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“A Few Drops of Railway Accounts”
[Module: 02 (Budget)]

Collected by
Nurul Kabir Aktaruzzaman, IRAS
F.A.& C.A.O. (Finance &Budget), Eastern Railway, Kolkata

PREFACE

The IRAS Times has shown the light of the day to the Module-01 of my
collection of “A Few Drops of Railway Accounts” by displaying the same on the
Website for its circulation amongst all those interested in it. I gratefully acknowledge
the positive inspiration and motivation that IRAS Times has infused in me for
undertaking the next effort for the collection of the Module-02 of the Title.

2. The driving spirit and purpose behind this Collection has been fairly indicated in
Preface to Module-01. I enclose herewith Module-02 of the Title “A Few Drops of
Railway Accounts”.

Sd/-
14. 03. 2012
( N. K. Aktaruzzaman, IRAS)
F.A.&C.A.O.(Fin.&Budget)
Mob: 9002020101

1
1.0. GENERAL

1.0. Role of Indian Railways

Basically, the Indian Railways produce and sell transport. Indian Railways is the
nation’s lifeline. It is a vast network- second largest in the world under a single
management. It has been successfully playing the role of prime mover to the economy
and society of the Indian sub-continent. It links places to people enabling large-scale
rapid and low cost movement of people across the length and breadth of the country. It
connects production centres (agricultural and industrial) with their markets and sources of
raw materials and thereby promotes their growth. It provides rapid, reliable and cost
effective bulk transportation. Indian Railways have become a symbol of national
integration and a strategic instrument for our defence preparedness.

2.0. Sources of Railway Finances

(a) The Railway Plans today are financed through three main sources: (i)
Internal resources; (ii) market borrowing through the Indian Railways Finance
Corporation( IRFC) and other schemes (Own Your Wagon, BOLT, Public Private
Partnership(PPP) etc); and (iii) Capital from General Exchequer( also called Budgetary
Support).

(b) The budgetary support in % terms, has shrunk and the level of market
borrowings has gone up. The average cost of market borrowings is high and there is the
repayment obligation also. The burden of lease charges is increasing; shortly the lease
charges will tend to exceed the market borrowing level itself.

The generation of internal resources is seriously affected by the higher staff costs
(about 56% of Ordinary Working Expenses) and the limitation of the Railways to raise
fares and freights due to a policy of restraint.

3.0. Areas of Concern for Indian Railways

3.1. Shrinking budgetary support from General Exchequer, increasing market borrowings
and poor generation of internal resources due to higher staff cost.

3.2. High density network (golden quadrilateral) is today totally saturated and the
corridor needs massive investment for expansion.

3.3. Loss of market share to Road Transport. The railways are denied a level playing
field. Unlike the railways, the roads are built and maintained by the Government without
any specific charge on the transport operators except levy of road taxes on vehicles.

2
3.4. Cross subsidization of Passenger services by Freight services. The passenger traffic
needs 60% of transport effort but contributes 30% of revenue; whereas freight traffic
needs 40% of transport effort but contributes 70% of revenue.

3.5. Unbridled introduction of numerous new trains every year despite constraint in line
capacity, the above cross subsidization and consequent blockage of goods trains
movement.

3.6. Safety is a management priority: huge investment needed on track renewals, rolling
stock maintenance, manning of huge number of unmanned level crossings, etc

3.7. Aspirations of our rail-users for more accessible, faster, safe, secure, punctual and
affordable large number of services with better amenities at stations and in trains. The
industrial customers expect an efficient service, free from delays, damages and pilferage.

3.8. Duality of objectives: The Indian Railways play the dual role of a ‘commercial
enterprise’ and a ‘public utility’. The railways are required to remain financially viable but
also at the same time, as a public utility, have to discharge their service obligations under
Government tutelage.

3.9. Inadequate Compensation for public service obligations discharged (Social Cost)
The Government (both the Central and States) should fund the socially desirable but
economically unviable projects.

3.10. The Railways are to share the cost on maintenance of law and order in Railway
areas despite it being a State subject.

4.0. Strategy for Survival and Self-Sustaining Growth

4.1. Sharpen the marketing capability to attract the freight and passenger business
to the rail network through constructive pricing mechanisms and tariff
rationalization as also through customer focus.

4.2. Strengthen the high-density network to make the system capable of meeting
the demands of the freight and passenger business.

4.3. Practise austerity especially in the areas of energy consumption, materials
management, overtime, traveling allowance, advertisements, etc. and in all other
areas in general to the maximum extent possible.

4.4. Cut operating costs drastically.

4.5. Withdraw from ancillary activities to enable the management to concentrate
on the primary business of running freight and passenger services.

