Indian Railway Budget Preparation

Damodara Prasad KSr.AFA (retd.)09491043283

Budget - Overview

• Constitutional Prescription• Prescribes Targets• Helps as Co-ordinating mechanism• Helps as Management Tool for control• Helps to evaluate performance• Helps to identify the areas of concern• Helps plan for the future

The Railway Budget• an instrument of Parliamentary Financial

Control • an important management tool. • Parliamentary Financial Control is secured – by obtaining Parliament's prior approval for all

'voted' expenditure – system of reporting back to it, through the Public

Accounts Committee, the actual expenditure incurred against the Grants voted by Parliament and Appropriations sanctioned by the President.

The Accounts Department is mainly responsible for (Para 101 Accounts Code Vol.I )

• Keeping the accounts of the railway in accordance with the prescribed rules:

• Compilation of budgets in consultation with other departments and monitoring the budgetary control procedures as may be laid down in the relevant orders and Code rules from time to time ;

• Generally discharging other management accounting functions such as providing financial data for management reporting;

• Seeing that there are no financial irregularities in the transactions of the railway.

4

Parliamentary Financial Control Mechanism

• Budget: Railway Budget is an instrument of Parliamentary Financial Control, which is secured not only by the fact that all ‘voted’ expenditure must receive Parliament’s prior approval, but also by the system of reporting back to it, through the Public Accounts Committee, the actual expenditure incurred against the Grants voted by Parliament and Appropriations sanctioned by the President.

• Supplementary Budget: Parliament by way of passing Railway Budget fix the financial limit before the Railway within which Railways are empowered to incur expenditure. Additional fund, required if any, during a financial year also requires clearance from the Parliament through passing of the Supplementary Budget.

• Appropriation Accounts: After closure of Annual Accounts of Railways, Appropriation Accounts are prepared showing actual expenditure incurred on various activities of Railways vis-a-vis allotments as approved by the Parliament through Railway Budget for ensuring that the money shown in the accounts as having been disbursed were legally available for and applicable to the service/purpose to which they have been applied /charged. Appropriation accounts are examined by a Parliamentary Committee ( the Public Accounts Committee).

• Parliamentary Committees: Besides the above, the Parliament also exercises its

control through various Parliamentary Committees like the Railway Convention Committee ( which suggests the whole working mode and methods of capital investment, rate of dividend etc.), the Estimates Committee , so on.

ExpenditureRevenue Expenditure

Expenditure the benefit of which is within the Financial Year

Works ExpenditureExpenditure the benefit of which

lasts for many years and may result in

increase in earnings and/or reduce expenditure for many years

STRUCTURE OF RAILWAY BUDGET-1

Actuals of LY

Revised Estimates of CY

Railway Budget

February Budget Estimates of EY

Abstract X Pass, OC Demand No.1 Railway BoardAbstract Y GOODS Demand No.2 Misc estt under Rly boardAbstract Z SUNDRY Demand No.3 Genl Superintendance and Services

Demand No.4 Repairs and Maint of P. Way and WorksDemand No.5 Repairs and Maint of Motive PowerDemand No.6 Repairs and Maint of Carr and WagonDemand No.7 Repairs and maint of Plant and EquipmentDemand No.8 Optg Exp Rolling Stock and EquipDemand No.9 Operating exp - TrafficDemand No.10 Operating Expenses - FuelDemand No.11 Staff Welfare and amenitiesDemand No.12 Misc. Working ExpensesDemand No.13 PF Pension Retirement benefitsDemand No.14 - Appn to RLY FUNDSDemand No.15 Payments to Genl Revenues

Demand No.14 (RLY FUNDS) PH 11 NEWLINES PH 32 BRIDGESLOANS CAPITAL FROM GOI PH 14 GC PH 33 S&TMARKET BORROWING PH 15 DOUBLING PH 36 O Eele WksPPP PH 16 TFC FAC PH 41 M&PlantMB (IF) PH 17 COMPU PH 42 Workshops

PH 21 Rlg Stk PH 51 SquartersPH 22 LEASE PH 52 SamentiesPH 29 LC gates PH 53 PamentiesPH30 ROB RUB PH 64 OtherSpWkPH31 T Renewals ETC

STRUCTURE OF RAILWAY BUDGET-2REVENUE BUDGET

EARNINGS/RECEIPTS EXPENDITURE

WORKS BUDGET

Spending Units

• Smallest Unit which is a Cost Centre, accountable for execution of specific activities prescribed in the Budget.

• Expected to regulate commitments as per provisions in the Budget to achieve the targets set in the Budget.

• Required to monitor the actual expenditure as per Budget Proportions.

Liabilities Register

• Records the liabilities committed Primary Unit Wise.

• Helps monitor assess the undischarged liabilities at any point of time.

• Helps early submission of Budgetary Reviews.• Helps check the correctness of computer

generated FMIS statements received from IT Centre.

