PARLIAMENTARY AND MANAGEMENT'S CONTROL OF RAILWAY FINANCES
(Chapter III of "Admn. and Finance - an introduction" and Chapter IV and V of Finance Code)
1.1 Indian Railways being a major departmental undertaking of the Govt, their functions and Finances are watched, monitored and controlled by Parliament. The Finances and performance of Railways as a Commercial enterprise are controlled by Railway Management.
1.2 PARLIAMENTARY CONTROL
The control of parliament over Railway finance is exercised as follows :-
i) Voting the Railway Budget and review of the Budget through Appropriation Accounts under various Articles of constitution of India.
h) Review of the policy and finances of Railway by Parliamentary Committees viz- Estimates Committee, Public Account Committee and Railway Convention Committee.
1.3 PARLIAMENTARY FINANCIAL COMMITTEES
Even though Parliament discusses the Demands for Grants for sufficiently long period before voting, due to magnitude and complexity of State activities, it is almost impossible for Parliament as a body to scrutinize the myriad of expenditure proposals and Govt. activities effectively and minutely. In order to help it exercise effective control over Public expenditure, Loksabha has set up three financial Committees viz. Public Accounts Committee, Estimates Committee and Committee on Public Undertaking. Railway Convention Committee an ad-hoc Committee functions like a Finance: Committee.
1.3.1 ESTIMATE COMMITTEE
The function of this committee is to report on the economies. improvements in organization, efficiency o or administrative reform that may be effected consistent with the policy underlying the estimates. The committee can suggest alternative policies in order to bring about efficiency .and economy in administration . the committee also examines whether the money is well laid out within the limits of the policy implied in the estimates.
The committee may also examine matters of special interest that may come to light in the course of its work though unconnected with the estimates. The committee continues the examination of the estimates throughout the Financial year and may report to the house as its examination proceeds or on the conclusion of the examination.
1.3.2 PUBLIC ACCOUNTS COMMITTEE
The Public Accounts Committee examines the accounts showing the appropriation of sums granted by the Parliament for the expenditure of Govt. of India, the annual finance account of the Govt. and such other accounts as the Committee may think fit. The Committee also examines the revenue receipts of the Govt. If any money has been spent by the Govt on any service in excess of the amount granted by Parliament for that purpose, the Committee examines with reference to facts of each case the circumstances leading to such an excess and presents a report thereon to the Parliament.
The functions of PAC extend "beyond the formality of expenditure to its wisdom, faithfulness and economy".
The attention of the PAC is mainly devoted to its examination and consideration of Appropriation Accounts and Audit Reports thereon of the Comptroller and Auditor General of India. The Committee also examines and enquires into various irregularities which have become public even though no formal audit has been presented on the subject.
1.3.3 RAILWAY CONVENTION COMMITTEE
The R.C.C. is an ad-hoc Committee constituted to review the rate of dividend which is payable by the Railways to the General Revenues as well as other ancillary matters in connection with Railways finance 'vis-a-vis' general finance and make recommendations thereon.
While the Committee of 1949, 1954, 1960 and 1965 confined themselves only to the question of determining the rate of dividend payable by Railways during the succeeding quinquinnium the RCC 1971for the first time selected some subjects for detailed examination and presented reports to Parliament covering not only the question of dividend but also diverse subjects pertaining to Railway's working. The Committee of 1973,1977 and 1980 followed suit.
1.3.4 FOLLOW-UP OF COMMITTEE REPORTS
Parliamentary procedure in Lok Sabha envisages an elaborate system of follow up of the recommendations made in the report of the ' Financial Committees. After presentation of the reports, copies are forwarded to ministries for taking action on the recommendations made therein.
Budget Exercises:
The expenditure to be incurred for the ensuing year is envisaged as early as in Nov the previous year based on the actual expenditure up to that period and approximate projection for the ensuing year. Finally this estimate becomes the basis for Demands for Grants to be voted in the parliament. While advising the zonal railways, the railway board specifies a spending limit to be adhered to by each zonal railway. Based on the budget orders, the proportionate requirement is distributed to twelve months and cash authorization is advised for each month. The cash authorization is cross checked with the actual cash expenditure at the end of the month to enforce budgetary discipline on units which have incurred expenditure beyond the authorization.
Fiscal Review Exercises:
Review exercises are basically aimed at informing the railway board about the expenditure vis-à-vis earnings to be submitted to the parliament which originally sanctioned the demands for grants. The first is the august review which takes in to account the actual for the April, May, June and the approximate for July to review the financial situation. The second being the financial review in December. The third is the final modification in January and the fourth is the violent modification in February. Thus the review exercises also contribute greatly to control the expenditure
Account Currents:
In railways, the approximate and actual accounts current are prepared for the purpose of “ways and means” to enable the finance ministry to monitor excess / savings over the granted budget allotment. The approximate account current separately for revenue and capital are submitted in the first week of the subsequent month and the actual account current is submitted in the third week of the subsequent month. This account current contributes greatly to control the expenditure.