3
4.6. Evolve an optimal Financing strategy for optimal allocation of scarce resources
to actualize the objective of a higher growth rate, in tune with, and perhaps ahead
of, the GDP growth rate and thus be the harbinger of a railway renaissance.

4.7. Bring about a cultural change in the organizational philosophy from being
production oriented to customer orientation.

4.8. Research and Development.

4.9. General
i) Run the Heavier, the Longer & the Faster Trains ( both Goods and Passenger).
ii) Rationalisation of Freight and Passenger fare.
iii) Dynamic Pricing Policy and Freight Incentive Schemes.
iv) Improve wagon availability and mobility.
v) Control Project cost ( time over run & cost over run )
vi) Ensure PPP ( Public Private Partnership)

4.10. Responsibility Accounting

4.11. Optimum utilization of Railway resources relating to non-conventional
earnings.

5.0. Reduction of Operating Costs : Areas
5.1. Securing efficiency in production and maintenance units.

5.2. Purchasing procedures should be improved to secure cost reductions and
also improved reliability. The vendors should be ISO certified, the “life cycle” costing
principles to be adopted, quality control to be strict, etc.

5.3. Human resource development : Staff should be well trained and motivated.
They should be trained in the critical areas of (i) Increased level of customer satisfaction
(ii) Maximising return on investments (iii) Cost reduction for higher internal resource
generation (iv) Adoption of state of art technologies (v) Improved reliability of assets and
services.

5.4. Reduction in manpower : Staff cost accounts for 56% of working expenses.
Major initiatives are now inescapable to reduce the workforce both by improving
manpower productivity in real terms through multi-skilling and mechanisation , as also
by outsourcing certain off-line activities, which, incidentally, may also help in meeting
the rising customer satisfaction.

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6.0. Financing strategy
6.1. IR being a public utility should demand for more Budgetary support from
General Exchequer commensurate with the present social cost and burden. The dividend
payment should be exempted for social projects.

6.2. Generate more internal funds by augmentation of earnings and reduction of
working expenses.

6.3. Tapping of non-traditional sources of funding. Investment packages should
be commercially attractive and match the interests and aspirations of concessional
funding agencies and private sector participants. IR needs to create the conditions
that facilitate investments through articulating a compelling change vision and
appropriately influencing the legal, regulatory and tax regimes.Non-traditional
funding mechanisms could include, inter-alia, the following :

(i) Attracting external funding by involving domestic financial institutions and
private sector participants at concessional rates of interest through appropriate fiscal
mechanisms.
(ii) Leveraging right of way of Railways to attract investment in fibre-optic
telecommunication network.
(iii) Commercial exploitation of air space above Stations for securing renovation
and upgradation of terminal capacities at these locations.
(iv) Exploiting the leasing route for procurement of rolling stock, including
financial as well as operating leasing mechanisms and cross-border lease
arrangements to secure capital at affordable rates.
(v) Innovative financing techniques such as Deep Discount Bonds with
repayments towards the end of the term of the loan.
(vi) “Sell and Lease Back” mechanisms to leverage existing fixed as well as
mobile assets.
(vii) PPP ( Public Private Partnership)

6.4. Reduce dependence on expensive market borrowings to the extent feasible

7.0. Effecting cultural change in the organizational philosophy :

The objective should be to bring about a transformation from a production
oriented and functional organization to a customer led organization . The following areas
would need attention :

1. Differentiated approach of segmenting passengers and freight business to develop
tailored products and services;
2. Effective use of financial systems to enable accurate measurement of detailed
costs to provide bench marks for measuring performance;

5
3. Reviewing rules and procedures taking into account customer requirements and
making the interface area more responsive to the customer.
4. Launching educational campaign for the staff and officers at the cutting edge level
to inculcate courtesy and customer care concepts.
5. Necessary changes in the management structure to achieve the above changes.

8.0. Railway Funds: their purpose and sources

Railway Fund Purpose Source of Finance

1. Depreciation Reserve Cost of replace/renewal of an Amount contributed annually
Fund (DRF) asset etc. from Railway Revenue plus
interest earned on fund
balance.

2. Development Fund Cost of New Works relating Amount transferred/
(DF) to passenger and other appropriated from surplus or
Railway user amenity and other wise and interest earned
labour welfare work as well on fund balance.
as the cost of un-
remunerative work for
improvement of operational
efficiency costing more than
Rs. 10 lakh etc.

3. Capital Fund All Capital works financed Amount appropriated from
(CF) from Railways internal surplus along with interest
resource including lease earned on the fund balance.
charges to IRFC.

4. Open Line Works Cost of New Works/ OLWR is credited with
Revenue replacement/addition to amount realized from disposal
(OLWR) existing other than passenger of an asset without being
and other Railway user replaced which was created
amenity, safety work falling from OLWR or replaced at
within new minor works the cost of OLWR.
limit.
Cost of New works for un-
remunerative improvement
of operational efficiency
costing not more than Rs.10
lakh each.