Demand/Dept Genl Accts Persl Stores Engg Mech Elect S&T Optg Comml Claims Catering Medical Security3-A4-B5-C6-D7-E8-F9-G10-H11-J12-K13-L

S P E N D I N G U N I T STABLE SHOWING REVENUE EXPENDITURE DEMANDS AND THE SPENDING UNITS/DEPARTMENTS OPERATING THE DEMANDS

NODAL OFFICER FOR D#16S.No. Plan Head PHOD Concerned

1. New Lines, Doublings and Traffic facilities COM

2. Passenger Amenity CCM

3. Track renewals, Bridge works and OSW PCE

4. Road Safety works- ROB/RUB CBE

5. Computerisation FA&CAO

6. Signal & Telecom works CSTE

7. Workshops CME/ CWE

Demand No.16 Sources of Finance

• Capital (Loan - Dividend Payable) - Remunerative Works

• Capital Fund (1.4.93) – IRFC payments

• DRF - Replacements

• DF – Safety and Un-remunerative Works

• SF- (Contribution from Central Road Fund)

• Market Borrowings

Plan Heads and Sources of FinancePlan Head Cap C F DRF DF SF

11 Newlines

14 Gauge Conversion

15 Doubling

16 Traffic facilities

17 Computerization

21 Rolling Stock

22 Lease Assets Cap comp.

29 RSW LC GATES

30 RSW ROB RUB

31 Track Renewals

32 Bridge Works

33 S&T Works

35 Electrification

36 Other Electrical Works

41 M&P

42 Workshops

51 Staff Quarters

52 Amenities for Staff

53 Passenger Amenities

64 Other Specified Works

Cap Susp. PH 71,72 and 73

RE/BE

• Special features and gist of variations between BG-RE & RE-BE for each demand be given.

• RE should be based on the actuals of 1st 6m +approx. for 7th m. Savings achieved to end of Oct. be sustained.

• Post budgetary increases and unforeseen exp. be met within the BG.

• Credits/Recoveries be estimated with utmost care.

RE/BE

• Variations under each MH be explained by taking all PUs together; and by PUs for demand as a whole.

• Projections be made under new PUs like PU 41; 42,43,44 (dues arising for the current year should not be treated as arrear);52; 45; 46-48 (37-deleted);

• Reflect PU 25 only in D.11 120; PU 08 only in D.13 890; PU 20 in D.03-12;

SUMMARY of OWE

• a summary of the ordinary working expenses comparing, under each demand,

• the actuals during each of the preceding three years, with the budget grant and revised estimates for the current year and budget estimates for the following year.

• The figures of actuals should agree with those appearing in the final accounts intimated to the Railway Board and the differences, if any, should be suitably explained in the remarks column.

RE/BE• Annexure R-3: Staff statements for all demands

(03-12)under each MH for Act, BG, RE and BE. Act should tally with 40-I of Annual Staff Stat. BG should tally with figs. in Demands Book Pt-II.

• Variation in staff strength be explained wrt creations/surrenders/filling up of vacancies.

• Annexure R-4: Performance Units of Exp in D.04-12 as in Demands Book Pt-II. Data should be reconciled with the data of S&AO.

• Annexure R-5 & 6: Traction-wise correlation and rates of Fuel.

RE D.16• Credits likely to be generated in RE should be

estimated.• Due regard be given to the upto-date progress of exp

and commitments likely to materialise.• Projections shall be given for new PH 3700 Tr.D works

by segregating works between 3600 & 3700.• PH 13 Restoration of dismantled lines, deleted.• PU-12 CD deleted, 46-48 introduced.• Source OLWR deleted.• RE should also cater for the Zonal Rly. works executed

by RVNL.• Key questions regarding EBRs to be considered are

1.Financing issues 2. Expenditure decisions 3. Management issues.

RE D.16• RE projections under inventories be realistic. Actuals

shall match with the figs. in the schedules sent to Board.• Internal and mutual co-relation be maintained in case of

Stores Suspense and WMS. • Annexure W-6: Details of WBA• Annexure W-7: Details of debits raised/accepted- this

should be reconciled with the concerned railway to avoid duplication.

• Annexure W-14: Staff strength and exp- should indicate staff in CN org.

• Reasons for projection, where no original grant exists be given.

EARNINGS RE/BE

• Trend of traffic performance in 1st 7 months be considered.

• Adverse impacts of earlier part of the year should not be projected mechanically for the whole year. Reasons for variation in projections from the trend be clearly mentioned.

• Anticipated traffic out-put i.e., originating traffic, lead, rate be assessed correctly for each class/commodity-wise data for passenger and freight traffic.

