2017

## Demand For Grants 2017-18 Analysis Railways

The Railways finances were presented on February 1, 2017 by the Finance Minister Mr. Arun Jaitley along with the Union Budget 2017-18.  This was the first time since 1924, that the Railways Budget was merged with the Union Budget.  In his address, the Finance Minister laid out the budget proposals for Railways for 2017-18. This note gives an overview of Railways' finances, changes from the 2016-17 Budget to the 2017-18 Budget estimates, and the impact of the budget merger.   

## Key Highlights1,2

 
Merger with the Union Budget:  The Railways 
Budget will be merged with the Union Budget from this year onward.  This would facilitate multi modal transport planning between railways, highways and inland waterways.  However, the functional autonomy of the Railways will continue.    
 
Outlay:  The total proposed outlay for 2017-18 is 
Rs 1,31,000 crore which is an 8% increase from the 2016-17 budget estimates (Rs 1,21,000 crore). 
 
Revenue:  Railways' revenue for 2017-18 is 
estimated at Rs 1,78,350 crore which is a 9% increase from the revised estimates of 2016-17. Total revenue in 2016-17, undershot budget estimates by Rs 6,300 crore (4%).   
 
Traffic revenue:  Total revenue from traffic for 
2017-18 is estimated at Rs 1,88,998 crore, which is a 10% increase from the revised estimates of 2016- 17.  Revenue from freight and passenger is expected to grow by 9% and 4% respectively.  In 2016-17, the revenue from freight traffic decreased from budget 
estimates by 8%, while revenue from passenger traffic decreased by 6%.   
 
Expenditure:  Total expenditure for 2017-18 is 
projected at Rs 1,80,550 crore which is a 10% increase from the revised estimates of 2016-17.  In 2016-17, total expenditure decreased from budget estimates by Rs 6,450 crore (4%).   
 
Dividend:  Earlier, every year Railways paid a 
return on the budgetary support it received from the government every year, known as dividend.  The rate of dividend was about 5%.  In 2016-17, the proposed dividend payable was Rs 9,731 crore. From 2017-18, Railways will not be required to pay dividend to the central government.   

## 2017-18 Budget Announcements

Key announcements and proposals related to Railways made in Budget 2017-18 include:  
Tel: (011) 2323 4801-02, 4343 4035-36 

 
Focus areas:  Railways will focus on four major 
areas: (i) passenger safety, (ii) capital and development works, (iii) cleanliness, and (iv) finance and accounting reforms. 
 
Safety:  For passenger safety, a Rashtriya Rail 
Sanraksha Kosh will be created with a corpus of Rs one lakh crore over a period of five years (Rs 20,000 crore per year).  Other safety related measures include elimination of unmanned level crossings on broad gauge lines by 2020.  
 
Traffic volume:  The traffic volume will be 
increased by 10% over the next three years.  This will be achieved through the modernisation and upgradation of identified corridors.  Railway lines of 3,500 km will be commissioned in 2017-18, which 
is a 25% increase from last year (2,800 km).   
 
Railway operations:  With Railways facing 
competition from other modes of transportation (such as roads, airlines), few measures will be undertaken to improve its performance.  Some of 
these include: 
i. 
End-to-end transport solutions for select commodities will be introduced through 
partnerships with logistics players;  
ii. 
Rolling stock will be customised to transport 
perishable goods;  
iii. 
Service charge on tickets booked through 
IRCTC will be withdrawn;  
iv. 
Accrual based financial statements will be rolled 
out by March 2019.   
 
Tariff rationalisation:  Railway tariffs will be fixed 
after considering the cost, quality of service, social 
obligations, and competition from other forms of transport.  
 
Metro rail:  A new Metro Rail Policy will be 
announced with focus on innovative models of implementation and financing, and standardisation and indigenisation of hardware and software.  A new Metro Rail Act will be enacted by rationalising the 
existing laws.   
 
Station redevelopment:  500 stations will be made 
differently abled friendly by providing lifts and 
escalators.  About 7,000 stations will be fed with 
solar power in the medium term.  Works will be taken up for 2,000 railway stations as part of the 
1,000 MW solar mission.   
 
