Railways minister Suresh Prabhu has requested Union finance minister Arun Jaitley for a financial assistance of about Rs 32,000 crore to absorb impact of 7th Pay Commission recommendations. "I would therefore earnestly request you to help the ministry of Railways and hand-hold it for implementation of 7th CPC recommendations," Prabhu said in a letter addressed recently to Jaitley. "This may be done either through compensation of loss for coaching services (Rs 31,727 crore in 2013-14) or directly by virtue of a revenue grant matching the amount of the 7th CPC's liability placed upon the Railways for the next three to four years."

Prabhu cited the prevailing financial position of the Railways, efforts at cost-cutting and possible gradual adjustment of fares and other nontariff revenue measures to absorb the impact while requesting the exchequer's help for implementation of the Commission recommendations.

Prabhu hoped that in three to four years, the Railways would be able to absorb the impact from its resources through gradual adjustment of fares and other non-tariff revenue measures. However, he has expressed reservation about increasing the freight rate in the given scenario contending that it would have a deleterious impact on the economy.

In order to maintain these expenses at the current proportion-at 51.5 per cent of the gross receipts-Railways' revenues will need to grow substantially by 40 per cent in 2016-17, which is well nigh impossible given the fact that till October 2015 growth was only 8.4 per cent, Prabhu added.

"The first factor of freight earnings originating loading is demand driven and is largely not within the control of the Railways. The second factor that is freight rates, though is within Railways' competence, there is hardly any headroom available for increasing the same without affecting the Railways' competitiveness adversely." He said, "Moreover, exercising this option will have a deleterious impact on the national economy as well as on critical sectors such as coal, cement, food grains."

According to the Pay Commission report, the annual financial impact on the Railways will be approximately Rs 28,450 crore in addition to the normal growth which will require to be built into the Railway Budget, 2016-17. "Our initial assessment, however, is that this additional impact would be around Rs 30,031 crore over and above the normal assessed growth of Rs 10,816 crore," the minister further wrote.

Prabhu has pointed out that the Railways bear 35.6 per cent of the total pay and allowances of the government, which is more than one-third of the Pay Commission's burden for serving staff would be borne by the Railways. Further, nearly 28 per cent of the pension impact of the Central government would be on the Railways, the letter, sent last week, said.

"Currently, pay and allowances and pension account for 51.5 per cent of the gross receipts of the Railways. With the financial impact of the 7th CPC, this will increase to 68 per cent of the gross receipts in 2016-17 at present level of growth."

Prabhu also mentioned the details about the cost-cutting measures in the Railways. "While we have put in place serious cost-cutting measures and are focussing on fuel management and lowering of staff intake, more than 2.3rd of the railway expenditure is inelastic-staff cost, pension, lease charges, maintenance of fixed assets." The minister has sent a detailed note along with the letter on the Railways financial position vis-avis impact of 7th CPC's recommendation.

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