6. Safety Fund Cost of new work considered Contribution/Budgetary

6
(SF) on safety aspects. support from General
Exchequer as well as amount
appropriated from surplus.

9.0. Information Technology areas :

Indian Railways has successfully computerized the Passenger Reservation
System and the Management Information Systems ( FMIS, PMIS, MMIS, etc,). The
FOIS is nearly complete. Parcel computerization is on hand.
The need for an integrated holistic approach to tap the potential of Information
Technology to cut costs, improve the efficiency and effectiveness of performance is
imperative. Specific areas for immediate action are arrival time management for freight
as distinct from a find-and-tell approach, and the management of terminals and through
yards where almost all detentions occur.
Information Technology based solutions should also enable higher line capacities
being achieved without recourse to the construction of more expensive multiple lines,
limiting such expenditure only to cases where there is no other alternative but to do so.
Information Technology based approaches could also improve safety significantly.

10.0. Assessment of working expenses : In relation to any capital expenditure
proposal, the working expenses will consist of :
i) average annual cost of operation.
ii) average annual cost of repairs and maintenance of the assets.
iii) annual depreciation charges.

11.0. Technique of financial appraisal of projects.

(i) Accounting Rate of Return (ARR) Method : Rate of Return (ROR) is worked
out by arriving at percentage ratio of the net gain (i.e. earnings less working expenses)
over the initial anticipated investment of the project.

(ii) Pay Back Period. (PBP) Method : It lays emphasis on the calculation of the
time it takes to recoup the expenditure incurred on the project. Return on the capital is
not assessed.

(iii) Discounted Cash Flow (DCF) or Net Ppresent Value (NPV) Method : It
considers the time value of money. The NPV of a project is the sum of the present values
of the net cash flows for all the years of the project’s economic life. The net cash flows
are discounted to arrive at the NPV of a project by applying a pre-determined discount
rate. If the NPU is positive ( or zero), the project is financially acceptable.

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2.0. RAILWAY BUDGET

1. Budget Statement is a statement of estimated receipts and expenditure of the
Government of India for the coming year which runs from 1st April to 31st March and
has to be laid before the Parliament in respect of every financial year under Article 112 of
the Constitution. It is also called “Annual Financial Statement’ or “Annual Budget”.

2. Why a separate Railway Budget? As Railway finances have been separated from
the General Finances of the Central Government, a separate budget is presented for the
Railways. The financial relationship between the Central Government and the Railway is
governed by the recommendations made from time to time by the Railway Convention
Committee of the Parliament.

3. Components or Elements : The Budget Statement shows the total revenue
receipts, revenue expenditure and works expenditure, distribution of excess of receipts
over expenditure and position of various Funds which the Railways keep with the Central
Government, viz. Depreciation Reserve Fund, Development Fund, Pension Fund, Capital
Fund and Railway Safety Fund.

As a matter of practice, every budget contains three elements : (i) a review of the
preceding year, including the actual receipts and expenditure in that year.(ii) an estimate
of the receipts and expenditure of the coming year; and(iii) proposals, if any, for meeting
the requirements of the coming year.

4. Revenue Receipts: The Revenue Receipts of the Railways consist of earnings
from passenger traffic, other coaching earnings ( which include parcels and luggage),
earnings from goods traffic and sundry other earnings like rent, catering receipts, interest
and maintenance charges from outside bodies, commercial utilization of land and air
space and commercial publicity on rolling stock and station buildings etc.

5. Miscellaneous Receipts: Miscellaneous receipts consists of the items like
receipts of Railway Recruitment Boards from sale of application forms and examination
fees, etc. and Government’s share of surplus profits which includes receipts from
subsidized Railway companies in which the Government has no capital interest. The
subsidy from General Revenues in respect of dividend payment is also accounted for in
the miscellaneous receipts.

6. Total Receipts: The total of Revenue and Miscellaneous receipts makes up the
total receipts of the Railways. The portion of the earnings which is due to the Railways
during the financial year but has not actually been realized is held in a “Suspense”
account. [ Earnings = Receipts + suspense ]

7. Revenue Expenditure : The Revenue Expenditure consists of Ordinary Working
Expenses incurred by the various Departments on the Railways in their day to day

8
working and other miscellaneous expenditure like-the expenditure on Railway Board,
Audit, Surveys and other miscellaneous establishments, payments as regulated by
contracts to worked lines which are not owned by the Railways and are either worked by
the Indian Railways or companies concerned.

