Wednesday, September 16, 2009

MANAGEMENT OF VARIOUS FUNDS IN RAILWAYS

MANAGING OF VARIOUS RAILWAY FUNDS
1.1 The Railways maintain the following funds for different purposes viz
a) Depreciaion Reserve Fund (DRF)
b) Pension Fund
c) Development Fund
d) Capital Fund
e) Railway Safety Fund
f) Special Railway Safety Fund
The Development Fund maintained by the Zonal Railways record expenditure only and the overall balance/overdraft position is maintained by Railway Board. Balances in the funds remain with the Ministry of Finance and interest is credited to the funds on the balances. Plan outlay of Indian Railways comprises of budgetary support i,e capital from thc Ministrv of Finance and expenditure to be met by Indian Railways from their own internal resources i,e. DRF,DF. OLWR and Capital Fund.
The first two funds viz.. Depreciation Reserve Fund and Pension Fund are in the nature of 'Provision^' earmarked for a very specific purpose. They are 'charge’ funds and represent amounts set aside for "providing coins and currency' for the specific purpose for which they are created. On the other hand, the last two viz Development Fund and Capital Fund can be said to be General purpose funds. DF and Capital Fund are maintained only out of 'profits' or 'surplus', but the charge' funds have to be maintained out of the revenue 'before true profits’ can be ascertained.
Let us discuss each of these funds to ascertain how far do the railways finance them properly and to what extent is the.expenditure properly debited to them.
1.2 DEVELOPMENT FUND
This fund was created in 1950 replacing the "Betterment Fund". Presently, the following items are chargeable to DF.
i) Works of Railway Users' Amennies.
ii) Labour Welfare works above Rs 1 lakh
iii) Unremunerative works costing over Rs10 lakhs.
iv) Safety Works
v) Passenger Amenities Works.
This fund started borrowing from GeneraI Revenues since 1960’s. interest has to be paid on money borrowed from General Revenues. The loan otistanding to General Revenue as on 31-3-1990 was Rs.34 Crores and the entire liability was discharged by the Railways during 1992-93 and the balance under this fund as on 31-3-94 is a meagre amount of Rs 32 lakhs,
1.3 DEPRECIATION RESERVE FUND
This fund was created from 01-04-1924. This Fund, being a charge fund this has to be financed not from the surplus but from revenues. Uplo 1935 the amount tobe credited to the fund was determined on Straight line Method i.e. by dividing the cost of each class of assets by their normal life. From 1935-36 to 1949-50, one-sixteenth of the capital at charge was credite to the fund every year. The 1950 Convention Committee however, started fixing a lumpsum amount to be credited to the fund due to Railway’s inability to appropriate adeqyuate money to this fund for several years. Raiwlays faced a heavy backlog in replacements and renewals. As a result the contribution was increased from rs 200 Crores in 1980-81 to Rs 2000 Crores during 1995-96. this amount to be credited to this fund for each quinquenium is decided by the Railway ConventionCommittee.
1.4 PENSION FUND
this fund was created in 1964-65 when the system of Contributory Provident fund was discontinued for the new entrants in Railway service and Pension Scheme was made compulsory for them and optron for the old employees.
The Pension Fund is financed:
i) by transfer of money CSRPF of the employees
jj) from Revenue also,
iii) from Capital (Production Units)
The number of pensioners and quantum of pension are taken into account while deciding the amount to be credited to the fund. After implementation the recommendations of the 4th Pay Commission, the expenditure charged to this fund has increased tremendously and so also the appropriation to the Fund. The amount of Appropriation to Pension fund for 1995-96 is Rs.1971 Crores. Appropriation to DRF and Pension Funds is made having regard to the recomincndations of thc R.C.C.
1.5 CAPITAL FUND
In pursuance of the rccommmendations of the Railway Convention Committee a new fund "capital fund" has been constituted from the surplus left after payment of dividend and appropriation to DF for 1992-93.
The plan expenditure initially used tio be met from out f the budgetary support received by the Railways from the central Govt. and their own internal resources generation. ini view of the acute resource crunch, the budgetary support provided by the Central Govt to the railways started dwindling. The Budgetary support which was 58 % in the VI Five Year Plan came down to 41 % in the VII Five Year Plan and then to 32 % in 1991-92. it was 16 % in 1995-96.
