IRIFM

General Expenditure
“Works Program & Estimates for Newly
Inducted Accounts Staff”

Mohammed Afzaluddin
Ex Sr AFA Finance
Consultant Faculty IRIFM
 Classification of Expenditure on Rlys
• Capital- Expenditure on Acquisitions of new M&P, Rolling
Stock, Construction, creation of new Assets and
Replacement.

• Revenue- Expenditure on maintenance of the existing

assets including establishment, operating expenses and
misc expenses

• Special Revenue for emergency restoration and special

repairs
 Mapping of Erstwhile Demands 01 to 16 with Single Demand No.84/85 (Ministry of Railways)
Erstwhile Sub Major
Group Description Major Head
Demand No. Head (SMH)
Policy Formulation and Railway Board 1 3001 Railway Board
Services Common to all Miscellaneous Expenditure (General) -Indian Railways Policy Direction, Miscellaneous
2
Railways Research & other misc
General Superintendence and General Superintendence and Services on Rlys 3 1
Services on Railways
Permanent Way and Works. 4 2
Motive Power. 5 3
Repairs & Maintenance
Carriages and Wagons. 6 4
Plant and Equipment 7 3002 5
Indian Railways
Rolling Stock and Equipment. 8 6
Commercial Lines -
Operating Expenses Traffic. 9 7
Working Expenses
Fuel. 10 8
Staff Welfare, Retirement Staff Welfare and Amenities. 11 9
Benefits and Miscellaneous
Miscellaneous Working Expenses. 12 10
Provident Fund, Pension 13 11
Railway Funds and payment to Appropriation to Funds i.e., DRF & Pension Fund 14 12
General Revenues. Dividend to General Revenues, Repayment
and Amortization of over Capitalisation.
15 3005 Nil

Capital & Other Assets-Acquisition, Construction and 16 5002- Capital Outlay Capital
Works Expenditure Replacement on I R Comml Lines segment of
D No 84/85
 Budgeting of Expenditure
• Revenue Exp ( Demands for Grants 1, 2 and 03-13 )
– Budget Grant for the year (BG)
– Revised Estimates for the year-Budget Estimates for the
ensuing year (RE/BE)
– Final Modification estimates for the year (FME)
• Capital / Works Exp ( Demand No 16 )
– For Works in Progress same procedure as above
– For New Works – Process of appraisal, Planning /approval
/ Abstract Estimates is required for investment decisions
through Surveys, DPRs and IRPSM
Capital / Works Expenditure
( Erstwhile Railway’s Demand No 16 )

Exp on Capital segment

of
IR demand number 84/85
 Plan Heads of Expenditure under Demand No.16
(Now called as minor heads of Capital Segment of Demand No 85)
• PH 1100- New Lines
• PH 1400- Gauge Conversion
• PH 1500- Doubling
• PH 1600- Traffic Facilities and Yard Remodeling
• PH 1700- Computerization
• PH 2100- RSP
• PH 2200- Capital component of lease payments
• PH 2900- RSW-LC Gates
• PH 3000- RSW- ROBs, RUBs
• PH 3100- Track Renewals
• PH 3200- Track Bridges
 Plan Heads of Expenditure under Demand No.16
(Now called as minor heads of Capital Segment of Demand No 84)

• PH 3300- S&T
• PH 3500- RE
• PH 3600- Other Electrical Works including TRD
• PH 3700 -TRD works
• PH 4100-M&P
• PH 4200- Workshops
• PH 5100- Staff Quarters Staff welfare
• PH 5200- Staff Amenities
• PH 5300- Passenger Amenities Customer amenities
• PH 6400- Other Specified Works
• PH 6500- Training Institutes-HRD
• PH 8100- Metropolitan Projects
 Sources of Funding Rly projects
Classification of Nature of Expenditure Source of Fund
Source/Fund
Ordinary Revenue Revenue Exp on Demands 1 to 15 Railways Internal
Revenues
Capital Capital expenditure for the projects/Schemes
anticipated at more than10% ROR Budgetary Support
Capital Fund -Do- Internal Source