The Revenue expenditure also includes appropriation to the Depreciation
Reserve Fund, the Pension Fund and dividend paid by the Railways to the General
Revenues. Appropriation to Depreciation Reserve Fund is made annually on the basis of
the recommendations of the Railway Convention Committee (R.C.C.) and is intended to
finance the cost of new assets replacing old assets including the cost of any improved
features that such new assets may have. Appropriation to Pension Fund is to finance all
pensionery payments to the retired Railway staff. Dividend is payable at the rate of 7%
on the dividend paying capital of the Railways. Out of the 7% dividend, 1.5% of the
Capital invested up to 31sat March, 1964 ( less Capital entitled to ‘Subsidy’) is for
transfer to the State Governments in lieu of passenger fare tax to the extent of Rs. 23.12
cr. and balance for appropriation to the Railway Safety Fund.

8. Distribution of excess of receipts over revenue: The excess of receipts over
expenditure remaining after discharging the dividend liability is appropriated to the
Development Fund, the Safety Fund and the Capital Fund. These Funds are meant to
finance part of the Plan requirements.

While the appropriations to Depreciation Reserve Fund, Development Fund,
Pension Fund, Railway Safety Fund and Capital Fund are voted by the Parliament for
spending on specific objects, the proposed expenditure on the specific objects is also
submitted for vote of Parliament even though the moneys have already been earmarked
by the Parliament for transfer to these funds.

The Development Fund is used to finance expenditure on Passenger and Other
Railway Users’ Amenities Works, Staff Welfare Works, Un-remunerative operating
improvements etc. The Railway Safety Fund is used for financing works relating to
conversion of unmanned level crossings and for construction of ROB./RUBs at busy
level crossings. This fund is financed through the Railway revenues, transfer of Funds by
the Central Government from the Central Road Fund and the aforementioned part of
dividend which until 2000-01 was appropriated to the Railway Safety Works Funds.
Capital Fund is used for works chargeable to Capital and for making payment of principal
component of the lease charges payable to Indian Railway Finance Corporation. The
appropriation to Capital Fund is made only after making necessary appropriations to
Development Fund and Safety Fund. In case there is no ‘Excess ‘ or not enough ‘excess’
to be transferred to Development Fund and Capital Fund, temporary loan is obtained
from General Revenues to finance the expenditure to be met out of these Funds.

9. Works Expenditure (Capital Expenditure): Works expenditure is incurred for
acquisition, construction or replacement of railway assets. It is financed from capital
borrowed from the General Revenues and also by internal resources viz., Capital Fund,

9
Depreciation Reserve Fund, Development Fund, Railway Safety Fund, and Revenues.
(The cost of unremunerative operating improvements and works other than passenger
amenities costing below certain financial limits are charged to Revenue.) The overall
annual budgetary support of the General finances of Government of India to the
Railways consists of the Capital loans and the sums temporarily loaned to meet the
deficiency, if any, in the Development Fund and the Capital Fund. A part of the
investment in Railway assets, covered by the Railways Plans, is also made by the India
Railway Finance Corporation which raises funds through market borrowing.

10. The Contingency Fund of India : All the revenue earning of the Railways are
credited to the Consolidated Fund of India and expenditure is incurred from the
Consolidated Fund. No amount can be withdrawn from the Fund without authorization
from the Parliament.

Occasions may arise when Government may have to meet urgent unforeseen
expenditure pending authorization from the Parliament. The Contingency Fund of India
is an imprest placed at the disposal of the President to incur such urgent unforeseen
expenditure pending authorization from the Parliament. Parliament approval for such
expenditure and for the withdrawal of an equivalent amount from the Consolidated Fund
is subsequently obtained and the amount spent from Contingency Fund is recouped to the
Fund.

11. Demands for Grants :
A ‘Demand’ presents a distinct functional activity on the Railways. The
proposals of Government in respect of sums required to meet expenditure from the
consolidated Fund of India as included in the Budget Statement and required to be voted
by the Lok Sabha are to be submitted in the form of “Demands for Grants” to the
Parliament.

There are 16 Demands for Grants – Demands 1 to 15 dealing with Revenue
Expenses, Appropriations to the Funds and Dividend payment and Demand 16 dealing
with Works Expenditure. Each Demand pertaining to Working Expenses and
Miscellaneous Expenditure has a two-way classification, by activity and by primary units
of expenditure, the activity classification indicating for what purpose the expenditure was
incurred, like track maintenance, water supply, periodical overhaul of locomotives etc.
and the primary units of expenditure indicating how the expenditure was incurred, like
salaries, wagons overtime, cost of materials etc. This two-way classification integrates
the requirements of performance budgeting which is based on activities, and management
control which is based on objects of expenditure.