Resources are going to become more and more scarce and the time is not far when the budgetary support may cease to exist. Raising of resources from the market has been an expensive proposition. The Railways annual Iease charges of 16 % to IRFC is almost double the rate of dividend of 7.5%. Moreover, the 9 % tax free bonds floated by the IRFC are noo longer popular. In a situation like this when the Budgetary support is declining and market borrowing expensive and uncertain, the Railways have no option but to function on a self-sustaining commercial basis.
The size of the VIII Five Year Plan Rs 27202 Crores, not sufficient to meet the transport demands. if the Railways are able to generate additional resources by themselves, the plan size£ may be adequately increased to meet in full the transport demands.
The Capital Fund should be used to Finance Capital works on the Railways and is not intended to improve the general ways and means of the Government.
1.6 DISPENSATION OF RRF AND ACSPAF
RRF was created in 1924 and started sustaining year after year in 'Loans from General Revenues'. With the introduction of Deferred Dividend Liability Account the utility of this fund ceased to exist. Hence this fund was dispensed with from 01-04-1993.
ACSPAF came into existance from 01-04-1974. This fund was to meet the liability arising of Accident Compensation and also to meet the cost of certain Safety and Passenger Amenity works. As similar expenditure is already booked to DF there is overlap of expenditure. It has therefore been deicided to abolish ACSPAF with effect from 01-04-1993 and the expenditure presently charged to this fund is re-allocated as under-
Accident compensation Demand No. 12 Abstract K-250
Safety Works DF IV
Passenger Amenities DF I
1.7 The appropriation to DRF, DF, Capital Fund, Pension Fund is budgetled under Demand No, 14 and appropriation from the fund (expenditure from the fund) is budgeted under Demand No. 16 for. DRF, DF and Capital Fund and Demand No 13 for Pension Fund. The Interest on the Fund balances is credited to these funds.
1.8 Capital -at-Charge and Capital Fund :
The rules of allocation are same for booking the expenditure to Capital at-charge and Capital Fund.Capital-at-Cbarge is a loan Capital borrowed from General finance for creating assets. The Capital-at-Charge is non-refundable and interest bearing loan. The Interest is paid in the form of dividend to General Revenues. The payment of dividend is perpetual. The rate of diividend is as per the recommendations of R.R.C.
Capital-at-Charge is also termed as budgetory support for Railway's Plan investment. The Plan investment is financed through generation of internal resources, budgetary support and also market borrowings through IRFC. The Capital-at-Charge is the book value of assets created from the loan Capital from General Revenues.
Capital Fund is created out of Railway's surplus to meet the needs of Railway's Plan investment. The plan size of Railways cannot be reduced since capacity constraints would endanger economic progress of the Country. The gap between the requirements of resources and the availability is to be bridged. The growing self-reliance on the part of Indian Railways is to be continued. The only way is to increase the internal resources. The creation of Capital Fund is to reduce the borrowing from General Revenues.
No dividend will be paid on the expenditure met from Capital Fund. On the other hand, interest is credited to the fund on the balance of the Fund at the end of each financial year. Though there are no seperate rules of allocation for booking the Capital expenditure to Capital-at-Charge and Capital Fund, it is seen from the Budget Papers that the Capital-at-Charge is operated to book the expenditure under Plan Heads 1100- 'Construction of New Lines' and Plan Head 5100 - 'Staff Quarters' and Capital Fund is operated for other Plan Heads. At present the capital fund is not operated.
1.9 Railway Safety Fund:
the fudn was effective from 01.04.2001. The fund was created fro a specific purpose of manning of unmanned level crossings and construction of Road Under Bridge (RUB)/ Road Over Bridge (ROB) . the source of the fund is Central Road Fund, through a levy of 1 % cess on petrol and diesel. The Indian railways received 12 ½ paise on every litre of petrol sold ( 1 % cess) and receives 6 ¼ paise on every litre of diesel sold ( 1 % cess).

1.10 Special Railway Safety Fund:
The fund was effective from 01.10.2001. The fund was created for the following purposes: renewal and replacement of overaged assets renewal of track, bridges, signal equipments, rolling stock and other safety enhancement works. The source of the fund is the levy of safety surcharge on passenger traffic (Rs 5000 croers) and the additional financial assistance by the ministry of fiancé (Union Ministry). This is a non-lapsable fund.

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