EARNINGS RE/BE• Other Coaching : break up of earnings from parcel,

military, postal and other traffic be furnished.• Anticipated Traffic Plan shall be generated.• Monthly originating earnings from pass, goods and

other coaching traffic be furnished - Ann E1: Traffic plan Pass; Ann E2: Traffic plan Goods; Ann E3: monthly details of originating apportioned earnings; Ann E4: monthly details of safety surcharge.

• Detailed traffic projection with supporting estimate of earnings shall be furnished.

CIVIL ESTIMATES• Requirement of funds for Loans and Advances• Projection for appropriations under I. Tax;

Interest on Debt and other obligations ; Abstract F-Loans and Advances, Abstract- I Small savings; Abstract- J Reserve Funds; Abstract- K Deposits and Advances; Abstract- L Suspense Misc.; and Abstract- M Remittances for current fiscal and next year shall be furnished.

• Interest on PF be assessed realistically considering OB, Actual/anticipated transactions during the fiscal.

IMPORTANT DATES RE/BE

Estimate of Earnings - 20th DecemberRevenue Demands 2 to 15 - 1 st DecemberCivil Estimates - 15th DecemberWorks Demand 16 - 23rd December

Revenue budget - 2016-2017Budget estimate- Nov./ Dec. 2015Budget presentation- Feb.’2016Budget orders- Apr.’2016August review- Aug.’2016RE 15-16/ BE 16-17 Nov./Dec.2016Revised Grant- Feb.’2017Final Modification- Mar.’2017Cash book close- 31.03.2017Closure of Mar. Accounts- Jun.’2017Appropriation Accounts- Aug./ Sep.’2017

1G.Traffic Receipts2Misc.Receipts3Total Receipts4NET OW Expenses5APPN PN6APPN DRF7Total WE(4+5+6)8Misc. Expenditure9Total Expenses

10Net Revenue (3-9)

11Dividend12Excess/Shortfall13APPN DF14APPN CF15APPN DSF16OR(%)17NR/CaCh (%)

Railway Budget 2016-17 - Earnings

Description Target 2016-17 Rs. in Cr

SCR

Abstract X – Passenger Earnings, Other Coaching Earnings

510126185

4747576

Abstract Y – Goods Earnings 117933 11212

Abstract Z - Sundry Earnings

9590 560

TOTAL 184720 17095

Suspense (Station O/s, AOB, Cash in Transit, Dem. Recoverable)

100 2

Gross Traffic Receipts 184820 17097

Railway Budget 2016-17 - Expenditure

Description Budget Grant 2016-17

Rs. In Cr

SCR

Net Ordinary Working Expenses 123560 10505

Appropriation to Pension Fund 42500 2996

Appropriation to DRF 3200 193

Total Working Expenses 169260 13694

Operating Ratio target for 2016-17IR: 92.0%SCR: 79.9%

Defects in Budgeting

• Excess projection of funds in Budget Reviews without taking into consideration various factors influencing the requirement of funds.

• Rectification of mistakes, clearance of suspense balances not considered.

• Non-surrender of funds.

30

Steps to prevent Defects in Budgeting

• Maintain proper record of liabilities for the year for each commitment made.

• Project requirement of funds in Budget Reviews as per liabilities register.

• Surrender funds in Budget Reviews, if the liabilities are not likely to materialize.

31

Railways should ensure that the data on which forecast is based, is adequate and reliable and also that the conclusions arrived at from the data is sustainable by past experience and future expectations of likely events. Extra money asked for but not utilised gives rise to Audit to pint out cases under defects in budgeting.

Steps to prevent Defects in Budgeting

Budget Proportion

• Prescribed for all the 12 months for revenue demands.

• Helps monitor month-wise progress of expenditure with reference to monthly targets.

• Used as a control Mechanism.

Financial Management Information System (FMIS) Reports

to Spending Units• Expenditure for the month and to end of the month

Demand-wise, SH-wise (activity-wise), PU-Wise.• Facilitates reconcilation n accountal of expenditure

of the Spending Unit as per the incidence of expenditure certified by the Spending Unit.

• To advise the incorrect expenditure if any booked to the Associate Accounts for clarification/rectification.

Requirement of Large Provisions, Surrender of Substantial Savings

• To be included in August Review Estimates, Revised Estimates and Final Modification Estimates.

Steps to prevent mis-classifications of expenditure

Thorough Review of FMIS Reports• Account Current - By Accounts Department –

Books and Budget Sections• Control Over Expenditure Statements by

Departments • Prompt rectification of mistakes by both

Executive and Accounts departments

36

Rectification of Mistakes• Review of Actual Expenditure with reference to

Grant allotted to be done every month.• Audit Objections, if any, on incorrect allocations

are to be rectified at the earliest, to know the actual expenditure against each source/plan head for proper projection of requirement of funds in Budget Reviews.

• Clearance of MAC for Supply of Stores to be done regularly for proper review of Expenditure.

• To be done as per Para 922 of Financial Code Volume I

38