of
expenditure and earnings and budgetary management of Indian Railways. In this
unit we shall discuss the general financial management issues, viz budgetary
control process, review of financial performance, statistical and economic
analysis, traffic costing process, application of management accountancy,
performance budgeting on railways and concept of zero-base budgeting.

7.2 SCOPE OF BUDGETARY CONTROL

Budget is a statement of estimated earnings and expenditure. It represents
targets of performance expressed in terms of money. If due to any reason, the
estimated earnings as shown in the budget do not materialise or the expenditure
goes far beyond the estimates, it may imply unsatisfactory performance. It is,
therefore, necessary that a periodical monitoring of the performance is done with
reference to the budget estimates, and in the event of performance deviating
from the budget figures, suitable controlling action should be taken to set the
position right. Budgetary control thus has become one of the vital functions of
Financial Management.

7.2.1 Three Stages of Budgetary Control

In any commercial undertaking association of Finance Department with the
function of budgetary control takes place at three stages. Firstly, Finance
Department is closely associated when the master budget of production, and
sale of goods/services and the net return is prepared-taking into account the
overall economic constraints, the objectives of the organisation and availability
of resources. Thereafter, when every functional department prepares its detailed
estimates to discharge its responsibility for the expected volume of activity, it

136
is scrutinised by the Finance Department to see that it is in keeping with the
basic parameters of the master budget, and that it is compiled in the manner
prescribed for presenting the same to sanctioning authority (which in the case
of a company or a corporation may be the Board of Directors). The second
stage in the processing of budget is to get the competent authority’s approval
by explaining to them the salient features of the budget and the targets of
performance expected to be reached. Thereafter, Finance department again
comes into the picture for periodical review of performance and their comparison
with the budgeted targets. These reviews help the management to take suitable
corrective action so as to reach the targets of performance within the sanctioned
appropriations of funds.

Since the Indian Railways are a commercial concern, all the above said stages
of budgetary control are relevant to them. However, being a departmental
undertaking of the Government of India, the Indian Railways have to observe
all the provisions of the Constitution in regard to control over the budget
and the Financial transactions by Parliament. Article 266 of the Constitution
stipulates that there shall be a Consolidated Fund of India, that all receipts of the
Government shall be created into it. Accordingly, all revenues of Indian Railways
automatically form a part of the Consolidated Fund of India. Further the aforesaid
Article provides that no amount can be withdrawn from it except in the manner
provided in the Constitution. The detailed procedure in this regard is laid down in
Articles 112, 113 and 114 of the Constitution concerning the Government budget,
which now includes Railway Budget also.

7.3 ANNUAL REVIEWS OF

FINANCIAL PERFORMANCE
Appropriation Account

Appropriation Accounts are prepared for presentation to the Public Accounts

Committee, comparing the amount of actual expenditure with the amount of
Grants voted by Parliament and appropriations sanctioned by the President.
The Appropriation Account duly certified by the Comptroller and Auditor General
of India, is presented to the Parliament and the Public Accounts Committee of
Parliament scrutinises it.

Productivity Reviews

In the case of works which are sanctioned on the ground that the proposed
expenditure would be productive or remunerative, i.e., it would give a return
of atleast 14% on the borrowed capital invested on them, it is necessary that
the actual return from the work is reviewed as soon as the work is completed.
However, in the case of new lines, such a “Productivity Review” is conducted
after 6 years and then after 11 years because it is expected that atleast by the
end of the 11 years the new Railway line should have become remunerative.
Where the project does not yield the expected return, the railway administration

137
has to examine the matter and take steps to render the project remunerative as
far as possible under the circumstances. Such reviews have atleast an educative
value in respect of similar new ventures being undertaken in future.