Cleanliness:  A coach mitra facility will be 
introduced.  This will be a single window interface 
to register all coach related complaints and requirement.  By 2019, all coaches will be fitted with bio-toilets.   

 
IPO:  The shares of Railway public sector 
enterprises such as IRCTC, Indian Rail Finance 
Corporation and Ircon International Limited will be 
listed in stock exchanges. 

## Overview Of Finances**1,2,3** Revenue

Indian Railways is primarily financed through (i) gross budgetary support from the central government, (ii) its own internal resources (freight and passenger revenue, leasing of railway land, etc.), and (iii) extra budgetary resources (market borrowings, institutional financing, etc.).3  The proposed plan investment for 2017-18 is Rs 1,31,000 crore.  This is about 8% higher than the proposed plan investment for 2016-17.   

% Change 
(BE 2017-
  
2015-16 
Actuals 
2016-17 
Revised  
2017-18 
Budget 
18/ RE 
2016-17) 
35,008 
46,355 
55,000 
19% 
Gross budgetary support Internal resources 
19,446 
14,715 
14,000 
-5% 
39,066 
59,930 
62,000 
3% 
Extra budgetary resources Railway Safety Fund 
2,661 
0 
0 
NA 
Total 
96,181 
1,21,000 
1,31,000 
8% 

Sources:  Notes on Demand for Grants for Ministry of Railways, 2017- 18; PRS.   

## Gross Budgetary Support (Gbs)

The central government supports Railways in the form of GBS, in order to expand its network.  In 2017-18, the gross budgetary support from central government increased by 8% from revised estimates of Rs 46,366 crore to budget estimates of Rs 55,000 crore.   

## Internal Resources

Railways earns its internal revenue primarily from passenger and freight traffic.  In 2015-16 (latest actuals available), freight traffic contributed to about 66% of the internal revenue.  In comparison, passenger traffic contributed to about 24% of the internal revenue.  In 2017-18, Railways expects to earn 60 % of its internal revenue from freight traffic and 28% from passenger traffic.   
Passenger revenue:  In 2016-17 (revised estimates), revenue from passenger traffic decreased by 6% from budget estimates of Rs 51,012 crore to Rs 48,000 crore. However, passenger traffic increased by 2%.  In 2017- 18, Railways expects to earn Rs 50,125 crore from passenger traffic, an increase of 4% over revised estimates of 2016-17.  The growth in passenger traffic for 2017-18 is estimated at 0.2%.   

In September 2016, the Ministry of Railways introduced 
a flexi-fare system for first class passenger traffic in 
certain categories of trains.4  This had raised concerns 
about train fares becoming more expensive.  In 2016-17, 
passenger revenue across all classes (first class, sleeper, 
etc.) declined despite an increase in passenger traffic.  In 
light of this, it is unclear how passenger revenue will 
increase in 2017-18 with a marginal increase in traffic.   

Freight revenue:  In 2016-17, revenue from freight 
traffic was Rs 1,08,900 crore (revised estimates).  In 
2017-18, Railways expects to earn Rs 1,18,157 crore 
from goods traffic.  In 2015-16 (latest actuals available), 
Railways generated most of its freight revenue from the 
transportation of coal (45%), followed by cement (8%), 
and foodgrains (7%) (see Figure 1).   

Sources:  Detailed Demand for Grants of Ministry of Railways 2017-

Freight traffic:  Freight traffic has been declining over 
the last few years.  The freight traffic for 2017-18 is 
estimated to increase by 9% over revised estimates of 
2016-17.  The 2017-18 Budget speech referred to 
increasing traffic volume by modernising and upgrading 
certain corridors.   

In order to improve freight traffic, in 2016-17, the 
Railways Ministry had proposed expanding the freight 
commodities basket, and reviewing the freight tariff 
policy.  However, in 2016-17, freight traffic decreased 
by 11% from the budget estimates, and revenue from 
freight traffic decreased by 8%.  

 
Note: RE - Revised Estimates Sources:  Detailed Demand for Grants of Ministry of Railways 2017- 18; PRS.   