Depreciation Reserve Replacement expenditure on Internal Source

over aged assets
Fund
Development Fund-1 Expenditure on passenger amenities Internal Source

Development Fund-2 Expenditure on staff amenities Internal Source

Development Fund-3 Capital expenditure on un-remunerative works Internal Source

required for operational efficiency anticipated
less than 10% ROR
Development Fund-4 Expenditure on Safety Works like S&T Internal Source
 Sources of Funding Railway Projects- contd
Classification of Nature of Expenditure Source of Fund
Source/Fund
Safety Fund  Expenditure on LCs, ROBs & RUBs, New Budgetary support
Lines, Gauge Conversion, from the Central Road
 Traffic Facilities, Track Renewals, Safety Fund.
 Bridge Works, Electrification, Customer
Amenities

RRSK Expenditure on safety considerations including Budgetary support as

replacements of assets part of allotment of
Rs.1 lakh crores for
safety to be spent in 5
years from 2018-19
EBR Capital expenditure for the projects/Schemes Around 65% of the
anticipated at more than10% ROR capital plan outlay is
met through EBR i.e.,
which includes
Institutional Finance.
 2018-2019 2019-20 2020-21 2021-22 2022-23
GROSS BUDGETARY SUPPORT
(a) CAPITAL 35880 45850 46745 81600 81600
(b) RRSK 15000 15000 14910 14800 24900
(c) Central Road Fund
(Safety Fund) 5250 8500 10600 10600
TOTAL GBS 50880 66100 70155 107000 117100
Persontage over Total CAPEX 35.25 41.40 43.58 49.82 54.50
INTERNAL RESOURCES
(a) CAPITAL FUND 5000 3000 0 0 0
(b) DRF 500 500 1000 1000 1000
(c) DF 1000 1500 1500 1500 1500
(d) RRSK 5000 5000 5000 5000 0
TOTAL INTERNAL RESOURCES 11500 10000 7500 7500 2500
Persontage over Total CAPEX 7.97 6.26 4.66 3.49 1.16
EXTRA BUDGETARY RESOURCES
(a) New Lines 18735 20022 14971 24686 10910
(b) GC 1649 918 593 500 675
(c) Doubling 16708 16901 20845 23116 26154
(d) Traffic Facilities 1592 2838 833 4134 2595
(e) Rolling Stock 30420 31400 33111 33657 33639
(f) ROB/RUB 2000 1000 1854 1622 1622
(g) RE 6300 6959 6325 7532
(h) Other Elec. Works 1000 800 100 0 11483
(i) Workshops 36 235 10 10 0
(j) Passenger Amenities 3500 2500 4700 5000 0
TOTAL EBR 81940 83573 83342 100257 95250
Persontage over Total CAPEX 56.78 52.34 51.77 46.68 44.33

GRAND TOTAL CAPEX 144320 159673 160997 214757 214850

 Types of Estimates
(a) Abstract Estimates.
(Prepared based on the rough sketches and probable cost for the purpose of getting the
administrative approval of competent authority)
(b) Detailed Estimates.
( Prepared based on the drawings and detailed cost for the purpose of getting the
technical sanction)
(c) Supplementary Estimates.
( Prepared for the purpose of including a facility /work which ought to have been included
originally )
(d) Revised Estimates.
( Prepared when the anticipated cost is likely to exceed 10% due to escalation or otherwise.)
(e) Project Abstract Estimates.
( These are the Survey estimates of construction projects .)
(f) Construction Estimates
These are the detailed estimates for the major projects of gauge conversion, doubling etc.
(g) Completion Estimates
(These are prepared for the major construction projects 1 ½ year before the scheduled
completion of the project for assessing the status of the work. It is a stock taking estimate.)
 Financial Appraisal
of Rly Projects
Appraisal on Financial considerations- Minimum Rate of
Return under DCF technique should be 10% on new
proposals/Projects chargeable to Capital like;

