Budget -Railway

Budget

Budget - A Constitutional and Management Document -Article 112(1) of the Constitution of India prescribes that 'the President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year‘ referred to as the "annual financial statement" and popularly called the "Annual Budget". Though the constitutional requirement is only that the 'financial statement' shall contain a statement of the estimated receipts and expenditure for the coming financial year, as a matter of practice, every budget contains three elements- 

a) a review of the preceding year, including the actual receipts and expenditure in that year; 

b) an estimate of the receipts and expenditure of the coming year; 

c)  and proposals, if any, for meeting the requirements of the coming year. 

Though the Constitution does not provide for the presentation of the annual financial statement or Budget in parts, the Rules of Procedure of Parliament have provided that 'nothing shall be deemed to prevent the presentation of the Budget to the House in two or more parts and when such presentation takes place, each part shall be dealt with in accordance with the rules as if it were the Budget'. This provision had enabled the Separation of the Railway Budget from the General Budget and the passing of separate Appropriate Acts for each of these Budgets in keeping with the Separation Convention (1924). 

With effect from 2017-18, Railway Budget has been merged with the General Budget and hence the Demand for Grant and the Statement of Budget Estimates of Ministry of Railways has become an integral part of the General Budget presented by the Finance Ministry. 

Elements of Railway Budget

The budget consists of

• A review of the preceding year Including the actual receipts and expenditure.
• An estimate of receipts and expenditure of the coming year.
• Proposals if any for meeting the requirements of the coming year.

Gross Receipts

• Coaching Earnings(less refunds)
• Goods Earnings(less refunds)
• Sundry Earnings, viz, Telegraph, rent, Toll, Commercial Publicity, Catering, Sales Proceeds, Interests, Maintenance charges on sidings, Saloons, Postal Vehicles etc.

Expenditure

Expenditure are of two types

• Voted Expenditure: Voted Expenditure is such class of expenditure for which the provision of Fund is made subject to vote of Parliament. These are items proposed to be met from the Consolidated Fund of India for which proposals are sent in the form of Demands for Grants for vote by the Parliament.
• Charged expenditure: Charged expenditure is such class of expenditure for which the President is according the sanction. Pay, Allowances etc. which are charged upon the Consolidated Fund of India comes under this.

Demands for Grants

• Proposals sent in the form of Demands for Grants for voting by Parliament to meet expenditures from the Consolidated Fund of India are known as Demands and when the Demands are granted by Parliament , it is known as Grants.

Activity	Demand No.	Details
Policy formulation common to all Railways	1 2	Railway Board Misc. Expenditure
General Superintendence and Service	3	General Superintendence and Managements
Repairs and Maintenance	4 5 6 7	Permanent Way and Works Motive Power Carriage and Wagon Plants and Equipment
Operating Expenses	8 9 10	Rolling Stock Traffic Fuel
Staff Welfare, Retirement Benefits & Miscellaneous	11 12 13	Staff Welfare, Miscellaneous Working Expenses PF, Pension Retirement Benefits
Railway Funds and payment to General Revenues	14 15	Appropriation to DRF and Pension Fund Dividend to General Revenues and Repayment of loans
Works	16	New Lines, Doubling, Gauge Conversion, Rolling Stock, Track Renewals, Bridge Works, Traffic facilities, S&T works, M&P, Staff Quarters etc.

Demands 1 to 15 pertains to Revenue Demand and 16 pertains to Capital

Appropriation Bill

• After the Demands for Grants are voted by Parliament, Appropriation bill is introduced to provide for appropriation of money required to meet the expenditures. When this bill is passed, charged expenditure is passed by the President. Railway Board makes allotment to each unit through an order called Budget Order.

Re-appropriation

• Re-appropriation means transfer of funds originally assigned to a specific object to supplement funds to another object. 
• Railway Board have full powers to transfer funds from one sub-head to another within a grant but not from one Grant to another in respect of voted and Charged expenditure. 
• But transfer between voted and Charged expenditure is not permissible.
• In respect of Demand No. 16 Reappropriation is totally not admissible.