## Extra Budgetary Resources (Ebr)

EBR includes market borrowings, financing from banks, external investments, etc.  External investments in Indian Railways could be in the form of public private partnerships (PPPs), joint ventures (JVs), or market financing by attracting private investors to buy bonds or equity shares in Railways.5,6  Most of Railways EBR comes in the form of market borrowings from the Indian Railways Finance Corporation (IRFC).5 In 2017-18, Rs 62,000 crore is estimated to be raised through EBR, an increase of 3% over revised estimates of 2016-17 (Rs 59,930 crore).   

## Trends In Revenue

In the last few years, the share of gross budgetary support as a percentage of total plan outlay has remained constant.  This suggests that the central government's support to Railways has broadly remained similar in the last few years. The share of internal resources has been declining, suggesting that Railways has been struggling to run its transportation business, and generate its own revenue. Figure 2 shows the change in freight and passenger volume in the last few years. The Committee on Restructuring Railways had observed that raising revenue for Railways is a challenge because: (i) investment is made in projects that do not have traffic and hence do not generate revenue, (ii) the unbalanced mix of passenger and freight traffic does not help generate revenue, (iii) the efficiency improvements do not result in increasing revenue, and (iv) delays in projects results in cost escalation, which makes it difficult to recover costs.5 The share of extra budgetary resources has been increasing (see Figure 3).  In 2015-16, majority of the revenue for Railways came from extra budgetary resources, suggesting an increasing dependence on borrowings.  Various committees have noted that an increased reliance on borrowings will further exacerbate the financial situation of Railways.5,6   
Note: RE - Revised Estimates, BE - Budget Estimates. 

Sources:  Railways Budget documents 2009-16; PRS.   

## Social Service Obligations Of The Railways

The NITI Aayog had noted that Indian Railways carries 
out various activities in national interest which are not 
driven strictly by commercial principles.7  Railways' 
passenger business faced losses of about Rs 33,000 crore 
in 2014-15 due to its social service obligations.7  Such 
social service obligations include: (i) pricing essential 
commodities lower than cost, (ii) low fares and 
passenger concessions (such as cheaper tickets for senior 
citizens, army veterans), (iii) uneconomic branch lines, 
and (iv) new lines not yet profitable.   

However, NITI Aayog had also noted that the data 
related to the cost of running passenger business is not 
scientific and accurate.  Therefore, it is difficult to 
compute accurately the levels of under-recoveries.  The 
calculation of social costs does not factor the efficiency 
of various expenditures (whether fuel consumption is 
optimal, maintenance practices and costs are reasonable, 
etc.).7  The calculation also does not factor in Railways' 
potential to leverage existing assets (such as stations, 
land banks) that could increase its revenue sources.7  

## Expenditure

In 2015-16, Indian Railways spent most of its money on 
staff (36%), followed by expenses on pension fund 
(22%), and fuel (17%).  In Budget 2017-18, the total 
expenditure is estimated to increase by 8% over the 
revised estimates of 2016-17.  In 2017-18, the trends in 
expenditure are estimated to be broadly similar, with the 
addition of the new safety fund, Rail Sanraksha Kosh.  

## Dividend

Railways paid a return on the budgetary support it 
received from the government (GBS) every year, known 
as dividend.  The rate of this dividend was determined by 
the Railways Convention Committee, and was about 5% 
in 2016-17.  From 2017-18, Railways will not be 
required to pay dividend to the central government.   

In 2015-16, the dividend paid was Rs 8,722 crore.  In 
2016-17, the dividend payable was estimated at Rs 9,731 
crore.  However, as per the revised estimates of 2016-17, 
Railways did not pay any of this dividend amount.   

## Staff Wages And Pension

As per the revised estimates of 2016-17, the expenditure 
on Railway staff (Rs 70,824 crore) overshot the 
expenditure in 2015-16 (Rs 56,817 crore) by 25%.  This 
may be attributed to the implementation of the Seventh 
Pay Commission.  For 2017-18, the expenditure on staff 
is estimated at Rs 71,879 crore.   

 

Staff costs have increased from 2005-06 to 2014-15 (BE) 
at an average rate (CAGR) of 13%.5  The Committee on 
Restructuring Railways had observed that the 
expenditure on staff is extremely high and 
unmanageable.  This expense is not under the control of 
Railways and keeps increasing with each Pay 
Commission revision.5  It has also been observed that 
employee costs (including pensions) is one of the key 
components that reduces Railways' ability to generate 
surplus, and allocate resources towards operations.5  

## Fuel And Electricity

In 2016-17, the expense on fuel and electricity was estimated to decrease to Rs 24,561 crore from Rs 27,331 crore in 2015-16 (10%).  This was attributed to a decrease in fuel prices and low cost of electricity.  
However, as per the revised estimates of 2016-17, fuel expenses increased by 4% to Rs 28,253.  In 2017-18 expenses on fuel and electricity is estimated to be Rs 29,478 crore.   

