Understanding the rationale behind rail, general budgets’ merger
Ending a 92-year-old tradition, the Union Cabinet on Wednesday decided to merge the Railway budget with the General budget and agreed in principle to advance the date of its presentation in Parliament.
Why is the Rail budget presented separately in the first place?
Railway historians say that it was during the British rule — in the early 1920s — that on the basis of the report of the Acworth Committee, railway finances (those of government-owned railway companies) were separated from the general finances.
The first Railway budget, under the system, can be traced to 1924.
Why change now?
The move to discard the Rail budget is said to be part of the Modi government’s reform agenda. The NITI Aayog had suggested this merger as the Railway budget was being used to dole out favors by way of new trains and projects.
This merger is also a part of the government advancing the budgetary exercise so as to complete it before March 31 and facilitate the beginning of expenditure on public-funded schemes from April 1.
How is it beneficial?
The merger will help the Railways get rid of the annual dividend it has to pay for gross budgetary support from the government every year. Sources say that the merger will help the cash-strapped Railways save about Rs 10,000 crore annually.
Railway Minister Suresh Prabhu said the merger of rail and general budgets will not impact the functional autonomy of the railways but help in enhancing capital expenditure. It would help the Railways raise extra capital expenditure that would allow them to enhance connectivity in the country and boost economic growth.
How does an early budget help?
An early presentation of budget will ensure that all legislative works are completed before the beginning of the new fiscal, from April, and help in funds allocated to various ministries flowing in from the first quarter.
Sources said the government planned to convene the Budget Session of Parliament before January 25, 2017, present the pre-Budget Economic Survey a day or two before the Finance Minister reads out the budget on February 1.
The advance estimates for the GDP will now be made on January 7, instead of February 7, and mid-year review of expenditure by various ministries is proposed to be completed by November 15.
The idea is to get the budget passed by Parliament, along with the Appropriation Bill and the Finance Bill, before March 24, so as to ensure the implementation of the budget proposals from April 1.
Pros and Cons
Some facts first
After 1924, the Railway Budget was separated from Main Budget and the Railway budget was 84% of Main Budget.
But now Railway Budget is about 4% of Union Budget.
As per Bibek Debroy- The Smart Investor
“There is no need for separate railway budget. We have said it very categorically in the committee report. There are five reasons why railways budget is not necessary,” Debroy said.
Elaborating it, he said, “The origin of this goes back to the Acworth Committee report in 1924. The report was triggered by the question whether East Indian Railway Company should be granted an extension of its lease. Only recommendation of separate railway budget was implemented.”
He further said, “All those countries that Acworth Committee mentioned no longer have separate railway budget. The second reason is that there is no constitutional or legal requirement for separate railway budget. Union Budget is a constitutional requirement. If one is expecting the railways to function according to commercial principles then decisions should be left to railway board. The decision cannot and should not be left to Parliament.”
The economist explained, “The railway budget is an avenue for populism with MPs demanding new trains and stops for existing ones. These decisions should be taken by railway board on a commercial basis. A lot of resources are wasted in the process of preparing it. A very complicated relationship between Finance Ministry and Railways has evolved. We should simplify it,” he added.
Hope it answers, why it needs to be merged?
There seem to be no cons of this as of now, but when it is actually merged we will know. Railways will work fine whether this way or that way. Issues affecting Railways are beyond the budgets.