Sep 22, 2016

Merger will bring Rlys to centre stage of Fiscal policy-making: Shaktikanta Das

Shaktikanta Das IAS, Secretary, Department of Economic Affairs

Shaktikanta Das IAS, Secretary, Department of Economic Affairs

Shaktikanta Das, Secretary, Department of Economic Affairs talks about how the budget merger will not impact the functional autonomy of railways and the government being ready to present the budget whenever required. Edited excerpts.

Q: Do you believe the merger is a step to reboot the budget making exercise? Will it reform the process and why is it warranted?
Shaktikanta Das: Separate railway budget was a practice that continued for the last 92 years. It started in 1924. There was a recommendation of the Acworth Committee and after that the railways presented a separate budget. There was a separate budget, at that time, as the total revenues of the railways was almost the same as that of the Government of India. There were situations and expectation that the surplus revenues of Railways will augment the general revenue of the government. Now, the situation has considerably changed and the revenue of the government today is far higher than what the railway get. So therefore, the relevance of having a separate railway budget was under serious consideration for a quite some time and now the government has taken a decision.
Now, we achieve four major points due to this. First, there is no constitutional requirement or legal requirement of having a separate railway budget. It was just by way of convention. Hence, we are making a departure from that. Secondly, we will now be able to take a comprehensive consolidated view of the overall fiscal situation of the government. Earlier it was fragmented, there was a separate railway budget, there was a general budget, now it will enable us to take a comprehensive view of the whole thing. Third, it brings railways to the centre stage of our policymaking, of our fiscal policymaking. For example, let us take, the highway sector which has made significant progress over the last few years and that has happened with highways being a part of the general budget. So, now railways becoming a part of the general budget will enable the government to give greater focus to railways and railway affairs come to the centre stage of government’s fiscal policy. And finally, railways becoming a part of the general budget would also enable us to go for multimodal planning with regard to our transport facilities. Multimodal would include the railways, the inland, the waterways, the highways and, of course, the civil aviation to some extent. So a multimodal planning of our transport sector policy should also be possible.
Q: There are questions that some analysts have raised on the autonomy of Indian railways post this. Also, was there more accountability if railways had a separate budget given how big they were and, of course, the whole fund raising exercise — how does that continue after this merger?
Shaktikanta Das: The functional autonomy of the railways will continue as the finance minister has already clarified. The decision making process so far as railways is concerned, the delegation of financial powers which is available to their general managers and officers down the line will continue. The functional autonomy of railways is in no way interfered with and that will continue. With regard to accountability, railways becoming a part of the general budget, there will be a separate discussion on the railways demand for grants as the parliament discusses the demands for grants of other ministries in the parliament. The functioning of the standing committee also will continue. There will be a standing committee for the railways and the standing committee of the parliament will naturally go through and review the entire railway budget allocations and they will have detailed interaction with the Ministry of Railways.
Now, as far as the borrowing goes, now whatever borrowing railways undertake out of their balance sheet directly, it is already a part of Government of India debt. It is not as if the railways have a separate debt which is other than the government debt. Railway debt is part of the government debt. Now, railways also raised some resources from institutions like IRFC or several other institutions but that is not a borrowing, that is a kind of leasing arrangement whereby the resources are raised and the assets are transferred temporarily and annual lease rental is paid. It is kind of an annuity payment which railways make and that is accounted for in the railway in the revenue account. So that practice will continue.
Q: Will tariff setting still be in the domain of Indian Railways? Do you believe the two things should have gone in tandem, the whole autonomy in setting up of tariffs, having a tariff commission there and also merging the railways budget because that would perhaps have been a two pronged strategy?
Shaktikanta Das: You The cabinet has taken a considered call taking into account all aspects. The commercial issues of railways matters will be decided by the Railway Ministry by the Railway Board and in any case no decision of railways, even now no decision of the railways is taken in isolation of the government, it is a part of the government process. Therefore the working of railways in no way will be sort of undermined. At the same time, the decision making capability of railways also will not get undermined in any manner and whatever decisions are required to be taken by the railways, I think that will continue, the process will continue.
See the whole thing in the context of the overall changes and the reforms which the government are carrying out in various sectors. Now the dividend payment which railways make to the general revenues that government will not come. So additional resources are now available for railways to spend essentially, let us say, on capital expenditure, hence functioning of railways is going to get strengthened without interfering with their functional autonomy and decision making power with regard to commercial matters.
Q: Is 1st February a date gor budget that we are looking at and do we have statistical preparedness for it? How are you going to tread along that?
Shaktikanta Das: The government will decide the actual date of budget presentation, but in principle government has taken a view that advancement is something which is desirable. The finance ministry is fully prepared to present the budget even if it is advance by three or four weeks. We have in any case the revised estimate meetings on the expenditure side, they usually start in the end of October and they are always based on half yearly expenditure and revenue trends so that practice will continue. And so far the CSO data, that is the advance estimate for the current year GDP is concerned, we were earlier getting it in the first week of February, now we will get the provisional advance estimates in first week of January. We have interacted with the CSO, the variation between the advance estimates which we get in February in the normal course and what we are now going to get on a provisional basis in the first week of January, the differences between the two are usually seen to be very-very marginal which will not impact our budget making. In any case these advance estimates are only relevant in the context of actually arriving at the fiscal deficit number. I mean, fiscal deficit being a part of the GDP of the current year and then growth projections for the next year is something which the economic division of the Finance Ministry makes. So therefore we will be able to present very realistic estimates.
Q: The governemnt had also done away with separate planned and non-planned expenditure, how does this really impact the government’s own balance sheet, does this make things more predictable, more transparent? Is this going to also make you arrive at a better deficit figure because you will know exactly how much you are going to spend?
Shaktikanta Das: You see the planned, non-planned classification will not figure in the accounts or in the budget documents, instead we will have the revenue and capital classifications. Over the years there has been a tendency to see all planned expenditure as good and all non-planned expenditure as bad expenditure, which is not correct. So, when we make allocation for one ministry or for one entity, we take a comprehensive view. Again, this gives a holistic picture of the financial requirements of a particular ministry and this will ensure that there is under provisioning in either side. Currently the way the budget is made, sometimes that leads to kind of an imbalance in allocations between the planned and non-planned. I think removal of the classifications will bring in greater balance of budget allocation, resource allocation between the planned and non-planned.
Q: And when do you being the budget making consultations?
Shaktikanta Das: As I mentioned we are ready and we will be able to present the budget as and when the government decides. We should start them during the course of October.