• New lines
• Line Capacity works like Doubling, GC, Traffic Facility works etc
• Change of Traction ( Elec Traction Vs Diesel)
• Provision of Loco sheds
• New Workshops
 Project Fiancial Appraisal
– Exceptions- other than financial considerations

 Staff Amenities- DFII

 Passenger Amenities- DFI, Safety fund
Works required for operational efficiency- DFIII, Safety fund
Works required on Safety considerations chargeable to DF IV,
Safety fund and RRSK
Expenditure incurred on statutory obligations-(example Fencing
around plant and machinery etc) Chargeable to Respective Plan
Heads OR Revenue
 Abstract Estimates
1. Generally Projects costing more than Rs 150 Cr are included under
Demand No 2 for taking up the Survey
2. Major Projects of New Lines, Doubling, GC etc need to be processed
through Survey Reports invariably.
3. If a decision is taken for investment at appropriate level, the project gets
included under Demand No 16 in the Budget.
4. Preliminary Works Program for smaller works under various Plan head
through IRPSM above Costing above Rs 2.5 Cr
5. Final Works Programme for works costing >2.5 Cr
6. Works Costing < Rs 2.5 Cr
 Lump sum Works
 Umbrella Works
 OOT Works
 Techniques of Finacial Appraisal
1. Accounting Rate of Return
 The rate of return is worked out by arriving at a percentage ratio of
net gain ( i.e Earnings-expenses) over the initial estimated cost.
Example - Assuming
• A building is to be constructed at a cost of 10 Lakhs instead of paying a rent
of Rs 1.5 lakhs PA
• Annual maintenance Rs 50,000/-
• Life of the asset is 50 years
• Residual value Rs 100000/-
• Rate of depreciation 3% of (1000000-100000)
• Net gain (150000-(50000+27000))= 73000 or 7.3% PA

 There is no time value for the money.

 II. Pay back method

• The pay back method lays emphasis on calculation

of time taken to recoup the expenditure incurred.
• There is no time value for the money.
• No attempt is made on return on the cap invested.
• This method can be used in ranking the projects.
• Assumption is that the project with short pay back
period is better investment proposition than those
with long pay back period.
 II. Pay back method
Investment Rs 10,00,000
Net cash inflows For the year Cumulative

1st year 100,000 100,000

2nd year
120,000 220,000
3rd year 200,000 420,000
4th year 300,000 720,000
5th year 300,000 10,20,000
 III. DCF Technique
• Takes care of the time value of the money.
• Based on the concept that amount receivable today is
always more than receivable tomorrow
• The project is assessed based on NPV of the future
cash inflows/outflows at a predetermined discount
factor.
• Assessment/Estimation/Assumptions of Cash out
flows and Cash inflows during the life of the project is
the Key in financial appreciation of the Project
• Cash Inflows minus Cash Outflows are the
net Cash flows
• The net cash flows of all future years of economic life
of the project are brought to the NPV to assess the
Rate of Return.
 Appraisal under DCF Technique
• The project is assessed based on NPV of the future cash
inflows/outflows at a predetermined discount factor.
• NPV is the sum of the present values of the net cash flows for
all the years of the project’s economic life.
• The net cash flows of all future years of life of the project are
brought to the NPV to assess the Rate of Return.