Unremunerative Branch Lines

Branch lines which become or remain unremunerative are identified so

that dividend to the General Revenue is not paid in respect of the outlay
incurred on such lines, as per the exemption granted by the Parliament on
the recommendations of the Railway Convention Committee. During 2015-16
branch lines were found unremunerative and the loss suffered by these lines
was about Rs. 1895 Crores excluding dividend. Various high level Committees
have recommended that all uneconomic branch lines where alternative modes
of transport exist should be closed down. However, the State Governments
are averse to the closure of these lines. The Railways Reforms Committee had
recommended closing down of such lines in their report on Economics (1983).
They further suggested that in case the State Governments do not agree to
the closure of such lines for their own reasons, they should share the losses
on 50:50 basis. However only 15 uneconomic branch lines have been closed.
Others are still to be closed. The Railway Convention Committee recommended
that the dialogue with the Sate Governments should be continued further and the
Railways should convince them of the desirability of closing these lines. So far
the Railways have not succeeded in doing so.

Receipts and expenditure under the prescribed heads of accounts are required
to be sent to the Railway Board every month. In the Railway Board’s office, one
consolidated statement for all the Railways together is prepared and a copy of
it is also supplied to the Ministry of Finance in the Government of India as well
as the Accountant General, Central Revenues, so that they may have an overall
picture of the position of financial resources of the Government as a whole.

A special watch over the progress of expenditure and earnings is required to be

kept by the Financial Adviser and Chief Accounts Officer in the last quarter of the
financial year.

7.4 STATISTICS AND ECONOMIC ANALYSIS

The Railway Board has a Directorate of Statistics and Economics and on the
Zonal Railways, there is a Statistical Cell under the Financial Adviser and Chief
Accounts Officer. The latter prepares periodical statistics of Financial results,
Operating performance, Commercial statistics in respect of major commodities and
figures of performance of locomotives, wagons etc. Each Zonal Railway brings
out periodical compilation of statistics pertaining to its own operations : these are
called “Domestic Statistics.” Part of these statistics are prepared with the help of
computers. At the end of the year, each Zonal Railway publishes a volume of its
statistics which constitute Part II of the General Manager Annual Report.

138
Similarly, consolidated annual statements of statistics for All Indian Railways
together are brought out in “Annual Statistical Statements”. Some of the
important figures and indices of performance of the Railways which are detailed
in these statistics are:

i) Borrowed capital and total capital outlay of the Railway. ii) Gross traffic
earnings and receipts.
iii) Working expenses by heads of Demands for Grants.
iv) Passengers revenue statistics in terms of number of passengers carried,
passenger kilometers, average distance carried, average rate charged
and earnings by classes.
v) Operating Ratio, expressed in terms of percentage, which indicates the
expenditure incurred for earning every Rs. 100 (gross).
vi) Goods revenue statistics in terms of originating tonnage carried, net
tonne-kilometer age, average lead, average rate charged and earnings by
principal commodities.
vii) Total kilometerage pertaining to steam, diesel and electric locomotives.
viii) Speeds of goods trains hauled by steam, diesel and electric locomotives.
ix) Density of traffic.
x) Cost of repairs and maintenance of rolling stock.
xi) Consumption of coal, diesel, oil and electricity by the locomotives.
xii) Analysis of Operating expenses spread over various units of
performance.
xiii) Value of stores purchased by the railways.
xiv) Department-wise and category-wise classification of railway Staff and
their annual cost.
xv) Accident statistics, etc.
Among the important Operating Statistics are :

OO Wagon turn-round which shows the number of days between the loading
of wagon and its becoming available again for next loading.
OO Kilometers done per locomotive per day.
OO Kilometers done per wagon per day.

CHECK YOUR PROGRESS 1 :

1. What are the three stages of budgetary control?

139
 2. What is Appropriation Account?

