New Delhi: The Modi government may not be succeeding in its promises to turn around the financial and operational performance of the Indian Railways. What’s worse, opaque accounting practices could be being used to hide the national transporter’s financial woes to present a rosier picture.

The railways reported an operating ratio of 96.50% for the fiscal year 2016-17. However, the Comptroller and Auditor General (CAG), in a recent audit report, has contested the figure, saying the actual operating ratio would be much worse at over 99% if pension expenses were not under-reported by Rs 5,025 crore.

“Taking into account the actual amount of Rs 40,025.95 crore required to be appropriated to the pension fund instead of Rs 35,000 crore, the working expenses of Indian railways would have increased by Rs 5,025.95 crore to Rs 1, 64,537.93 crore instead of Rs 1,59,511.9816 crore. Hence, Operating Ratio would have been at 99.54% instead of 96.50% (as shown by the railways). Thus, the operating ratio of 96.50% does not reflect the true financial performance of the railways,” observed the CAG in its audit report on railway’s performance during 2016-17.

Operating ratio is a metric used to examine operational efficiency and measures expenses as a proportion of revenue.

During April-December 2017, the national transporter had an even worse operating ratio of 109%, which meant it spent Rs 109 to generate Rs 100, reflecting the intense competition it faces in both freight and passenger traffic segments.

For the first time in 93 years, the railway budget was presented as part of the Union budget last year. But surprisingly, finance minister Arun Jaitley did not mention railway’s operating ratio in his budget speech.

Pension liabilities reach unmanageable levels

Railway’s internal revenue grew by compounded annual growth rate (CAGR) of over 10% during 2012-16 but declined by 1.78% in 2016-17. The gross budgetary support to the railway reduced by 1.45% in 2016-17 against the CAGR growth of 13.20% during 2012-16.

Even as the national transporter is constantly losing its market share in freight and passenger traffic to road and airlines, its staff costs remain unmanageably high, complicating its financial challenges.

The Committee on Restructuring Railways had observed in 2015 that the national transporter’s expenditure on staff is extremely high and unmanageable. This expense is not under the railways’ control and keeps increasing with each Pay Commission revision.

It has also been observed by the panel that employee costs including pensions are one of the key components that reduce railways’ ability to generate a surplus and allocate resources for operations.

Passenger safety getting the short shrift

Notwithstanding tall claims by the NDA government, passenger safety is getting the short shrift under the NDA government. The railway’s safety fund has constantly reduced in recent years – from Rs 7,775 crore in 2014-15 to Rs 5,000 crore in 2017-18 and further down to Rs 500 crore in 2018-19.

Analysts said that allocation of Rs 500 crore towards depreciation is a very small amount considering the scale of Indian railway’s huge infrastructure and the urgency to replace old assets to ensure safety.

The Standing Committee on Railways had in 2015 observed that appropriation to the DRF is the residual amount after appropriation to the pension fund and not the actual requirement for maintenance of assets.

Experts said inadequate fund availability has been a key reason behind the slow pace of track renewals and unsatisfactory availability of wagons and coaches.

The Rashtriya Rail Sanraksha Kosh was created in the 2017-18 Budget to provide for passenger safety. It was supposed to have a corpus of Rs 1 lakh crore over a period of five years (Rs 20,000 crore per year).

The Central government was supposed to provide a seed amount of Rs 1,000 crore, and the balance was to be raised by the national transporter from its own revenues or other sources.

However, as per the revised estimates of 2017-18, no money has been allocated towards this fund. In 2018-19, Rs 5,000 crore has been allocated for it. But with the railway struggling to meet its expenditure amid declining internal revenues, it is unclear how it will raise the balance Rs 95,000 crore for the Kosh.

“Non-availability of sufficient funds in Depreciation Reserve Fund to replace the over-aged assets is indicative of the weak financial health of Indian railways. The huge backlog of renewal and replacement of over-aged assets in railway system needs to be addressed for safe running of trains,” the CAG observed in its recent audit report.

Dividend payment waived but windfall being wasted

Earlier, the railway used to pay a dividend to the Central government on the budgetary support that it received from the latter. But it has been exempted from paying a dividend from 2016-17. It had paid as much as Rs 8,722 crore in a dividend to the Central government in 2015-16.

It is a kind of windfall gain for the national transporter.

The idea that led to the waiver of dividend payment was that the railway would use the saved money to create new assets. However, it turns out that the money is being used to partially compensate for losses suffered by the railways on transportation of passenger traffic.

The Standing Committee on Railways too has flagged its concern over this trend.

Non-transparent accounting policies

While as a commercial entity the railway prepares its balance sheet and profit and loss account, it does not disclose its accounting policies. Details on capital works-in-progress, depreciated value of assets, investments in property and plant and machinery are either missing or cannot be recognised easily from its financial statements, said the national auditor in a report on the Indian railways’ performance in 2016-17.

The CAG, in its audit, also identified misclassification of expenditure from one revenue grant to another and also from revenue to capital grant and vice-versa.

That creates scope for potential financial jugglery.

Significantly, the Public Accounts Committee too has repeatedly expressed serious concerns over a large number of misclassifications in the railway’s accounts despite the latter’s assurances of remedial measures to ensure such errors are not repeated.