The Demands for Grants are presented to the Lok Sabha along with the Budget
Statement. The estimates of expenditure included in the Budget Statement are for the net
expenditure as will be reflected in the accounts, that is after taking into account the
recoveries. The estimates of expenditure included in the Demands for Grants are,
however, for the gross amounts.

10
Demand for Works Expenditure is kept distinct from Demands for Revenue
Expenditure. At the head of each Demand, the total of ‘Voted’ and ‘Charged’
expenditure in the Demand is indicated separately. This is followed by the estimates of
expenditure under different heads. The aggregate amounts of recoveries taken in
reduction of expenditure in the accounts are also shown. Besides, the notes briefly
explain the reasons for variations between the current year’s requirements and
requirements for the next year included in the various Demands.

12. Appropriation Bill

After the Demands for Grants are voted by the Lok Sabha, the Parliament’s
approval to the withdrawal of the amounts from the Consolidated Fund so voted and
of the amounts required to meet the expenditure charged on the Consolidated Fund is
sought through the Appropriation Bill. ‘Under Article 114(3) of the Constitution, no
amount can be withdrawn from the Consolidated Fund without such an Appropriation
Act passed by the Parliament.

3.0. Preparation of Railway Budget

Budget Statement is a statement of estimated receipts and expenditure of the
Government of India for the coming year which runs from 1st April to 31st March and
has to be laid before the Parliament in respect of every financial year under Article 112 of
the Constitution

The Railway Budget Statement shows the total revenue receipts, revenue
expenditure and works expenditure, distribution of excess of receipts over expenditure
and position of various Funds which the Railways keep with the Central Government,
viz. Depreciation Reserve Fund, Development Fund, Pension Fund, Capital Fund and
Railway Safety Fund.

Revised and budget estimation framed separately for:
i) Gross Receipts.
ii) Ordinary Working expenses.
iii) Payments to worked lines.
iv) Appropriation to & expenditure from Rly. fund.

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v) Payment to General Revenue.
vi) Works expenditure.
vii) Civil estimates.

Individual Railways frames the revised estimate (RE) for the current year and the
budget estimate(BE) for the next year under each Demand and submit the same to
Railway Board. Within the railway, the concerned spending/earning authorities frame
the RE and BE. FA&CAO compiles and scrutinizes the framed estimates.

The RE and BE for revenue expenditure are prepared after taking into account
the expenditure for the preceding year and comparing the expenditure during the first
seven (07) months of the current year with the corresponding period of the previous year,
full consideration being paid to the special features of both years, duly supported by the
justification for variation. In similar way expenditure for the rest 5 months are anticipated
comparing with actual of corresponding period of previous year taking care about special
features if any.

Earning Budget: Estimates for coaching earnings are prepared on the basis of
passenger kilometer and average fare per passenger kilometer for each class of passenger.
Estimates for parcel traffic, goods traffic are made on net tonne kilometer to be carried
and the average yield per NTKM for each commodity. In other cases estimation is based
on past actual. Estimates should be prepared for both originating and apportioned
earnings in thousand of rupees. Budget estimates are prepared for the 1 st 7 months of
current year on actual basis and on expectation for the rest period of current year under
various categories of passenger and goods traffic as well as for sundry earnings
considering all special features which may affect the earnings in ensuing year.

The estimates of expenditure included in the Budget Statement are for the net
expenditure as will be reflected in the accounts, that is after taking into account the
recoveries. The estimates of expenditure included in the Demands for Grants are,
however, for the gross amounts.

Demand for Works Expenditure is kept distinct from Demands for Revenue
Expenditure. At the head of each Demand, the total of ‘Voted’ and ‘Charged’
expenditure in the Demand is indicated separately. This is followed by the estimates of
expenditure under different heads. The aggregate amounts of recoveries taken in
reduction of expenditure in the accounts are also shown. Besides, the notes briefly
explain the reasons for variations between the current year’s requirements and
requirements for the next year included in the various Demands.

BUDGET STATEMENT ( FORMAT)
(Statement of Revenue Receipts and Expenditure)

Particulars Actuals Budget Revised Budget
2008-09 2009-10 2009-10 2010-11
A. Capital –at- Charge

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B. Investment from Capital Fund
C. TOTAL: [A+ B]

1. TRAFFIC EARNINGS
(a) Coaching
(i) Passenger
(ii) Other Coaching
(b) Goods
(c ) Sundry other earnings

2. SUSPENSE

3. GROSS TRAFFIC RECEIPTS [1+2]

4. MISCELLANEOUS RECEIPTS
(a) Subsidised companies
(b) Railway Recruitment Boards
(c ) Other misc. receipts
(d) Subsidy from General Revenues
towards dividend relief & other
Concessions

