Budget 2017: Merger of Union Budget and Rail Budget

The union cabinet has decided to do away with the practice of presenting separate budget for General budget and Railway Budget from next financial year (2017-18).

Created On: Sep 27, 2016 10:23 ISTModified On: Jan 23, 2017 12:00 IST

Union BudgetThe union cabinet has decided to present the Budget 2017-18 by doing away with the practice of presenting separate budget for General budget and Railway Budget. The decision will end the 92 year old colonial legacy of presenting it separately. It will also pave the way for Union Government to walk the talk by cutting short populist subsidies and push the structural reform. The Indian Railway system is world's fourth-biggest rail system, which employs around 1.3 million individuals and pays the exchequer a net profit of around 40 billion rupees ($596.81 million) yearly.

The presentation of separate Railway budget started in the year 1924, and has continued after independence as a convention rather than under Constitutional provisions.

The merger is expected to help in the following ways:
1. The presentation of a unified budget will bring the affairs of the Railways to centre stage and present a holistic picture of the financial position of the Government.
2. The merger is also expected to reduce the procedural requirements and instead bring into focus, the aspects of delivery and good governance.
3. Consequent to the merger, the appropriations for Railways will form part of the main Appropriation Bill.

The Union Cabinet, apart from the merger of Railway budget with the General budget, also agreed with the suggestion of Ministry of Finance for the advancement of the date of Budget presentation from the last day of February given that budget often comes at a time when India is in the middle of transition of governance in centre with new political front emerged victorious. This merger will also merge the Plan and the Non-Plan classification in the Budget and Accounts. It is on the line of recommendation given by Rangrajan committee way back. All these changes will be put into effect simultaneously from the Budget 2017-18.

With these changes, the budget in coming years will become more transparent, predictable and a greater emphasis on expenditure and less on revenue.

This merger will deepen the Centre-State relationship further as there is already recommendation of Fourteenth Finance Commission (FFC) which increased the state‘s share in Centre’s net tax revenue with greater freedom to decide their spending, and implementation of Goods and Services Tax across India making it a common market.

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Why this Merger?
However, the merger of Railway budget with the General budget have been approved by the Cabinet on the condition that the Railways will continue to maintain its distinct entity as a departmentally run commercial undertaking as at present, Railways will retain their functional autonomy and delegation of financial powers etc. as per the existing guidelines, The existing financial arrangements will continue wherein Railways will meet all their revenue expenditure, including ordinary working expenses, pay and allowances and pensions etc. from their revenue receipts, and the Capital at charge of the Railways estimated at Rs.2.27 lakh crore on which annual dividend is paid by the Railways will be wiped off.

Consequently, there will be no dividend liability for Railways from 2017-18 and Ministry of Railways will get Gross Budgetary support. This will also save Railways from the liability of payment of approximately Rs.9,700 crore annual dividend to the Government of India.

According to some report it is also seem to be a reason behind this merger that every year Government waives off the annual dividend which is supposed to be paid by railway, on the name of budgetary support and that saves Rs, 10,000 crore annually for railway.

Apart from that it is alleged that this money is used as populist subsidies to enhance the image of government of the present day. It is also worth mentioning that no other ministries in India present separate budget and the system to present Union budget and Rail budget separately is followed nowhere in world. Besides, the Bibek Debroy committee also recommended discontinuing this system being a part of government’s reform programme.

What will be the impact?

With the merger of Union Budget and Rail Budget, all the losses, loans or dues of Railways will become the responsibility of Union. The Railway minister will be independent of all the political pressure to manage, make railway sustainable and paying dividends.

In such scenario, it seems that Indian Railway will become more or less like a postal department, where the profits, losses and expenditure belong to Central budget. It is expected that with all the dues, expenditure, salaries, if accounted under Union budget may shoot up the fiscal deficit further.
This restructuring in the presentation of budget has many different aspects, such as:
1. To lower the losses and dues, the government may increase the freight charges and fares. The social responsibilities in the form of subsidies may be separated from its own interest and fixed to only some areas.
2. The government may also setup the independent regulator for Railway to oversee the reforms needed in transportation, Networking, controlling the accident, timely commutation etc. For this different companies or holding companies could be formed according to Bibek Debroy committee.
3. Railways schools and medical hospitals may be shifted or sold to reduce expenditure.
4. Private investment may be invited to make major reforms like infrastructure, transportation etc are taken on time.

Merger of Plan and Non Plan classification in Budget
The third proposal which was approved by the Cabinet is the merger of Plan and Non Plan classification in Budget and Accounts from next financial year. However it won’t affect the funds for Scheduled Castes Sub-Plan/Tribal Sub-Plan, and allocations for North Eastern States.

This would help in resolving the following issues:

1. The Plan/Non-Plan bifurcation of expenditure has led to a fragmented view of resource allocation to various schemes, making it difficult not only to ascertain cost of delivering a service but also to link outlays to outcomes.
2. The bias in favour of Plan expenditure by Centre as well as the State Governments has led to a neglect of essential expenditures on maintenance of assets and other establishment related expenditures for providing essential social services.
3. The merger of plan and non-plan in the budget is expected to provide appropriate budgetary framework having focus on the revenue, and capital expenditure.

This step has been taken in the background that instead of Plan and Non-Plan, categorising the expenditure as capital would improve the quality of fiscal deficit by increasing the focus on reducing the revenue deficit and enhancing the capital expenditure.

In the end, we can only give suggestion to the government that this restructuring may also boomerang if not dealt with surgical move. Therefore the government should not throw the baby out with bathwater. Instead the government should table the annual report of Railway’s health in Parliament so that transparency remains intact as Reserve Bank of India’s Economic Survey.

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