3. What purpose does the Productivity reviews serve?

4. What are the important operating statistics?

7.5 TRAFFIC COSTING

One major consideration in the rating policy of the Indian Railways has been to
fix rates for every given commodity with reference to “Value of Service” of “what
the commodity can bear”. In doing so, the intrinsic value of the commodity, its
characteristics of bulk, weight and volume, etc., are taken into account. Yet,
ideally speaking the rating structure ought to be based on the cost of service, or
at least it should have as close a relevance as possible to the cost of haulage. It
is, therefore, necessary that the cost of service for each stream and commodity
of traffic should be regularly ascertained. During the 1970s and 1980s eighties
costing experts and various committees emphasised the need for making
improvements in the traffic costing system. The Railway Reforms Committee in
their recommendation No. 10 in their Ninth Report on Social burdens stated that

140
a proper costing methology should be evolved. The earlier Rail Tariff Enquiry
Committee (RTEC) had also made an observation regarding this. A Task Force
set up by the Railway Board in June 1986 also called for revamping of the
system since the existing system is not adequately serving the purpose of taking
sound management decision based on reliable Costing information. The latest
RTEC in their report (1993) has also stressed the need to refine the system of
Traffic costing based on the recommendations contained in a study on Railway
Traffic costing system carried out by the Institute of Costs & Works Accountants
of India (ICWAI). For this purpose, under the guidance of the Directorate of
Statistics & Economics, a traffic costing cell is functioning on each Zonal Railway
under the Control of the Financial Adviser and Chief Accounts Officer. Of late
studies have been commissioned to evolve a more reliable system of Traffic
costing on the Indian Railways.

7.5.1 Difficulties in making the Cost of

Account of Traffic Services
Some of the difficulties in making the cost of accounts of traffic services are :

OO that the railway transport industry has a large number of fixed assets such
as tracks, signals, station buildings, yards, etc. , on maintaining some
costs have to be incurred which do not vary strictly according to the train
services run.
OO that these maintenance costs as well as running costs on station staff
etc., are joint, both for goods and passenger trains.
OO that transportation is a perishable commodity that cannot be stored; if
wagons or seats in coaches are not utilised, the transport capacity is lost
for ever.
OO that even the running costs which vary according to the volume of traffic,
depend upon the mode of traction employed - steam, diesel or electric.
Therefore, it is very difficult to arrive at accurate costs of traffic service. However,
traffic costing is being made by grouping the traffic operations under the following
heads:

(i) Cost of terminal services incurred on documentation, placement of

wagons, loading and unloading, shunting, etc.
(ii) Marshalling costs incurred in respect of each marshalling yard that a
wagon passes through.
(iii) Transhipment costs incurred when consignments are transhipped from
wagons of one gauge to that of the other at each break-of gauge point..
(iv) Cost of providing track, signals and rolling stock (expenses incurred by way
of maintenance charges and depreciation and interest on their outlay).
(v) Line haulage costs incurred on fuel, crew and other staff.

141
These costs are further analysed under each of the three modes of traction, viz.,
steam, diesel and electric. The end product of cost-accounting is to ascertain
how much it costs to move a consignment between two points with a given mode
of traction. This knowledge is a vital aid for the management for adjusting its
rate-structure where existing rates do not cover the costs and for bestowing due
attention on high-yielding streams of traffic etc.

CHECK YOUR PROGRESS 2 :

1. What difficulties are faced in making the cost of accounts of traffic
services on Railways?

2. What are the heads under which traffic operation are grouped, for
traffic costing?

7.6 MANAGEMENT ACCOUNTANCY

As a departmental undertaking of the Government of India, Indian Railways are
subject to the same regulations, statutory audit and other controls as applied to
other Government departments. Accordingly, Comptroller and Auditor General
conducts the audit of monetary transactions of Railways; but this is done on a
test-check basis because the Financial Adviser and Chief Accounts Officer is
expected to exercise detailed check of every financial transactions with reference
to Government rules and regulations. In other words, the Accounts and Finance
departments are performing the function of watch-dog over the moneys drawn
from the Consolidated Fund of India. Budgetary control and other internal checks
exercised by Finance and Accounts departments are also aimed at ensuring
that the appropriations sanctioned by Parliament are strictly adhered to, and

142
that variations therefrom are properly explained in the Appropriation Accounts
submitted to the Parliament at the end of the financial year.