PERFORMANCE BUDGETTING
15.1 The performance budgeting came into effect in Railways in 1979-80 and has been gradually Stabilizing for purposes of management control over the costs in relation to (he physical activity. Before discussing the merits and advantages of P.B., it is necessary to have an understanding the form of budget, which was in existence prior to the introduction of Performance Budgeting. . ' . '. ^
In one of its reports the World Bank Study team has described Budget as prepared in the Past as a "routine and dogged exercise, undertaken produced by a bureaucratic elite". The form in which the Railway Budget was presented to Parliament till 1979-80 provided for appropriation of funds for certain items of expenditure falling under each demand without correlating expenditure to the quantum of service to be rendered with the aid of the funds sanctioned. For all practical purposes, the Budget was a portrayal or record of cash transactions and their anticipations; it did not at all serve as a tool for management or as a device for evaluating performance.
The Conventional Budget was more 'appropriation oriented' than 'Performance oriented'. There were in all 22 demands for grants not strictly representing functional groups or activities though for grants' are supposed to basically represent the estimated expenditure in a 'Single or homogenous group of functions. The other defects in the old system of budgeting were:-
-,.. 111. .
i) The Accounts heads under the detailed heads of accounts did not, correlate with the Budget heads. The expenditure under demands had to be collected from different revenue abstracts.
ii) Budget had little relevance to performance.
iii) When Parliament sanctioned the budget, it was not aware of the quantum of services that would be rendered in the various aspects of Railway activities
15.2 Based on the recommendations of a Task Force appointed for the purpose, the demands for grants have been restructured with the approval of the Estimates Committee. It was therefore considered necessary that the budget as a document must be capable of fulfilling the following objectives:-
i) to present more clearly the purpose and objectives which funds are sought and to bring out the programmes and accomplishment in financial terms.
to help in the better understanding and review of the budget.
Hi) to improve the formulation of the-budget and to aid the process of decision making sit all levels of Go 't. and
iv) to incorporate an element of accountability,
15.3 Performance budgeting, therefore, implies fixing in advance performance targets under each activity, in acceptable and feasible measures of output, fixing corresponding finance outlay for achieving these physical outputs and monitoring and comparing the actual performance both in physical and financial terms.
The steps involved in Performance Budgeting are identification of functions, programmes and activities. In order to achieve the objectives of P.B. the demands for grants have been restructured to spell out the functions, activities and objects. Each demand has 3 sub¬divisions. .
H Sub Heads of Demands representing major functions.
ii) Detailed Heads, representing further break-up of the activity classification i.e. identifying 'Why' the expenditure is incurred
iii) Primary Units identifying 'what' the expenditure denotes, (objects of expenditure, i.e. salary, allowances, material etc
An example of concordance between the Sub-Heads of Demands for Grants and Main Heads of Accounting Classification is given below
STEPS IN BUDGET:
1. PREPARATION,
2. VOTING,
3. EXECUTION,
4.REVIEW
1&3 ARE EXECUTIVE FUNCTION
2&4 ARE PARLIAMENTARY FUNCTION
FEBRUARY
PRESENTATION OF BUDGET
DEMANDS FOR GRANTS REVENUE BUDGET – ADMINISTRATION, REPAIRS & MAINTENANCE OF RS, P&E, OPERATING ,FUEL
NEW MINOR WORKS
MARCH
Final modification
BUDGET GRANT – BUDGET ORDER, PROPORTIONATE BUDGET ALLOTMENT ,SPENDING LIMIT, CASH REQUIREMENT,CASH AUTHORIZATION – CASH BUDGETING , ROLE OF LIABILITY REGISTERS
WORKS, REVENUE ALLOCATION REGISTERS
DIFFERENCE BETWEEN TRADITIONAL AND ZBB
Traditional No ZBB
Function oriented 1 Project oriented
Justification for new works Only 2 All including on going to be justified
Critical view as cost increase 3 Existing level of expenditure
Input oriented 4 Output oriented
Dogged exercise in board meetings 5 Grass root activity
Bureaucratic exercise 6 Lay man oriented
No cost / profit centers 7 Profit/cost centers
ROLE OF PLAN HEADS:
For the purpose of link with the accounts of the Central Government the Plant heads will form the Minor Heads of Railway Capital under the Major Heads "546-Capital Outlay on Indian Railways-Commercial lines" and "546-Capital Outlay on Indian Railways-Strategic lines." The minor Heads classification are as follows:"
PLAN HEADS
11. New Lines (Construction). 42. Workshops including Production Units
12. Purchase of new lines. 51. Staff Quarters.
13. Restoration of dismantled lines. 52. Amenities for staff.
14. Gauge conversion.
53. (i) Passenger Amenities.
(ii) Other Railway User Amenities.