## Depreciation Reserve Fund (Drf)

Appropriation to the DRF is made annually based on the recommendation of the Railways Convention Committee.  The DRF is intended to finance the costs of new assets replacing the old ones.  The Standing Committee on Railways had observed that appropriation to the DRF is obtained as a residual after payment of the dividend and appropriation to the Pension Fund, instead of the actual requirement for maintenance of assets.5 In the last few years, appropriation to the DRF has been decreasing.  In 2016-17, appropriation to the DRF was Rs 5,200 crore.  This means that Railways spent Rs 5,200 crore on asset maintenance in 2016-17, as compared to Rs 7,775 and Rs 5,500 in 2014-15 and 2015-16 respectively.  Under-provisioning for the DRF has been observed as one of the reasons behind the decline in track renewals, and procurement of wagons and coaches.5  In 2017-18, appropriation to the DRF is estimated at Rs 5,000 crore, 4% less than the revised estimates of 2016-17.   

## Rashtriya Rail Sanraksha Kosh

In his budget speech, the Finance Minister announced the creation of the Rashtriya Rail Sanraksha Kosh to provide for passenger safety in Railways.  It will be created with a corpus of Rs one lakh crore over a period of five years (Rs 20,000 crore per year).  The central government will provide a seed amount of Rs 1,000 
crore for this fund.  The remaining amount will be raised by the Railways from their own revenues or other sources.  With the Railways struggling to meet its expenditure and declining internal revenues, it is unclear how Railways will fund the Rail Sanraksha Kosh.  The Kosh will require the Railways to spend Rs 19,000 crore every year for the next five years.   
                                                           
Shatabdi trains", Press Information Bureau, Ministry of Railways, September 7, 2016.   
 

The central government will provide the guidelines and 
timeline for projects to be funded through this fund.  
This may affect the Railways' independence and 
autonomy in determining its own priorities with regard 
to railway safety.   

Railways had a Railway Safety Fund existing to which 
received about 3% of allocation in the plan outlay.  In 
2015-16 (actuals), Rs 2,661 crore was allocated to this 
fund.  Since 2016-17, no allocations have been made to 
this existing fund.   

## Surplus And Operating Ratio

The railways surplus (after payment of dividend to the 
central government) in 2017-18 is estimated at Rs 8,948 
crore which is a 16% increase from the revised estimates 
of 2016-17.  Railways' surplus declined by 27% from Rs 
10,506 crore in 2015-16 to Rs 7,695 crore in 2016-17 

Operating Ratio is the ratio of the working expenditure 
(expenses arising from day-to-day operations of 
Railways) to the revenue earned from traffic.  Therefore, 
a higher ratio indicates a poorer ability to generate 
surplus that can be used for capital investments such as 
laying new lines, deploying more coaches, etc.   

In 2016-17, the Operating Ratio increased from a 
budgeted estimate of 92% to 94.9%.  The Operating 
Ratio for 2016-17 is projected at 94.57% (see Figure 4).   

## Actuals)

Notes: Numbers for 2016-17 are Budget Estimates vs Revised Estimates. Sources: Railways Budget documents 2009-2017; PRS. Railway Projects and Restructuring of Railway Ministry and Railway Board, Ministry of Railways, June 2015, http://www.indianrailways.gov.in/railwayboard/uploads/directorate/HL 6 "4th Report: Demands for Grants (2015-16)", Standing Committee on Railways, April 20, 2015, http://164.100.47.134/lsscommittee/Railways/16_Railways_4.pdf. 

7 Reviewing the Impact of "Social Service Obligations" by Indian 
Railways, NITI Aayog, September 2016, 
http://niti.gov.in/writereaddata/files/document_publication/Social-
Costs.pdf.  