• Traditionally the NPV used to be worked out based on trial

and error method of various discount factors like
5%,10%,15%,20% etc, for which NPV and PWF
factors/formulas/ready made tables available in the Finance
Code Volume I, to see at which rate the net cash flows
matches and what is the actual Rate Of Return on
investment.
• The ROR is derived by a formula of Interpolation of ROR.
• A sample worksheet is furnished in next two slides
 ROR/IRR on Excel Sheet
• Details of the Project
• Anticipated Cost
• Anticipated Earnings both Goods and Passengers
• Estimated O&M cost during life of project
• Assumptions on Expenses, Earnings, Savings
• Compiling of cash out flows, inflows and net-flows on
a Excel spread sheet
• Using IRR formula derive at the ROR of the project
 Abstract Estimates-IRPSM
Indian Rlys Projects Sanction Management
• Abstract estimates are now being processed through IRPSM
• The estimates are processed at the divisions
• Every Executive, divisional Finance, HOD/PHOD and the Hqrs
Finance are given the passwords to deal and examine the
proposals.
• No paper work- The proposals are down loaded, examined
and comments are uploaded.
• Finally the Board takes a decision based on the FA&CAO’s
comments.
• Whatever works approved get included in the Pink book/LAW
• LSWP is also being processed on the IRSPM
 Shortcomigns in the IRSPM
• In sufficient details.
• Sketches/rough plans, basis for the cost etc are not made
available.
• All the proposals dumped on Finance just before the last date.
• Cost ceilings/Throw forward not being made available.
• IRPSM is not yet made Fool proof, ceilings do not take Throw
forward exp
• Not fulfilling the required purpose for which it was created
• Its only being used for processing for approval of works in the
PWP,LSWP,OOT and Umbrella works
• Suggestion: There should be an inbuilt checklist for the requisite
details without which the proposal shall not be further processed
• The data shall not be altered without finance vetting
• Permissible cost should be as per MSOP
 Checklist for verification of
Abstract Estimates – PWP / LSWP
• Administrative approval.

• Works within permissible cost.

( BG*Norm-Through forward)

• Works within the frame work of policy.

• Initiated from the gross root level.

• Cost based on current market prices/LARs to be updated.

• Quantities for major value items based on rough sketches/plans to be signed by

field/Hqrs officers certifying that the facilities included are the barest minimum

and executable without significant modifications.

 Checklist for verification of
Abstract Estimates – PWP / LSWP

• In case of structural changes involving demolition or major

modifications to the existing facilities, the age and the condition
should be commented upon in detail.
• The details of throw forward and permissible cost of each Plan Head.
• Allocation of Expenditure i.e., Source of fund and Plan Head.
• Realistic estimation to minimize time and cost over runs.
• Minimum cost with desired objectives/ parameters.
• No over provisioning of facilities.
• Reasonableness of assumptions in ROR
 Verbatim Comments of FA&CAO
• The merit and the justification of the proposal .
• Reasonableness of the rates and quantities particularly for
the high value items.

• Comments regarding the reasonableness of the assumptions

made in the forecast of the earnings/benefits that are
expected to accrue from the proposed investment.

• Correctness of ROR calculation and DCF technique adopted.

• Whether the cost proposed is within the ceiling limit

prescribed for the Plan head concerned.
 Based on justification, availability of funds
position and FA&CAO’s comments, Railway Board
takes a decision. If approved by competent authority,
the work gets included in the Budget/Pink Book as an
itemized work with specific budget outlay for the year.
These days Rly Bd is approving only Umbrella Works
 Umbrella Works
• Pink Books 2018-19 onwards have a provision for umbrella
works

• “Umbrella works” is aimed at a lumpsum provision made in

the Pink Book under certain Plan Heads against which a
number of works of specific category can be undertaken by
Rly/Rlys