However, it is being increasingly realised that besides that watch-dog function

mentioned above, the Accounts and Finance department of the Indian Railways
should exercise Management Accountancy functions, the object of which, as
the phrase itself suggests, is to analyse the accounting data so as to make the
management more efficient. The main objective of management accounting is to
facilitate the attainment of objectives of the undertaking. For this, it is necessary
that the effect of managerial decisions and plans on revenue incomes, costs
and purpose, deviations of actual performance from planned targets have to
be identified and suitably dealt with. The Accounting Manager, therefore, must
present accounting information in such a way as to assist management in the
making of policy decision. The accounting function is a staff function and it is
the job of the management Accountant to provide valuable assistance to the line
managers by recording, evaluating and communicating the actual results against
planned targets.

In the light of the foregoing, management accounting functions on Indian

Railways, as indeed in any business enterprise, cover the following areas of
Organisation;

OO setting of performance targets in accordance with management

objectives;
OO co-ordination of accounting information and control through a proper
accounting classification;
OO cost accounting to ascertain actual costs and their variance from the
standards;
OO budgetary control vis-a vis performance;
OO rating and investment decisions;
OO management information system; and
OO inventory control.

While the Finance & Accounts department of Indian Railways, when compared
to other Departments of Government, is already engaged in some of the above
said activities, it has to put more emphasis on cost accounting on both the
manufacturing and repair operations done in the workshops as well as traffic
operations. Similarly, periodical reviews of earnings and expenditure have to
be related also to physical performance are known at the end of the year when
it is too late to effectively correct the undersirable tendencies of earnings and
expenditure. As against that, the time horizon of management accountancy
has to be shorter and on continuous basis so that by frequent analysis of
performance the weak spots and the areas of wastages and leakages are
brought to light more quickly with a view to setting them right at the earliest.

143
 CHECK YOUR PROGRESS 3 :
1. What areas of organization are covered under management
accounting functions on Indian Railway?

2. What role is expected from Finance under management accounting?

7.7 PERFORMANCE BUDGETING

As already stated above, Performance budgeting is a very important tool for

Management Accounting. The main purposes of performance budgeting are :

(i) to correlate the physical and financial aspects of programmer & activities.
(ii) to improve budget formulation review & decision making at all levels of
management.
(iii) to facilitate better appreciation and review by the legislature. (iv) to
make possible more effective performance audit.
(v) to bring annual budgets and long term objectives & plans closer through a
common language
Three Basic Steps to be followed in Performance Budgeting.

Introduction of performance budgeting envisages the following three basic steps :

(a) establishing a meaningful functional activity classification of Government

operations.
(b) bringing the system of accounting & financial management to accord with
this classification, and

144
(c) evolving suitable norms yardsticks to measure output and unit costs
wherever possible under each programme and activity to facilitate
better estimation of financial requirements and, later, for appraisal and
evaluation
Problems in operation

The main problem in successfully operating a system of performance budgeting

on the railways is that a very large part of railway expenditure falls under the
category of non-controllable i.e. expenditure on which very little managerial
control is possible in relation to the output; only about 30% of the total railways
expenditure can be stated to vary directly as the performance output. Therefore,
the first difficulty lies in identifying the personnel or work centres whose
performance is susceptible of measurement. Secondly, standard costs per unit
of performance or at least norms of physical performance for these activities
have to be laid down; but it is extremely difficult in a service industry like railway
transport (it may be relatively easier in a factory producing goods). Where the
expenses are easily susceptible. of calculation with reference to volume or
quantum of physical performance. Indian Railways have already introduced
performance budget in regard to such items. For example, the fuel cost which
is budgeted at present under Demand No. 10 is calculated with reference to the
gross tonne kilometerage of passenger and goods traffic service to be performed.

Task force

With a view to introducing more of performance budgeting, the Ministry of

Railways set up a Task Force on budgetary accounting and management
practices on the Railways in 1973. The Task Force has studied the limitations
standing in the way of establishing correlation between expenditure and
performance, and has identified a few major units of performance. For example,
for the Running Staff working on locomotives, “engine hours” is the unit of
performance, for the staff working in a loco-shed, the number of engines is the
parameter of performance and expenditure. Further, to ensure that the accounts
system is such as would help in ascertaining the expenditure in respect of
major responsibility centres, the Task Force has devised a revised system in the
accounts classification.