5. TOTAL RECEIPTS [ 3+4]

6. ORDINARY WORKING EXPENSES
A-03: (Gen. Superintendence and Services)
B-04: (R& M: Permanent Way & works)
C-05: (R& M ( Motive Power)
D-06: (R& M: Carriages & Wagons)
E-07: (R& M: Plant & Equipment)
F-08: (Optg.Exp.:Rolling Stock & Equipment)
G-09: ( Optg. Exp.: Traffic)
H-10: ( Optg. Exp.: Fuel)
J-11: ( Staff Welfare & Amenities)
K-12: ( Miscellaneous Working Expenses)
L-13: PF, Pension & other retirement benefits
N-14 : Suspense

7. M-15: APPROPRIATION TO FUNDS
(i) Appropriation to DRF
(ii) Appropriation to Pension Fund

8. TOTAL WORKING EXPENSES [6+7]

9. MISCELLANEOUS EXPENDITURE
(a) Payment to worked lines

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(b)Surveys
(c )Other Misc. Expenditure
(d)Open Line Works Revenue

10. TOTAL EXPENDITURE [8+9]

11. NET REVENUE [5 – 10]

12. PAYMENT DUE TO GEN. REVENUES
(a)Dividend Payable
(b)Grant in lieu of Passenger Fare Tax
(c )Contribution to Rly. Safety Fund/Works
(d) Payment of Deferred Dividend

13. EXESS (+) / SHORTFALL (-): [11-12]

14. OPERATING RATIO

15. Ratio of Net Revenue to Capital-at-
Charge and Investment from Capital Fund

4.0. FINANCIAL CONTROLS

4.1. Exchequer Control

Exchequer control is the mechanism for concurrent review of regular cash out go
by each disbursing officer against the cash content of the budget allotment i.e. against
cash authorization made to each disbursing officer. The object of exchequer control is to
establish a system for correct estimation of cash out go including disbursements.It is thus
an important tool of budgetary control in the hands of Administration. Budget allotment
covering cash out go is known as cash budget

4.2. Budgetary and Expenditure control in the Railway

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4.2.1. BUDGET: Budget acts as a important management tool for control over
expenditure. The Parliament fixes through Railway Budget the spending limit within
which the expenditure need be restricted by the railway administration.

4.2.2. Budgetary Reviews: Control over expenditure is also exercised by way of
budgetary reviews as below:
(i) August Review Estimate: done in the month of August. The actual
expenditure of last year is compared with the actual of 1st 3 months and the budget
estimate of current year. Variations (excess/savings) are worked out and explained
briefly.

(ii) Revised estimate: It is prepared after taking into consideration the actual
expenditure during first 7 months of current year and the corresponding period of
previous year giving full consideration to the special features of both the years.

(iii) Final Modification Estimate: It provides the the last scope of budgetary
review. Any modification considered necessary as a result of new factors is submitted to
Railway Board in March of each year.

4.2.3. Revenue allocation Register: Expenditure is recorded in the register
under various heads of accounts of Revenue expenditure classification. A monthly
comparison is made of the expenditure, with budget allotment. For this purpose annual
allotment is distributed among the various months taking in to account various known
factors which is called proportionate budget allotment for the month. The progress of
expenditure is monitored through monthly financial review between actual expenditure
and proportionate budget for the month and the result of the review communicated to
Executive authorities/ Budget officer for taking necessary action.

4.3. Works Register : It provides information to compare the expenditure incurred
against a work with the provision made in the estimate. The executive officer should
examine the information recorded in the works register monthly or at more frequent
intervals and watch the progress of expenditure on each work so that any tendency
towards excess over sanctioned estimate may be investigated and curbed.

4.4. Progress Report –cum-Financial Review:- It monitors the relation between
achievement and expenditure. It links the progress of work with the expenditure incurred.
Financial review provides a means of assessing probable variation from sanctioned
estimate. Financial reviews are prepared half yearly in Form E-1519.

4.5. Periodical Management Meetings on Review of Expenditure and Earnings

15
5.0. Parliamentary Financial Control Mechanism

5.1. Budget: Railway Budget is an instrument of Parliamentary Financial
Control, which is secured not only by the fact that all ‘voted’ expenditure must receive
Parliament’s prior approval, but also by the system of reporting back to it, through the
Public Accounts Committee, the actual expenditure incurred against the Grants voted by
Parliament and Appropriations sanctioned by the President.

5.2. Supplementary Budget: Parliament by way of passing Railway Budget
fix the financial limit before the Railway within which Railways are empowered to incur
expenditure .Additional fund ,required if any, during a financial year also requires
clearance from the Parliament through passing of the Supplementary Budget.

