CAPITAL BUDGETING IN INDIAN RAILWAYS

CAPITAL BUDGETING IN INDIAN RAILWAYS

Railways are not only operating widest and biggest surface transport in the country, it also an infrastructure company fulfilling the national objective of developing under developed regions and link them with the transport net work. While the road transport is an advantageous position as the infrastructure of roads, bridges, tunnels etc are laid by the national / state high way authorities. Further, the maintenance work of the transport net work is also done by the same agencies. However, the railways are put to severe hardship by executing infrastructure projects, repair and maintain the ever expanding network and still run the mammoth transport at affordable cost with no loss. Strange but true, the IR is the only railways in the world which does not receive any subsidy and yet maintain the financial viability of the system.

ROLE OF PLAN HEADS:

For creation of infrastructure assets for the conduct of rail transportation the IR needs massive investment from the GOI or the public or the private sector. From the times of the Mahla Nobis-Tata Plan 1945, the private sector is reluctant to invest in the railways the main reason being the long gestation period (locking up of capital for 20 to 25 years) and the poor returns as the tariffs and rates are fixed by the Parliament irrespective of the actual cost of service. Further, the public have started to invest in the development banks like ICICI[1], IFCI[2], IDBI[3] from the 1970s and later with Unit Trust of India as the small investors could not cope with the vagaries of the volatile stock market of India. Hence, out of three sources two sources are ruled out for investment in the railways. Therefore, the GOI is called upon to fulfill its historical responsibility of creating and sustaining the railway net work as in the people’s republic of china. The countries is yet to realize the importance and necessity to invest huge money in the rail network which alone is environmental friendly, less fossil oil consuming, and affordable transport system.  

In the words of P.C.Tandon “This universe of a State Public System, with a historical continuity and tradition now enters it’s their century of active life the 19th 20th and the 21st but with a challenge.  As it faces year 2000 it has on its own initiative and tradition decided to take a close look at its own system and without the interference of customers the Public, the State and abroad to evolve new structure, system and management ethos that will give a good fit with the emerging social and economic imperatives and thus fulfill its natural task of a service performed efficiently economically and viable financially[4] said a decade ago.

RAILWAYS BETTER CHOICE THAN ROADWAYS: There is a growing realization all over the world and especially in the Americas and the Continent that the roads money be better spent on the rails.  P.C. Tandon has recorded some of the sentiments of the British, American, Dutch, German, Swedish and Italian people in his report.[5]  However, the present Indian govt. is bent upon spending a colossal sum of Rs. 36,000 Crores on the development of roads which would further damage the fragile environment, deplete the fast consumed fossil oil, and choke the road traffic.  Therefore, a plea must be made to the Govt. of India that the decision maybe reviewed in favour of the railways, which need capital support at this crucial juncture where the demand on the railways due to liberalization has increased to manifold.

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 classifications 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.

Therefore, the capital projects in the railways are divided in to three major heads

1.       Preliminary and Final Works Programme: For all Civil Engineering Plan Head Works (Form E. 618 Indian Railway Engineering Code

2.       Rolling Stock Programme: For Rolling Stock Plan Head Works(1501.W Indian Railway Mechanical Code)

3.       Machinery and Plant Programme: For Machinery and Plant including equipments at Railway Hospitals

Sources for creation of assets:

        

ALPHA	NUMERIC	SUBJECT
P	20	CAPITAL external
Q	21	Depreciation Reserve Fund- internal
R	22	Open Line Works – Revenue internal
S	23 33 43 53	internal Development Fund I     (Passenger Amenities) Development Fund II    (Labour Welfare works) Development Fund III   (Un remunerative works) Development Fund  IV   (Safety works)
T	26	Railway Safety Fund
U	27	Special Railway Safety Fund

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[1] Industrial Credit And Investment Corporation Of India

[2] Industrial Finance Corporation  Of India

[3] Industrial Development Bank Of India

[4] Prakash Tandon, Report Of The Committee To Study The Organizational Structure And The    Management Ethos In The Indian Railways,  New Delhi, March 1994, p. 3

[5] Prakash C.Tandon ibid