Defects

One of the defects in the existing system is that the pattern of budgeting is
different from the pattern of recording expenditure in the books of accounts; as a
result the figures of accounts have to be first converted to the specific heads of
budgets, and then the budget prepared further. Due to the lack of concordance
between the budget heads and the account heads, one cannot gauge merely by
looking at the figures of accounts as to whether the spending is in keeping with
the budget allotment. Secondly recording of expenditure is such that it does not
give an idea of the expenditure incurred on the train services on broad gauge,
metre gauge and narrow gauge separately; likewise, it does not indicate the
expenditure incurred separately in respect of steam, diesel and electric tractions.

145
In many cases, even the division of expenditure between materials and labour is
not separately recorded. The revised system of Accounting heads and budgetary
demands devised by the Task Force has removed these defects.

Thus significant steps have been taken towards correlating expenditure with
responsibility centres and their performance which constitutes essence of
performance budgeting approach.

CHECK YOUR PROGRESS 4 :

1. What are the main purposes of performance budgeting?

2. What are the three basic steps for introduction of performance

budgeting?

3. How is performance budgeting implemented on Railways?

7.8 ZERO-BASE BUDGETING

Zero-base budgeting was evolved in 1969 as a tool for planning, budgeting and
control.

Features

The basic feature of a zero-budget is that the departments, while preparing their
budgets, should not take anything for granted and, therefore, should start on

146
a clean slate. The budget making for the ensuing year should be started from
ground zero instead of treating the current budget as the base or the starting
point. The concept of zero-base budgeting implies that all activities of the
organisation should be viewed afresh and priorities among competing claims for
allocation of funds settled on the basis of some analytical evaluative technique,
like cost- benefit analysis.

Basic requirements

There are certain basic requirements for developing a zero-base budget, which
are :

(i) identification of decision units.

(ii) describing each decision unit in terms of decision package.
(iii) evaluating and ranking all decision packages by using the analytical
technique of cost-benefit analysis, and
(iv) developing the budget requests by ranking decision packages on the
basis of their relative projected performance and allocating resources
to activities or decision packages by utilising hierachical funding cut- off
leve!s. Zero-base budgeting, thus, require a complete re-examination of
all progrmmes and activities afresh instead of following the incremental
approach to budgeting.

In a system of zero-base budgeting, the existing programmes and activities

are to be reviewed and examined in the same detailed manner as the newly
proposed ones. The system requires providing the necessary justifications for
all programmes, activities, or decision packages with each new budget year so
that the scarce resources available may be allocated in an optimum manner. The
scientific techniques used for analysing the cost-benefit relationship of various
available alternatives help in presenting choices for decision making so as to
enable optimising allocation of fund.

Zero-base budgeting requires a highly professionalised staff, well versed in

techniques like cost-benefit analysis, being available to each agency where such
a type of budgeting is introduced. As in the case of programme budgeting, zero-
base budgeting also involves conducting the planning process as part of the
budgetary process, with all the associated conceptual and practical problems
as have been discussed in the earlier section. A highly sophisticated information
system which becomes a necessary adjunct of a system of zero-base budgeting
would take very long to develop in most of our Government departments and
agencies. There is also generally a bureaucratic resistance to a major change
in any aspect of the administrative system. Zero-base budgeting being a radical
change from the conventional budgeting practices, has not been adopted in real
earnest because of requirement of skilled staff as also because of reluctance of
applying the same evaluation criteria to the on going programmes and activities
where already some expenditure has been made. This is however, necessary to
ensure that scarece resources are spent on more pressing alternatives.

147
Zero-base budgeting may be more suitable for industrial organisations and
commercial enterprises. But its application to governmental organisations which
do not possess the necessary informational and analytical capabilities required
for a successful operation of zero-base budgeting may create more problems
than what it is calculated to solve.