5.3. Appropriation Accounts: After closure of Annual Accounts of Railways,
Appropriation Accounts are prepared showing actual expenditure incurred on various
activities of Railways vis-a vis allotments as approved by the Parliament through Railway
Budget for ensuring that the money shown in the accounts as having been disbursed were
legally available for and applicable to the service/purpose to which they have been
applied /charged. Appropriation accounts are examined by a Parliamentary Committee (
the Public Accounts Committee).

5.4. Parliamentary Committees: Besides the above, the Parliament also
exercises its control through various Parliamentary Committees like the Railway
Convention Committee ( which suggests the whole working mode and methods of
capital investment, rate of dividend etc.), the Estimates Committee , so on.

6.0. Few Important Terms

6.1. Budgetary Support: refers to the fund the railways receive from the
General Finances of the Government of India. It consists of the Capital loans and the
sums temporarily loaned to meet the deficiency, if any, in the Development Fund and the
Capital Fund.

6.2. ‘Voted’ expenditure are those for which the provision of funds is
subjected to the vote of the Parliament.

6.3. ‘Charged’ expenditure are those for which the provision of funds is not
subjected to the vote of the Parliament. For Railways it includes sums required to satisfy
judgments, decrees or awards of Courts or awards by Arbitrators where made into rule of
Court etc.

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6.4. Capital –at-charge : represents the Central Government’s investment in
the Railways by way of Loan Capital and value of the assets created there from.

6.5. Suspense: Suspense is intended for the temporary booking of certain
classes of transactions pending adjustments to final heads of account and to record the
expenditure in the accounts of a month to which it relates irrespective of whether the
same has actually been liquidated.

6.6. Railway Convention Committee : is a Parliamentary Committee which
determines the financial relation of the Railways and the General Finances. It also
determines the rate of dividend payable by the Railways to the General Revenues on the
amount invested in Railways by the General Finances (Budgetary support )

6.7. Performance Budget :This document inter alia indicates the comparative
performance of Indian Railways in respect of Revenue and Expenditure vis-à-vis the
targets, alongwith the reasons for variations, the performance in respect of Works costing
Rs. 5 crore and above, including transfer of funds from one work to other; target dates of
completion of the Projects are also indicated. It also gives a summary appraisal of the
Railways’ performance included shortfalls, if any, in respect of revenue earnings,
expenditure, works performance as provided in the ongoing Five Year Plan and Annual
Plan.

6.8. Outcome Budget : Outcome Budget, besides giving highlights of certain
main activities undertaken on Railways during the previous and the current year, gives
outlays and targets set/ achievement for Annual plan and also targets for freight and
passenger traffic. Performance of Production units is also given there.

6.9. Re-appropriation :is the transfer of funds, originally assigned for
expenditure on a specific object to supplement the funds sanctioned for another object.
Rules: (a) No reappropriation is permissible between Capital, Railway Funds,
safety Fund and Revenue,.
(b) Railway Board is competent for the re-appropriations within the Grant
to and from the following Plan Heads: (i) New Lines (construction) (ii) Gauge
Conversion (iii) Electrification Projects (iv) Track Renewals (v) Staff Quarters
(vi) Staff amenities (vii)Passener Amenities and other Railway Users Amenities

6.10. “Appropriation Accounts”: are the statements which are prepared for
presentation to the Public Accounts Committee, comparing the amount of actual
expenditure wit the amount of Grants s voted by Parliament and Appropriations
sanctioned by the President. The AA are signed by both the CRB and FC(Rlys) and
transmitted to Statutory Audit of Railway entrusted with the duty of reporting on these
accounts.

6.11. The Loan Account represents the loan (share) capital and the physical
assets created there from.

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6.12. The Block Account represents all the physical assets of the Railway
whether financed from loan (share) capital or the Railways’ own internally generated
funds.

6.13. Operating Ratio : = (OWE excluding Suspense+ Appropriation to
Pension Fund & DRF) / ( Total Earning excluding suspense)

6.14. Working Ratio := (OWE excluding Suspense+ Appropriation to Pension
Fund) / ( Total Earning excluding suspense)

6.15. Performance Efficiency Index: =(OWE excluding Suspense) / (
Originating Earning)

7.0. CLASSIFICATION OF EXPENDITURE AND EARNINGS

7.1. Classification of Revenue Expenditure

( Revenue Expenditure----Sub-major Head (Abstract/Demand)----Minor---Sub---
Detailed---Primary unit)
The revenue working expenses of the Railways are classified under 13 sub-major
heads with a separate Abstract for each Sub-major head. The Sub-major heads are
divided into minor, sub, and detailed heads as shown in the accompanying classification.
The alpha (i.e. the letter of the Abstract) corresponds to the Demand head. The minor,
sub-head and detailed heads of accounts represent classification of the activity from a
broad grouping into its details. On computerisation of the accounting system, the alpha of
the abstract classification is substituted by a Numerical Code as follows which will be the
same as for Demands for Grants.