Budget Reviews

The purpose of Budget Review is:

• To review the progress of expenditure with Budget Grant.
• To estimate the actual requirements for the remaining period of the year and modify requirements to meet the needs.
• To enable the Railway Board for redistribution of funds among Railways.

Factors that contribute to revision of requirements are :

• Inflationary trend in price levels of materials and labour affecting contracts and other expenditure.
• Change in the scope of work necessitating preparation of supplementary estimate.

Budget Review is done in two ways:

• Revised estimate(including Budget Estimate) in September.
• Final modification in February.

CONSOLIDATED FUND OF INDIA.

In terms of article 266(I) of the Constitution of India, a fund is created which will act as a reservoir in which all the earnings flow (credited) and from which the expenditures of Government as authorized by the Parliament will be made. Central Government is having Consolidated Fund of India. Any expenditure to be made from this fund needs Parliament’s sanction/votes. For this purpose, a bill known as “Appropriation bill” is required to be introduced by Railway minister in Parliament. The bill is discussed and when passed by the Parliament is send to the President of India for his assent. When the assent is given by the President, the bill gets converted into the “Appropriation Act” and this act enables to withdraw the money from the Consolidated Fund of India.

Consolidated Fund of India and Contingency Fund

• All earnings and expenditure forms part of Consolidated Fund of India. 
• Unforeseen expenditures like protection of life and property, restoration of lines due to accidents etc. is met from the Contingency Fund held by the President  and Post facto sanction of Parliament is obtained to recoup Contingency Fund.

Glossary Of Terms  

i) Coaching Revenue (less refunds) 

ii) Goods Revenue (less refunds) 

iii) Traffic Revenue = (i)+(ii) 

iv) Sundry Revenue (less refunds)=Other than Traffic Revenue 

v) Gross Revenue = (iii)+(iv) = true or accrued Revenue in an accounting period whether or not  actually realised. 

vi) Traffic Suspense. 

vii) Gross Receipts = (v)+(vi) = Revenue actually realised during an accounting period. 

viii) Miscellaneous Receipts = Guarantee recoverable from State Governments + Other Miscellaneous Receipts, such as Government share of surplus profits, sale of land of subsidized companies, receipts from surcharge on Passenger fares, etc. 

ix) Total Revenue Receipts = (vii)+(viii). 

x) Ordinary Working Expenses = Expenses booked under final heads, excluding appropriation to Depreciation Reserve Fund, and Pension Fund. (Payments on account of accident compensation and Pensionary Payments should also be excluded). 

xi) Appropriation to Depreciation Reserve Fund. 

xii) Appropriation to Pension Fund. 

xiii) Gross Working Expenses = (x)+(xi)+ (xii) = True expenses in an accounting period whether or not actually disbursed. 

xiv) Suspense. 

xv) Gross Expenditure = (xiii) + (xiv) = Working Expenses actually disbursed during an accounting  period. 

xvi) Miscellaneous expenditure = Surveys + Land for subsidized companies; subsidy + other Miscellaneous Railway expenditure, Appropriations to Pension Fund relating to Railway Board and Miscellaneous establishments booked under Major Hear 3001 and payments to worked lines. 

xvii) Total Revenue Expenditure = (xv)+(xvi). 

xviii) Net Revenue = (v) - (xiii). 

xix) Net Receipts = (ix) - (xvii). 

xx)  Payments to General Revenues (Deleted) 

xxi) Surplus/Shortfall= (xix)-(xx). 

Note. The "Surplus or Shortfall" shown in item (xxi) differs from the "gain or loss" given in Account No. 110 of the Finance and Revenue Accounts of the Government of India, as, the former takes into account all the Miscellaneous Receipts (viii) and Expenditure. (xvi) attributable to a Railway, whereas the latter does not. 

