Union Budget: Merging the General & Railway Budget will save exchequer from unnecessary spending

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Union Budget: Merging the General & Railway Budget will save exchequer from unnecessary spending

Government of India has merged the presentation of General Budget and Railway Budget in Parliament from the financial year 2017-18. The Railway Budget will no more be presented separately The decision has become a hot WAT topic in the GD/PI/WAT round of IIMs and other top B-schools.

 

Not only this, the Government of India has also advanced the presentation date of the Union Budget by a month from February to January with an objective to get all allocations at different tiers disseminated to budget-holders, before the financial year begins on April 1.

After the decision, Union Budget 2017-18 was the first Budget presented on February 1, 2017 instead of February 28. The decision became a subject of national debate with many politicians, economic experts and fiscal policy experts weighing pros & cons on the topic.

 

The second in the row was the Union Budget 2018-19, merged with Railway Budget, which was presented on February 1, 2018. IIMs and other top B-schools included this topic in their final selection round.

 

Key facts

Till 1924, the Railway Budget was a part of Union General Budget. It was separated from Main Budget afterwards as it constituted 84% part of the General Budget and a need was felt to present it separately. But now Railway Budget is less than 15% of the Union General Budget.

 

Based on the recommendation of Acworth Committee report in 1924, presentation of separate railway budget was implemented. The committee cited number of countries where separate railway budget was presented. However, now none of them separately presents the Railway Budget.

 

Railways Minister Suresh Prabhu wrote a letter to Finance Minister Arun Jaitley to merge the Railway and General Budgets together.

 

After raising this issue in the Rajya Sabha, the Finance Ministry constituted a 5 member committee to look into the matter and submit report by August 31, 2016. The recommendation that presentation of Railway and Union Budget could be merged was accepted. 

 

The separate Railway Budget has now ceased to exist after 92 years of its continuity with effect from financial year 2017-18 and is merged with Union General Budget.

Positive implications of merger

Resulting from this merger of budgets, the positive implications are:

  • By presenting the separate budget, Railways had to pay annual dividend for the budgetary support it received from the government. Now there will be no such burden on Railways. 
  • Lot of resources used to be wasted in the process of preparing the separate Railway Budget which is not required. Simplification of the complicated relationship between Finance Ministry and Railways is required.
  • Indian Railways is suffering from huge revenue deficit. This merger will ease the burden as the deficit will be transferred to the Union Ministry of Finance.
  • Now the Railways will be able to concentrate on revenues and revenue generation mechanisms
  • There is no constitutional or legal requirement for separate railway budget. Union Budget is a constitutional requirement. As such there is no need to present the Railway Budget separately
  • Railways should function with a commercial objective. Therefore the decisions should be left to railway board. The decision cannot and should not be left to Parliament.
  • So far Railway budget has remained an avenue for populism. MPs demanded new trains and stops for existing ones. These decisions are supposed to be taken by railway board on a commercial basis.
  • Merging the Rail Budget into the General Budget will result in a seamless transportation policy. During the British Raj, Railway Budget made up for 85 percent of the country’s general budget. Now, it accounts for only 15 percent. 
  • The merger will keep the Rail Budget free of political pressures. It used to be a bargaining chip by major political parties to enlist smaller parties into a coalition. 
  • Railways will now enjoy more functional autonomy without bothering about budgetary constraints.
  • Now Railways does not have to reel under an additional burden of Rs 40,000 crore from higher salaries following implementation of the 7th Pay Commission.
  • With Railways becoming a part of the overall Budget, the capital expenditure, revenue deficit can be taken care of by the centre.
  • There have been mismanagement in Indian railways and if there are chances of seeing it improve, merging it with the Union budget is just the solution that could help

Experts’ concerns

Experts have also aired their concerns on merging the Railway and Union Budget presentation as they find certain areas which need to be addressed.

  • All railways related expenditures will also become part of the Union budget. A fall in revenue or gross receipts in the general budget will mean that the finance ministry will be carrying out similar cuts in expenditure allocated to railways, also.
  • The Railways may become just another government department losing its commercial culture. In the process, it could lose its commercial character. 
  • The Finance Ministry, to earn populism may not raise passenger fares. It in turn won't bring in money for the railways and hurt modernisation plans. Without fare hike, salaries, fuel and equipment costs will also suffer.
  • Railways is the most used mode of freight transport. Government's infrastructure expansion plans also rely a lot on railways, the merger can actually cover cracks in the rail department.
  • The privatisation attempts in Railways may get affected adversely as after the merger, efforts to bring in more investments from outside will suffer a blow.

Yet again, it has been pointed out that there will be less wastage of time when a new policy is initiated and implemented. Keeping both the budgets separate resulted in a lot of drawbacks and hindrances that had to be faced by the railway ministry before it could decide upon a solution.

The two years of presentation of Budget shows that the move has saved the exchequer from spending a good amount of money in preparation, presentation and calculation of railway budget items. The allocation has now become smooth.

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