SN Abstract Demand Name of Demand
No.(Numerical
Code)
1. A 03 General Superintendence and Services
2. B 04 Repairs and Maintenance of P.Way and Works.
3. C 05 Repairs and Maintenance of Motive Power.
4. D 06 Repairs and Maintenance of Carriages and Wagons.
5. E 07 Repairs and Maintenance of Plant and Equipment
6. F 08 Operating Expenses-Rolling Stock and Equipment
7. G 09 Operating Expenses-Traffic
8. H 10 Operating Expenses-Fuel.
9. J 11 Staff Welfare and Amenities.

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10. K 12 Miscellaneous Working Expenses
11. L 13 PF, Pension and other retirement benefits.
12. M 14 Appropriation to Funds
13. N 15 Suspense.

The classification up to the detailed head represents only the activity. The
structure of the classification also incorporates a two digit code to represent the primary
unit, i. e. the object of the expenditure indicating on "what" the expenditure is incurred
viz., salary, allowances, wages, materials, etc. The indication of a classification of
expenditure will, therefore, be complete only if the Abstract, the minor, sub or detailed
heads of activity as well as the code of the object of expenditure are given, in that order.
For instance, the wages of a Diesel Loco crew will be indicated as F. 212-01.
Abstract( Minor Sub Detailed Primary Unit
Demand)
F (08) 200 210 212 01

Advantages: (i) easier computerization of revenue expenditure (ii) easier cost analysis (
iii) the new classification is "function" and "activity'' oriented.

7.2. Classification of Capital and other Works Expenditure

The Works expenditure is classified under a single Demand-16 namely “Assets-
Acquisition, Construction and Replacement”. The Accounting Classification for works
expenditure is in the form of a 7 digit -4 module alphanumerical code.

Module Digit(s) Nature
First 1 (alpha) the source of fund [P: Capital, Q: DRF, R: Revenue (OLWR),
S: DF, T: ACF]
Second 2 standard Plan Heads
Third 2 the sub and detailed head of classification giving the details of the
assets acquired, constructed or replaced
Fourth 2 the primary unit i.e., object of the expenditure.

The Plan heads form the Minor Heads of Railway Capital under the Major
Heads "546-Capital Outlay on Indian Railways-Commercial lines" and "546-Capital
Outlay on Indian Railways-Strategic lines for the purpose of link with the accounts of the
Central Government The minor Heads classification are as follows :

Plan Particular Plan Particular
Head Head
11 New Lines (Construction) 41 Machinery and Plant.
12 Purchase of new lines. 42 Workshops including Production Units
13 Restoration of dismantled 51 Staff Quarters.

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lines.
14 Gauge conversion 52 Amenities for staff.
15 Doubling. 53 (i) Passenger Amenities.
(ii) Other Railway User Amenities.
16 Traffic facilities-Yard 61 Investment in Government Commercial
remodelling and others. under Takings-Road services.
21 Rolling Stock. 62 Investment in Government Commercial
undertaking-Public Undertaking
31 Track renewals. 64 Other specified works.
32 Bridge work. 71 Stores suspense
33 Signalling and 72 Manufacturing suspense.
Telecommunication works.
34 Taking over of line wires 73 Miscellaneous Advances.
from P. & T. Dept.
35 Electrification projects. 81 Metropolitan Transport Projects.
36 Other Electrical works

The sub and detailed heads give the break up of the expenditure on assets in its
details such as Preliminary Expenses, Land, Formation, Permanent Way, Bridges,
Stations and Buildings etc.

The classification thus lends itself to computerised system being adopted for the
compilation. As the plan heads of classification coincide with the sub-heads of demands
for Grants the compilation of budget is also rendered easy and direct. The detailed
explanatory notes follow the classification to facilitate the correct booking of the
expenditure.

7.3. Classification of Earnings

The earnings of Railways are classified under three Sub major Heads with a
separate abstract for each Sub major Head. viz-

Abstract Subject
“X” Earnings from Coaching traffic.
“Y” Earnings from goods traffic
“Z” Sundry other earnings.

The Sub major Heads are divided into Minor, Sub and Detailed heads as shown
below- The various heads of classification will be referred to by the numbers allotted to
them prefixed by the letter of the Abstract under which they occur. A few examples:

X. 110 Full fares.
X. 141 Reservation charges
X. 710 Penalties levied for irregular travelling.

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Y. 300 Military traffic
Z-243 The earnings from development of Railway land/air-space
Z 650 Other unclassified receipts.

7.4. Suspense: Suspense is intended for the temporary booking of certain classes of
transactions pending adjustments to final heads of account and to record the expenditure
in the accounts of a month to which it relates irrespective of whether the same has
actually been liquidated.
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