Starting 2017, India’s finance minister could deliver just one consolidated budget, scrapping the tradition of a separate railway budget. The finance ministry is actively considering the merger of the rail budget with the Union budget, two senior government officials told BloombergQuint on the condition of anonymity.
A ‘joint working group’ will be set up over the next seven to ten days to look into the modalities of the merger, according to the recommendation of Railway Minister Suresh Prabhu, the same officials said. They added that the group will be headed either by Cabinet Secretary PK Sinha or Finance Secretary Ashok Lavasa.
The merger of the two budgets is unlikely to create any issues, since it only entails additional demand for grants for railways once it is merged with the Union budget, the sources cited above said.
Earlier this year, a committee headed by NITI Aayog member Bibek Debroy, in a report on restructuring the public transport behemoth, recommended that the railway budget should be merged with the general budget. BloombergQuint has access to the report submitted by NITI Aayog to the two administrative ministries. Railway Minister Suresh Prabhu, after considering this report, wrote a letter to Finance Minister Arun Jaitley recommending the same, sources mentioned above said.
“I think we have had our last railway budget,” Debroy told BloombergQuint.
Impact on Fiscal Deficit
The railways estimate a gross traffic receipt of Rs 1,84,820 crore in financial year 2016-17, but it is expected to spend 92 paisa for every one rupee it earns in 2016-17, thereby leaving little in hand to invest in capital expenditure. This has increased from 90 paisa in the last financial year largely due to additional burden of Rs 28,450 crore on account of seventh pay commission.
The union budget has provided for Rs 40,000 crore in grants for 2016-17 to tide over the revenue deficit. The railway budget this year estimated a plan outlay of Rs 1,21,000 crore. The railways plans to raise this amount through internal accruals and market borrowings through Indian Railway Finance Corporation – its financial arm – and Rail Vikas Nigam Ltd. The 2016 railway budget pegs the borrowings by these two organisations at Rs 20,000 crore. This borrowing won’t impact government’s finances, Debroy says.
Borrowing by IRFC is an off budget item. It does not enter the deficit figures. So, deficit cycle will only be impacted because of pension and salary liabilities.Bibek Debroy, Member, NITI Aayog
The pension outgo budgeted by the 2016 railway budget stands at Rs 45,500 crore for financial year 2016-17. The railways pays for its own salaries and pensions. Merging the railway and Union budgets would mean that the central government will have to pay for salaries and pensions for railway employees and this will have fiscal implications, Debroy added.
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