309.  Responsibility for framing the Estimates - Preparation of the Revised and Budget Estimates should commence at the 'grass root level ‘, i.e., Division, Workshop, Stores Depot etc., as the case may be. The entire responsibility for framing the estimates devolves upon the spending/earning authorities concerned, though the actual work of compilation and scrutiny would rest with the Financial Advisor & Chief Accounts Officer who would also draw the attention of the General Manager to matters of purely financial import. 

310.  The estimates should be as accurate as possible and, to achieve this object, care should be taken to see that the data on which the forecast is based is adequate and reliable and that the conclusions arrived at from the data can be sustained by past experience and future expectations of likely events. 

RAILWAY BUDGET

Introduction and definition: -

Budget is a statement of the estimated annual receipts and expenditure both on capital as well as revenue transactions of an organization. It is a process of planning and reviewing the activities of an organization. Railways being a Govt. of India department, receipts and payments of the system were use to be merged in the General Budget of the Govt. of India. As a result of the recommendations of the “ACWORTH COMMITTEE” during 1920-21, it was decided to separate the finances of Railways from General Finances with the objects of securing stability for General revenues and to strengthen the Railways finances. This is generally known as “Separation Convention of 1924”. Since then the Railway Budget is submitted in advance of the General budget.

In terms of article 112 of the Constitution of India, the budget is presented to both the Houses of parliament viz. Lok sabha and Rajya sabha.

The expenditure on Railways may be either voted or charged. The expenditure covered under the former category requires the approval of parliament. But in respect of charged expenditure the sanction of the President of India is conveyed without being submitted for the vote of Parliament. The items of expenditures that are covered under this category are as under: -

i) Interest, sinking fund charges and redemption charges on loan and debts.

ii) Salary, allowances and pension payable to or in respect of Comptroller and Auditor General Of India.

iii) Any sum required satisfying any judgment, decree or award of any court or arbitration tribunal.

iv) Any other expenditure declared by the constitution of India or by Parliament by law to be so charged.

THE SOURCE OF FUNDS FOR THE RAILWAY ORGANIZATION: -

CONSOLIDATED FUND OF INDIA.

In terms of article 266(I) of the Constitution of India, a fund is created which will act as a reservoir in which all the earnings flow (credited) and from which the expenditures of Government as authorized by the Parliament will be made. Central Government is having Consolidated Fund of India. Any expenditure to be made from this fund needs Parliament’s sanction/votes. For this purpose, a bill known as “Appropriation bill” is required to be introduced by Railway minister in Parliament. The bill is discussed and when passed by the Parliament is send to the President of India for his assent. When the assent is given by the President, the bill gets converted into the “Appropriation Act” and this act enables to withdraw the money from the Consolidated Fund Of India.

CONTINGENCY FUND OF INDIA.

Normally all expenses incurred by the Government should be met out of consolidated fund of India with the vote of the parliament or Appropriations sanctioned by the President. However, to meet unforeseen contingencies when the expenditures cannot be met out of available grants and the vote of the parliament cannot be obtained due to the same not being in session or dissolved the expenditure is met out of fund created for the purpose under article 267(II) which is known as “Contingency Fund Of India”. The fund is under the control of President of India. As far as Railways are concerned, Financial Commissioner (Railways) controls the fund.

This fund is used as and when the contingency arises. Money can be withdrawn from this fund on an application addressed to the President and is given as an advance which needs recoupment. The amount from this fund can be withdrawn when the parliament is not in session and to meet the unforeseen expenditure, which cannot be met from out of the amount of grant available.

As soon as parliament comes to session an “Accommodation bill” is passed and amount is recouped from Consolidated Fund of India.

