Merger of Railway Budget to General Budget


A committee headed by NITI Aayog member BibekDebroy, in a report titled "Dispensing with the Railway Budget", recommended that the two budgets should be mergedas part of the restructuring of the Railways.

Then after a five-member joint committee was constituted with joint secretary in-charge of the Union Budget in the ministry of finance and senior officials of the Ministry and the national transporter to work out the modalities for the merger. 

Due to the above stated developments it has been proposed by the government that the railway Budget will be merged with the general Budget from 2017-18 onwards. 

Railway Budget

The rail Budget was separated from the main Budget, following recommendation of a panel headed by British railway economist William Acworth in 1920-21. Every year, the rail Budget is presented in Parliament a few days ahead of the general Budget.The rail Budget has had a separate existence from the general Budget since 1924. 

The reasons for separation were:

• The Railways were in bad shape at the turn of the last century. The Railways failed to meet the demand from passengers as well as trade. The facilities were utterly inadequate. The main reason for such a state of affairs was the non-availability of funds for expansion, development, and repairs and maintenance. Even though the railway revenue formed a major portion of the government revenue, the Railways were starved of adequate funds. In times of bad harvest and trade, when the revenue fell, the budget allotment to the Railways also used to fel.

• In November 1920, a ten-member (three Indians) committee was appointed with Sir William Acworth as chairman to “go into the whole question of railway policy, financial and administration”. The committee collected evidence and came to the conclusion that Indian Railways “cannot be modernised, improved and enlarged so as to give to India the service of which it is in crying need at the moment until the financial methods are radically reformed” and the essence of that reform according to the committee was complete separation of the Railway Budget from the General Budget and its reconstruction in a form “which frees a great commercial business from the trammels of a system.

• Hence Railway Budget was separated from the General Budget to improve the funding pattern in railways.

Present situation

• Currently, the Indian Railways suffers from a massive revenue deficit; the burden of which will be transferred to the finance ministry after the merger. 

• The Railways has structural problems. It needs rapid modernisation and reforms. The government is with this move is saying that it is a steps towards that. 

• The largest employer in the country with the largest rail network in the world now accounts for a meagre 15 per cent of the total Union Budget. 

• The delay in completion of projects resulted in cost overrun of Rs. 1.07 lakh crore and huge throw-forward of Rs. 1.86 lakh crore in respect of 442 ongoing rail projects. If the merger goes through, the Railways will get rid of the annual dividend it has to pay for gross budgetary support from the government.

Thus lack of reforms and investment has hurt the growth of facilities and infrastructure of the railway. Indian Railways is completely owned by the central government and private investment is almost negligible. It has failed to address issues pertinent to railways, be it poor financial situation or high freight charges or heavy cross subsidization.

Merging of railway budget with finance budget would definitely reduce fiscal deficit and induce fiscal consolidation. It will bring harmony in policy framework if budget is prepared by one organisationviz Ministry of Finance. It will reduce burden on Railway ministry which can focus on improving its poor status for example by rationalising passenger fair which has not been increased fearing political backfire etc.

But government should chart out proper roadmap to ensure railways intensive participation in budget as Railways is lifeline of India and different from other subjects. It has huge social and economic significance for crores of passengers, 14 lac employees and corporate. Railway board needs to be strengthened and railways ministry needs to explore other ways of meeting its financial needs and focus on policy issues which remain untackled like services offered, security issues, tailing it with dedicated freight corridors and Sagarmala projects among others.