• These are finalized based on the list of works in PWP,

submitted by Zonal Rlys which can be clubbed as one umbrella
work / one abstract estimate for the purpose of allotment of
funds and execution.
 Umbrella works spread on one railway
• An umbrella work is approved for a railway under a particular plan head.
• GM is authorized to sanction works up to 80% of the umbrella cost.
Remaining 20% can be utilized only after taking permission of Rly Bd.
• Earlier GM was having powers to approve works up to Rs 50 cr. The works
costing more than Rs.2.5 Crs were to be sent to board for ratification. Now
these powers have been withdrawn by Bd. In respect of Plan Head ROBs
& RUBs the powers have been restricted up to Rs 1 cr each
• Detailed estimate to be sanctioned for each individual work separately
under umbrella work and shall be included in the LAW
• GM will sent such list of sanctioned works to Board for record and
monitoring budge.
• The umbrella work remain in the Pink Book till all the works are executed
and cost is exhausted.
 Lumpsum works
 GM can approve works up to Rs.2.5 Cr each for all plan heads
except PH 1700 and 5100.
 For PH 5100 and 3000 GM can approve works upto Rs.1Cr
each.
 DRM, PHOD can approve works upto Rs.2.5Cr for PH
16,29,30,31,32,53. For other Plan Heads works upto Rs.1 Cr.
 DRM’s can approve works under PH 5200 upto Rs.20 Lakhs.
 Subject to the permissible cost being positive.
 PC= Ceiling(LSG)*norms-throw forward.
 Sanction of OOT Works

 GM can approve OOT works under various Plan Heads upto Rs.2.5
Crores each except PH-5100.
 For PH-5100 and 3000 GM can approve works upto Rs.1 Cr each.
 DRMs can approve OOT works under PH-5300 upto Rs.2.5 Crores.
 Annual ceiling for other than safety is Rs.25 Crores in all (other
than lumpsum) for the Zone.
 No annual ceiling for works on Safety consideration.
 CE/P&D nodal officer.
 Proposal shall be mooted duly identifying funds for re-
appropriation within the same Plan Head.
 Summary of the various Abstract Estimates
on Railways
• Survey estimates for major projects, generally costing more than Rs 150
crores
• Works costing more than Rs 2.5 Cr approved at different levels in Railway
Board and included in the Pink Book as itemized work with specific Budget
outlay
• Works as part of Umbrella under various Plan heads up to 80% of the
sanctioned cost as per Pink BooK. GM can sanction works upto Rs 50 crores
each subject to getting ratification by Bd for the works exceeding Rs 2.5 Cr
each
• Lumpsum works approved by GM up to Rs 2.5 Cr each against the lumpsum
grant given in the pink book in various plan heads
• Out of Turn works up to Rs 2.5 Cr each to be sanctioned by GM. Funds for
these works have to be got re-appropriated from the ongoing itemized works.
 Revenue expenditure
(Ordinary working expenses)
 Railway Working Expenses-Revenue Exp
Demand/ Sub Major Head
• 3/1. General Superintendence and services.
• 4/2. Repairs and Maintenance of Pway & works.
• 5/3. Repairs and Maintenance of Motive Power.
• 6/4. Repairs and Maintenance of Carriages and
VARIOUS
SUBHEADS
wagons AND DETAILED
• 7/5. Repairs and Maintenance of plant and HEADS OF
Equipment . ACCOUNT
• 8/6. Operating Expenses-Rolling Stock and UNDER EACH
DEMAND/SMH
Equipment.
• 9/7. Operating Expenses-Traffic.
• 10/8. Operating Expenses-Fuel.
• 11/9. Staff Welfare and Amenities.
• 12/10. Miscellaneous Working Expenses.
• 13/11. Provident Fund, Pension and other
 Delegation of Powers-Revenue exp
• Full powers to sanction by a JAG/SG within the
permissible cost
• Permissible cost = Grant for the FY*3times-Throw forward
(Example Budget Grant is Rs 200 Cr * 3 –Throw Forward
3 Cr=3Cr)
• If the executive projects his potential/genuine requirement
of fund accurately and get the grant, they don’t have any
problem during the FY
• Normally they fail to give attention at the time of Budget
Estimates and land into budgetary shortage during the
year
 Mohammed Afzaluddin
Ex-Sr AFA/Finance/SCRly
Consultant faculty IRIFM
9490690320