7.9 Accounting Reforms

Accounting Reforms Project under "Mission beyond Book Keeping" comprising
implementation of Accrual Accounting, Performance Costing, and Outcome
Budgeting is being undertaken in association with Institute of Chartered
Accountants of India and Institute of Cost Accountants of India. CRIS is the
IT partner in the project. A project organisation has been created on Northern
Railway under overall guidance of Accounting Reforms Cell of Railway Board
to execute all activities of three phases of the project with the assistance of
dedicated Accounting Reforms cells formed on Railways and five regional hubs
set up at Delhi, Allahabad, Mumbai, Kolkata and Secunderabad.

Accrual accounting

Pilot study on implementation of Accrual Accounts was undertaken on North

Western Railway in association with ICAI in 2015 and the Accrual Accounts of
North Western Railway for 2014-15 along with Significant Accounting policies
and Implementation Manual for roll out of Accrual Accounts on all Indian
Railways were released in Dec-2016. A pilot study is also undertaken on Rail
Coach Factory, Kapurtala. General Financial Rules provides that Government
Accounts are to be based on cash based accounting. Therefore accrual based
FS are being prepared as an additional set of accounts for better readability in
commercial terms. After successful pilot Rollout on all Indian Railways is now
under progress in association with Institute of Chartered Accountants of India.
This involves conversion of Cash based Financial Statement of Indian Railway
to Accrual based Financial Statements capturing details of fixed assets, other
assets and liabilities etc.

Performance Costing

A Pilot study on Performance Costing initiated on NR in association with Institute

of Cost Accountants of India to design an information system with different
access levels for categories of users to provide information about various costs
in key performance areas viz. construction, augmentation, operations and
maintenance, measure performance of each activity/line of business and line of
service and measure costs, revenue, & profitability of various lines of business/
services.

Outcome Budgeting

Outcome Budgeting aims at developing a design framework linking outlays with

outputs and well-defined outcomes in the areas of operation, maintenance,

148
safety, throughput enhancement, route decongestion, productivity gains, asset
optimization etc. Institute of Chartered Accountants of India has been roped in to
assist in carrying out this study.

7.10 LET US SUM UP

In this unit we have discussed the three stages of budgetary control process,
relevance of performance reviews, important statistical parameters, salient
features of traffic costing on Indian Railways. We have also discussed the
concept of management accounting, performance budgeting an zero-base
budgeting in general and with specific reference to Indian Railways.

7.11 CHECK YOUR PROGRESS : THE KEY

CYP 1 :

1. Firstly, Finance Department is closely associated when the master budget

of production, and sale of goods/services and the net return is prepared-
taking into account the overall economic constraints the objectives of
the organisation and availability of resources. Thereafter, when every
functional department prepares its detailed estimates to discharge its
responsibility for the expected volume of activity, it is scrutinised by the
Finance Department to see that it is in keeping with the basic parameters
of the master budget, and that it is compiled in the manner prescribed
for presenting the same to sanctioning authority (which in the case of a
company or a corporation may be the Board of Directors). The second
stage in the processing of budget is to get the competent authority’s
approval by explaining to them the salient features of the budget
and the targets of performance expected to be reached. Thereafter,
Finance department again comes into the picture for periodical review
of performance and their comparison with the budgeted targets. These
reviews help the management to take suitable corrective action so as to
reach the targets of performance within the sanctioned appropriations of
funds.
2. Appropriation Accounts are prepared for presentation to the Public
Accounts Committee, comparing the amount of actual expenditure with
the amount of Grants voted by Parliament and appropriations sanctioned
by the President.
3. Productivity Reviews are conducted to see that the works sanctioned
on the ground that the proposed expenditure would be productive or
remunerative, i.e., it would give a return of atleast 14% on the borrowed
capital invested on them, are actually yielding the expected return, after
the work is completed.
4. The important Operating Statistics are:

149
 OO Wagon turn-round which shows the number of days between the
loading of wagon and its becoming available again for next loading.
OO Kilometers done per locomotive per day.
OO Kilometers done per wagon per day.
CYP 2 :