## Annexure Appendix I: Railways Budget 2017-18 Summary

Table 2: Railways Revenue and Expenditure for 2017-18 (in Rs crore) 
% Change 
 
 
2015-16 
Actual 
 2016-17 
Budget 
2016-17 
Revised 
2017-18 
Budget 
RE/BE 
2016-17 
% Change 
2017-18 
BE/ 2016-
17 RE 
 
Receipts 
  
  
  
  
  
  
1 
Gross Traffic Receipts  
1,64,334 
1,84,820 
1,72,155 
-7% 
1,88,998 
10% 
2 
Miscellaneous 
4,046 
4,451 
150 
-97% 
500 
233% 
3 
Total Revenue (1+2) 
1,68,380 
1,89,271 
1,72,305 
-9% 
1,89,498 
10% 
 
Expenditure 


4 
Ordinary Working Expenses 
1,07,736 
1,23,560 
1,22,760 
-1% 
1,29,750 
6% 
5,600 
3,200 
5,200 
63% 
5,000 
-4% 
5 
Appropriation to Depreciation Reserve Fund 
6 
Appropriation to Pension Fund 
34,500 
42,500 
35,000 
-18% 
43,600 
25% 
1,47,836 
1,69,260 
1,62,960 
-4% 
1,78,350 
9% 
7 
Total Working Expenditure (4+5+6) 
8 
Miscellaneous 
1,315 
1,800 
1,650 
-8% 
2,200 
33% 
9 
Total Expenditure (7+8) 
1,49,151 
1,71,060 
1,64,610 
-4% 
1,80,550 
10% 
10 
Net Revenue (3-9) 
19,229 
18,211 
7,695 
-58% 
8,948 
16% 
8,723 
- 
- 
0% 
- 
0% 
11 
Dividend payable to General Revenues 
12 
Net Surplus (10-11) 
10,506 
18,211 
7,695 
-58% 
8,948 
16% 
1,220 
2,515 
2,515 
0% 
2,000 
-20% 
13 
Appropriation to Railway Development Fund 
14 
Appropriation to Capital Fund 
5,798 
5,750 
5,180 
-10% 
5,948 
15% 
15 
Appropriation to Debt Service Fund 
3,488 
214 
- 
-100% 
- 
0% 
0 
0 
0 
0 
1,000 
 
16 
Appropriation to Rashtriya Rail Sanraksha Kosh 


17 
Operating Ratio  
90.5% 
92% 
94.9% 
 
94.57% 
 
7.0% 
5.8% 
2.5% 
 
2.5% 
 
18 
Ratio of Net Revenue to Capital-at- Charge and investment from the Capital Fund 

Note: RE - Revised Estimate, BE - Budget Estimate. Sources: Statement of Revenue Receipts and Expenditure, Railways Budget 2017-18; PRS.   

## Explanatory Notes Performance Parameters

1. 

'Net Surplus' represents excess of receipts over expenditure after the Dividend liability (payment for investment in Railway capital) of General Revenues has been paid off.  
2. 

'Operating Ratio' is the ratio of operating expenses to receipts. A lower ratio indicates higher surplus availability for investments. 

## Railway Funds

3. 

Depreciation Reserve Fund - Finances the cost of new assets replacing old assets including the cost of any improved features. 

Appropriation to this fund are made on the recommendations of the Railway Convention Committee (RCC).  

4. 
Pension Fund - Finances all pension payments to retired Railway staff.  

## 

 

## Appendix Ii: Details Of Freight And Passenger Traffic

Table 3: Freight traffic details (NTKM in millions; Earnings in Rs crore) 
 
