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7th Pay Commission – Railways writes to FM – Pleads for Additional Gross Budgetary Support (GBS)

7th Pay Commission – Railways writes to FM – IR’s earnings up to October this fiscal were lower than its own internal target for the period by Rs 9,086 crore or 9%, resulting in a worrisome operating ratio (OR) of 97%.

The Indian Railways (IR) has written to the finance ministry, seeking a cushion against the hefty 45% increase in its FY17 salary and pension bill from the Seventh Pay Commission. Its plea for an additional increase — over the business-as-usual scenario — in the gross budgetary support (GBS) to pay the higher wage bill including the arrears, if accepted, could worsen the commission-induced strain on the Centre’s budget.

Of the R1.02 lakh crore extra expenditure estimated to implement the commission’s award next fiscal, R73,650 crore was to be provided through the Union Budget and R28,450 crore via the Railway Budget.

That apart, it was believed that arrears of about Rs 25,000 crore (for the three months to April 2016) would be paid by the Centre and IR in the same ratio via their respective budgets.

Indian-railwaysThe railway ministry, however, is learnt to have estimated the pay panel impact on salaries and allowances at 38% and on pensions at an even steeper 56%. IR’s current salary bill is about Rs 58,350 crore and annual expenses on pensions is over Rs 33,200 crore.

Sources said railway minister Suresh Prabhu has suggested in a recent letter to finance minister Arun Jaitley that the entire additional spending on the national transporter’s wages, allowances and pensions due to the pay commission be borne by the central Budget. The cash-strapped transporter, which produces meagre surpluses after meeting its operational expenses, has been increasingly relying on the Centre’s budget for its budgetary capital expenditure — more than half of the capex in FY15, for instance, came as GBS from the Centre and the rest from the transporter’s internal generations (20%), lease income and borrowings.

With the railways asking for extra GBS to meet the increased salary bill, it can’t hope for a major increase in GBS to meet the capital needs next fiscal, analysts said. Expenditure on salaries and pensions stood at more than half of the railways’ ordinary working expenses in the last fiscal; salaries 36% and pensions 19%, to be precise. The GBS for the railways grew 11% in FY15 but is budgeted to rise sharply by 32% to Rs 40,000 crore in the current fiscal, given the NDA government’s focus on railway capex.

Indian-railways-1Recalling that the 6th Pay Commission had a cumulative impact of Rs 1 lakh crore on the railway’s finances from 2008 onwards, a railway official said the current pay panel’s impact could also linger for long.

The finance ministry may have to revise its FY17 fiscal deficit target of 3.5% of GDP given the lagging private investment and the decline in nominal GDP growth, which could dent the revenue buoyancy. The demand from the railways for a higher GBS to meet the pay panel obligations would add to the Centre’s fiscal stress.

IR’s earnings up to October this fiscal were lower than its own internal target for the period by Rs 9,086 crore or 9%, resulting in a worrisome operating ratio (OR) of 97%. Although the transporter had ambitiously projected a 52% jump in its ‘Plan Budget’ of Rs 1 lakh crore for the current fiscal year, budgetary capital spending during April-October this year was Rs 17,520 crore, down 4.6% from the same period last year. Total capital spending — which includes spending from extra-budgetary sources — stood at Rs 37,758 crore in the first seven months of the fiscal, up 6.8% from the year-ago period.

Source: Financial Express