Chanakya IAS Academy Blog

The article discuss about the history of separate rail budget and suggestions to improve its financial health.

  • A panel headed by Bibek Debroy, a member of Niti Aayog, has suggested that the practice of a separate railway budget be discarded. This remedy is worse than the disease.
  • The step is expected to help depoliticise the Railways.
  • It is argued that it would help the government to take decisions without losing track of commercial viability.
  • But there are other issues to tackle as well:
    • The unions, entrenched in a corrupt relationship with bureaucrats, will never allow reducing the staff cost from the current 53 per cent of the revenue to at least 40 per cent when 10 to 20 per cent is the norm and commercial viability threshold in railways elsewhere.
    • The bureaucracy, which has made Railways their own fief with absolute freedom from accountability, will not allow any change in status quo.
    • In fact, they would try to expand the fief solely to serve their interests.
    • As the Debroy report reveals, when nine zones became 17, efficiency only decreased.
  • Suggestions to improve financial health of Railways:
    • Allowing various zones to work as corporations might help improving efficiency.
    • Let manufacturing units compete with private players.
    • Let the zones follow standard commercial accounting practices and lure investments.
  • Merging Rail budget with Union budget:
    • There is nothing to show that customer service would improve if the Railways became a part of the government.
    • If the budgets are merged, the Railways would move even further into the government, instead of moving further away from the government.
    • Several committees, from Sarin (1985) to Debroy (2015) have recommended accounting reforms to enable easy understand of the true financial state of the organisation.
    • The railway board needs to be overhauled and experts must replace employees as members.
    • But, this merger of budgets can be done only at the cost of transparency and accountability.
    • Only one out of 99 new lines sanctioned in the last 10 years has been completed. This kind of shocking revelation is unlikely to be made about the Railways in the general budget.
    • The Indian Railways carries 822 crore passengers in a year (2014-15). The annual revenue of the Railways is projected to be Rs 1, 84, 820 crore. Few state have such large budgets. The organisation, clearly, needs special attention.
  • Why it was separated:
    • The Acworth Committee in 1921 wanted the railways to be run as a commercial organisation on sound business principles.
    • Then, it would meet its needs from its own income, from outside the general revenues of the country.
    • Three other committees endorsed the intent.
    • Japan separated its railway budget from the central budget in 1919. A legislative assembly committee on September 20, 1924, passed a resolution separating the railway budget from the general budget.
    • The government accepted it and the convention of 1924 came into force.
    • It recognised the Railways as being free to look after their own affairs and to function on “sound business principle” as a commercial undertaking, besides being a public utility.

Question:Merging the Railway budgets and making it a mere department of the government would take us back by a century to pre-1924 days. In the light of this statement, critically analyse the practice of separate budgeting of Railways and Union budget.

Suggested Approach:

  1. A brief history of starting of this practice.
  2. The benefits of separate budgeting.
  3. The financial problems of railways and how combined budget can help.
  4. Your opinion, whether there should be separate budget or not.


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