15. Doubling. 61. Investment in Government Commercial under Takings-Road services.
16. Traffic facilities-Yard remodeling and others. 62. Investment in Government Commercial under¬ taking-Public Undertaking
21. Rolling Stock. 64. Other specified works.
29 Road Safety work
30 Road Safety work
31. Track renewals. 71. Stores suspense
32. Bridge work. 72. Manufacturing suspense.
33. Signalling and Telecommunication works. 73. Miscellaneous Advances.
34. Taking over of line wires from P. & T. Dept. 81. Metropolitan Transport Projects.
35. Electrification projects.
36. Other Electrical works.
41. Machinery and Plant.
The sub and detailed heads give the break up of the expenditure on assets in its details such as Preliminary Expenses, Land, Formation, Permanent Way, Bridges, Stations and Buildings etc. In the classification given in the following pages the details of sub-heads and detailed heads which have been given for the minor heads 1100-new lines will be adopted for the other minor heads Depending upon the nature of the asset being created or replaced to the extent indicated against the respective head.
For example, when track renewals are undertaken the allocation of expenditure will be given as 3141 or 3142 for renewal of rails and fastenings or sleepers and fastening as the case may be. To these 4 digits will, however, be added the code for primary unit of expenditure viz., wages or materials etc. to complete the allocation e. g., 3141-04 will indicate the pay and allowances of departmental establishment engaged on renewals of rails and fastenings. The cost of Permanent Way materials etc. directly supplied for this work will be allocated to 3141-04 and so on.
If a work of construction of workshop alone is undertaken the workshop buildings will be represented by 4263 and the workshop equipment by 4274 (assuming the equipment is for Mechanical Department). The primary unit (or object) code will be added as the last 2 digits according to the object of expenditure.
8.1.1 ROLE OF PUS:
Primary units are object of expenditure. They indicate the object of expenditure like PU – 01 = Pay, 02= DA etc. The role of Pus is very important for budget preparation. Generally Pus 01 to 18 are known as Establishment Pus meaning that the expenditure on these Pus cannot be postponed. From PUs 19 to 99 and non establishment PUs
ZERO BASED BUDGET
DECISION UNITS
Decision units should be located where a particular activity /operation can have meaningful identification and evaluation. The identification of the decision units should be carried by the information requirement of higher-level managers. It should be ensured that the basic decision units selected are not of such a low level in the organization structure as to result in enormous paper work and review. On the other hand the decision unit should not be so high as to prevent easy access and discussion for a meaningful review of the work being performed
Decision units – on divisions, each dept may constitute a decision unit. In workshop and production units, the shops dealing with distinct activities like carriage repair, wagon repair, and electrical repair or planning cell etc may be decision units. It is left to the local administrators to have a further split up if necessary. In zonal railway head quarters officers each dept should be regarded as the decision unit. Other administrative offices like railway service commission, staff colleges, railway rates tribunal, RDSO, etc would each constitute a decision unit but may be sub-divided if necessary.
DECISION PACKAGE
A decision package is a budget request, which should contain the following:
a description of the function or activity of the decision unit
the goals and objectives of the various functions/ activities of the unit
benefits to be derived from financing the activity/ programme
Relevance of the activity/programme to the over all objectives of the organizations/dept in the present context.
consequent of its non-funding
the projected / estimated cost of the package
the yearly phasing of the proposed expenditure / project cost
Alternative ways of performing the same activity or achieving
Decision packages should ordinarily be prepared respect of every activity for which budget is prepared A decision package is a budget request, which should contain the following:
a description of the function or activity of the decision unit
the goals and objectives of the various functions/ activities of the unit
benefits to be derived from financing the activity/ programme
Relevance of the activity/programme to the over all objectives of the organizations/dept in the present context.
consequent of its non-funding
the projected / estimated cost of the package
the yearly phasing of the proposed expenditure / project cost
Alternative ways of performing the same activity or achieving in the existing classification. In the case of Plan schemes, each scheme costing over Rs Crore
At present, a budget figure is worked out for each subhead of demand in the revenue classification. In the ZBB sense, it is to be known as a decision package when taken together with certain information associated with the figure. Conventionally, the figure for a subhead would be built up for a whole division from past actual, the trend, and known factors for variation. In ZBB the attempt should be to work out the requirements in each Responsibility Centre performing the activity in question, and then consolidate for the division and for the railways as a whole.
The need for ranking in operation and maintenance activities arises from the fact hat different levels of funding can be contemplated for various activities like ballasting, maintenance of roads and buildings, special ticket checking, publicity, etc which admit of some discretion in the level of performance, and priorities have to be determined. It commences with each Responsibility centres, taking together all activities and the different levels that can be thought of and leads to priorities within the department at divisional level. Consolidation at this stage and against at the zonal headquarters stage should bring out priorities through ranking so as to adjust spending to the eventual allotment, covering areas of importance and ensuring maximum benefits.
ZBB identifies “dead wood” the wasteful expenditure areas –suggests alternative uses of items
Is technique which link the existing planning, budgeting and review process
Allowed for budget reduction or expansion or reallocation
Helps as a tool to the decision maker
Is to achieve cost benefit through cost effectiveness analysis
Give always priorities of objectives
Steps involved in ZBB
define objectives viz budgeting exercise to achieve reduction in staff over heads- analyse and drop down projects – restructure organization itself
strategy of implementation
developing decision units
completion of decision packages
ranking of all packages – new projects are always to given low priority
implementation – just to accept the projects that have cost benefit analysis
works above Rs 1 Crore – decision units
workshop carriage repair activity -
The End
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