1. The main difficulties in making the cost of accounts of traffic services are:
OO that the railway transport industry has a large number of fixed assets
such as tracks, signals, station buildings, yards, etc. , on maintaining
some costs have to be incurred which do not vary strictly according
to the train services run.
OO that these maintenance costs as well as running costs on station
staff etc., are joint both for goods and passenger trains.
OO that transportation is a perishable commodity that cannot be stored;
if wagons or seats in coaches are not utilised, the transport capacity
is lost for ever.
OO that even the running costs which vary according to the
OO volume of traffic, depend upon the mode of traction employed -
steam, diesel or electric.
2. Traffic costing is being made by grouping the traffic operations under the
following heads :-
– Cost of terminal services incurred on documentation, placement of
wagons, loading and unloading, shunting, etc.
– Marshalling costs incurred in respect of each marshalling yard that a
wagon passes through.
– Transhipment costs incurred when consignments are transhipped
from wagons of one gauge to that of the other at each break-of
gauge point.
– Cost of providing track, signals and rolling stock (expenses incurred
by way of maintenance charges and depreciation and interest on
their outlay).
– Line haulage costs incurred on fuel, crew and other staff.
CYP 3 :

1. Management accounting functions on Indian Railways cover the following

areas of Organisation;
OO setting of performance targets in accordance with management
objectives,
OO co-ordination of accounting information and control through a proper
accounting classification,

150
 OO cost accounting to ascertain actual costs and their variance from the
standards,
OO budgetary control vis-a vis performance,
OO rating and investment decisions,
OO management information system, and
OO inventory control.
2. The main objective of management accounting is to facilitate the
attainment of objectives of the undertaking. For this, it is necessary that
the effect of managerial decisions and plans on revenue incomes, costs
and purpose, deviations of actual performance from planned targets have
to be identified and suitably dealt with. The Accounting Manager should
present accounting information in such a way as to assist management in
the making of policy decision. The job of the Management Accountant to
provide valuable assistance to the line managers by recording, evaluating
and communicating the actual results against planned targets.
Accounts department of Indian Railways, is expected to put emphasis on
cost accounting on both the manufacturing and repair operations done in
the workshops as well as traffic operations; relate periodical reviews of
earnings and expenditure to physical performance to effectively correct
the undersirable tendencies of earnings and expenditure. The time
horizon of management accountancy has to be shorter and on continuous
basis so that by frequent analysis of performance the weak spots and the
areas of wastages and leakages are brought to light more quickly with a
view to setting them right at the earliest.
CYP 4 :

1. The main purposes of performance budgeting are :

(i) to correlate the physical and financial aspects of programmer and
activities.
(ii) to improve budget formulation review and decision making at all
levels of management.
(iii) to facilitate better appreciation and review by the legislature. (iv)
to make possible more effective performance audit.
(v) to bring annual budgets and long term objectives & plans closer
through a common language
2. The three basic steps required for introduction of performance budgeting
are:
(a) establishing a meaningful functional activity classification of
Government operations.
(b) bringing the system of accounting and financial management to
accord with this classification, and

151
 (c) evolving suitable norms yardsticks to measure output and unit costs
wherever possible under each programme and activity to facilitate
better estimation of financial requirements and, later, for appraisal
and evaluation
3. With a view to introducing more of performance budgeting, the Ministry of
Railways set up a Task Force on budgetary accounting and management
practices on the Railways in 1973. The Task Force devised a revised
system in the accounts classification correlating expenditure with
responsibility centres and their performance while identifying a few major
units of performance.

For example, for the Running Staff working on locomotives, “engine

hours” is the unit of performance, for the staff working in a loco- shed, the
number of engines is the parameter of performance and expenditure.

Questions for Study

1. What is budgetary control? At what stages it is exercised?

2. When is the first budgetary review conducted? When are the second and
third review done?
3. Write short notes on :
(i) Productivity Review.
(ii) Unremunerative branch lines.
4. What are the statistics prepared by the Statistics and Economics Cell of
the Railways? Comment upon these statistics.
5. How is Traffic Costing done on the railways?
6. What is “Performance budgeting”? What is its main purpose?
7. What is Zero-base Budgeting? Is it possible to introduce it in the
Railways?

152