Budget 2016-17 
Revised Estimates 
% Change RE/ BE 
Budget Estimates 
% Change BE 2017-
2016-17 
2016-17 
2017-18 
18/ RE 2016-17 
Commodity 
NTKM 
Earnings 
NTKM 
Earnings 
NTKM Earnings 
NTKM 
Earnings 
NTKM 
Earnings 
Coal 
2,99,594 
53,685 
2,40,186 
43,458 
-20% 
-19% 
2,73,454 
49,541 
14% 
14% 
Raw Material for Steel Plants 
13,320 
3,189 
12,096 
2,143 
-9% 
-33% 
12,210 
2,169 
1% 
1% 
Iron Ore 
35,533 
6,967 
39,028 
8,773 
10% 
26% 
43,465 
9,738 
11% 
11% 
Cement 
59,940 
9,902 
57,780 
9,415 
-4% 
-5% 
62,715 
10,243 
9% 
9% 
Foodgrains 
59,800 
8,085 
61,640 
8,189 
-3% 
16% 
66,052 
8,796 
9% 
9% 
Fertilisers 
49,000 
6,287 
42,670 
6,399 
26% 
30% 
46,008 
6,915 
7% 
7% 
Petroleum & Lubricants 
28,928 
6,040 
28,267 
5,885 
48% 
6% 
29,835 
6,226 
8% 
8% 
Container Service 
48,293 
5,177 
46,323 
5,147 
-41% 
14% 
52,327 
5,801 
6% 
6% 
Other Goods 
59,613 
12,299 
54,879 
7,800 
-8% 
-37% 
59,495 
8,475 
8% 
9% 
Misc earnings (goods) 


4,634 


4,634 
 
 
Total 
6,94,607 
1,17,933 
6,21,247 
1,08,900 
-11% 
-8% 
6,75,622 
1,18,157 
9% 
9% 

Notes: NTKM - Net Tonne Kilometre (1 NTKM is the net weight of goods carried for a kilometre). Sources: Statement of Revenue Receipts and Expenditure, Railways Budget 2017-18; PRS.   

 
Budget 2016-17 
Revised 2016-17 
% Change RE/ BE 
Budget Estimates 
% Change BE 2017-
2016-17 
2017-18 
18/ RE 2016-17 
 
PKM 
Earnings 
PKM 
Earnings 
PKM 
Earnings 
PKM 
Earnings 
PKM 
Earnings 
Suburban 


First Class 
10,122 
404 
8,693 
369 
-14% 
-9% 
8,710 
386 
0% 
4% 
Second Class (Ordinary) 
1,41,212 
2,544 
1,37,347 
2,422 
-3% 
-5% 
1,37,616 
2,529 
0% 
4% 
Total Suburban 
1,51,334 
2,948 
1,46,040 
2,791 
-3% 
-5% 
1,46,326 
2,915 
0% 
4% 
Non Suburban 


AC First class 
1,614 
528 
1,714 
492 
6% 
-7% 
1,717 
513 
0% 
4% 
AC Sleeper 
21,164 
3,690 
22,380 
3,621 
6% 
-2% 
22,424 
3,782 
0% 
4% 
AC 3 Tier 
66,375 
9,925 
70,892 
9,146 
7% 
-8% 
71,030 
9,550 
0% 
4% 
Executive Class 
306 
210 
424 
138 
39% 
-34% 
425 
144 
0% 
4% 
AC Chair Car 
10,176 
1,519 
10,899 
1,481 
7% 
-2% 
10,921 
1,547 
0% 
4% 
First Class (M&E) 
132 
20 
93 
16 
-30% 
-22% 
93 
16 
0% 
4% 
First Class (ordinary) 
462 
21 
367 
17 
-21% 
-20% 
367 
18 
0% 
4% 
Sleeper Class (M&E) 
2,71,379 
14,981 
2,89,047 
13,953 
7% 
-7% 
2,89,612 
14,571 
0% 
4% 
Sleeper Class (ordinary) 
3,395 
158 
3,646 
151 
7% 
-4% 
3,653 
158 
0% 
4% 
Second Class (M&E) 
3,34,095 
11,091 
3,50,699 
10,627 
5% 
-4% 
3,51,384 
11,097 
0% 
4% 
Second Class (Ordinary) 
2,76,868 
5,920 
2,61,436 
5,567 
-6% 
-6% 
2,61,948 
5,813 
0% 
4% 
Total Non-Suburban 
9,85,964 
48,064 
10,11,597 
45,209 
3% 
-6% 
10,13,574 
47,210 
0% 
4% 
Total Passenger 
11,37,298 
51,012 
11,57,637 
48,000 
2% 
-6% 
11,59,900 
50,125 
0% 
4% 

Notes: PKM - Passenger Kilometre (One PKM is when a passenger is carried for a kilometre). Sources: Statement of Revenue Receipts and Expenditure, Railways Budget 2017-18; PRS.   
2017