Chanakya IAS Academy Blog


The article explains the problems faced by the Railways over the years and rationale behind merging railway budget with Union budget.

  • The railway ministry has completed its paper work and has asked the finance ministry to provide permission for merger of rail budget with Union budget. Once done, it would be a game- changer and a 92-year-old tradition will come to an end.
  • For the last two decades at least, railways’ deteriorating financial condition has been discussed on variou forums.
  • The remedy to overcome this was neither easy nor quick. In most cases, such conditions were the railways’ own creation.
  • But the current Railway minister got convinced that unless some bold steps to control, curb and restrain the power balance at the top, especially at the ministerial-level, were taken, no fruitful results would be achieved.
  • He has demonstrated that by not introducing unplanned, unsanctioned and uneconomic projects to the railways. He has kept himself away from the image of a minister making populist propaganda and senseless bounty distribution on the day of the Budget submission.
  • The next step is to scrap the practice of a separate railway Budget and Suresh Prabhu is all set to bring about this change and reform.

Past utility of separate budget:

  • When it was introduced in 1924 on the recommendation of the Acworth Committee, conditions were different. Railways then used to generate most of the GDP and any change in the exchequer accounting process would disturb the railways’ financial system and working.
  • Moreover, to make the railways more Indian-oriented in its approach and manifestation, the central control of the railway Budget was creating a stumbling block in bringing it more down to earth, to stand as an independent body.
  • There have been many ups and downs for the railways due to internal and external factors.
  • Once it enjoyed the status of being one of Navaratnas of Indian public sector, but soon after it fell from grace and the talks of its de-nationalisation started.
  • The Rakesh Mohan Committee, while noting the decline, suggested corporatisation of railways.
  • The managerial and financial framework of railways too started deteriorating. The backlog of railways’ ongoing projects reached new heights. Neither the White Paper (2009) nor the Vision (2020) gave any clear remedy for reviving it.
  • The railways is the only authority at the Centre which has to meet its finance commission expenses on its own and after every decade this cycle of calamity is repeated. Moreover, the railways pays the finance ministry a sumptuous amount as dividend.
  • The budgetary support given by the finance ministry to the railways has been sharply cut down and the railways has been asked to stand on its own finances.
  • The railways’ aversion to change to a complete commercial unit has its own limitations.
  • The social obligation factor compels the railways to go slow in the race of transformation and not to leave the po or helpless in using the only affordable means of transportation available to them.
  • The government has realised that by doing away with separate railway Budget, half of the railways’ problems would be solved.
  • The Railway minister would become more self-disciplined and not recklessly announce bounties, projects and trains, because in that case he has to take a nod from the finance ministry in advance.
  • As a ministry, subservient to the finance ministry, the railways will not have to pay dividend which amounts to about Rs 4,000-5,000 crore annually.


The separate Rail budget has outlived its utility. The practice was used when Railways used to generate most of the GDP but in today’s scenario it is more of a burden on exchequer. In the light of these statements, comment on the practice of preparing a separate Rail budget.

Suggested Approach:

  • Advantages of separate budgeting.
  • Limitations of separate budget.
  • Your view, whether we need separate budget or single budget.


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Read 2162 times Last modified on Tuesday, 16 August 2016 10:22

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