DEMANDS FOR GRANTS: -

The budget proposals of the expenditures to be met out from the “Consolidated fund of India” should be presented in the form of Demands for Grants. Parliament has got the powers to assent or to refuse to assent or to reduce the amount proposed by the Railway Ministry during the course of discussion on Railway budget. Such powers are exercised to cut motion. The voted part of expenditures together with the charged

appropriation are presented to the parliament in the form of Demands for Grants. At present there are sixteen demands for Grants which are grouped under seven categories viz.

PREPARATION OF ANNUAL BUDGET: -

Preparation of annual budget is done by the Railway Administration and other production units. The revised estimates for the current financial year and the budget estimate for the ensuing financial year are prepared and submitted to Railway board in the month of November every year.

The estimation is done on the basis of –

1) Actual expenditure for the previous year under each demand.

2) Actual expenditure for the first seven months of the previous financial year under each demand.

3) Actual expenditures for the first six months of the current financial year and the approximate expenditures for the seventh month.

The revised requirement of the remaining five months of the year are thus worked out which are known as revised estimates for the current year. The same become budget estimates for the ensuing financial year after taking into account special features and known factors for the next financial year.

The budget is presented to the parliament duly compiled by the Railway board in the month of February each year on the dates fixed for the purpose.

PRESENTATION TO THE PARLIAMENT: -

The consolidated budget proposals are presented before the parliament by Honorable Railway Minister in the following form –

1) The speech of Railway Minister (Yellow Book)

2) The book of Demands for Grants(Blue Book)

3) The explanatory memorandum(White Book)

4) Works, Machinery and Rolling Stock Programme(Pink Book)

5) Budgetary Notes(Green Book)

APPROPRIATION BILL: -

In terms of article 114(I) of the Constitution of India, after the budget is voted by the Parliament and Appropriations sanctioned by the President, an Appropriation bill is introduced in the Parliament, on passing of the same, it becomes Appropriation Act. This act authorizes Government to withdraw money from consolidated fund of India to the extent sanction for incurrence of expenditure.

RULES OF RE-APPROPRIATION: -

The following are the rules of Re-appropriation: -

1) Re-appropriation is not permitted from one demand to another demand.

2) Re-appropriation is not permitted from capital to revenue demands and vice versa.

3) Re-appropriation is not permitted from voted expenditure to charged expenditure and vice versa.

4) Any surplus amount that remains unutilized by the end of the financial year lapses with that year and is not available for spending during the next financial year.

5) Railway Board is empowered to make re-appropriations within the same demand.

6) GM is empowered to make re-appropriations from one subhead of demand to another subhead of demand but within the same demand.

BUDGET REVIEWS: -

In order to ensure that the budget allotments placed at the disposal of the Railway administration is not exceeded and to ensure that funds allotted are sufficient to cater to the requirements, the budget is reviewed thrice in a year.

AUGUST REVIEW.

The first review is conducted in the month of August, hence is known as August review.In this review, the actual expenditure of the first three months and approximate expenditures for four months is compared with the budget grant for the current year and actual expenditures for the previous financial year. The expenditure is also compared with the budget proportion and the actual expenditures of the corresponding period of

the previous financial year.

The variation in above figures are analyzed and net additional requirements(if any) are asked for during this review.

REVISED ESTIMATES AND BUDGET ESTIMATES.

The second review is conducted in the month of November each year, which is known as revised estimate for the current financial year and budget estimates for the ensuing financial year. The actual expenditures for the first six months and approximate expenditures for the seventh month of the current financial year is compared with –

1) Budget proportion

2) Expenditure incurred during the last financial year.

3) Expenditure incurred during the corresponding period of the last financial year.

4) Budget grant.

Additional requirements or surrender of funds, if any can be done at this stage.

FINAL MODIFICATION.

The third review is conducted in the month of February year and is known as Final Modification. Actual expenditure during first nine months and approximate expenditure for the tenth month is reviewed and compared with –

1) Budget grant / Revised grant (if received).

2) Budget proportion.

3) Actual expenditure during the last financial year.

4) Actual expenditure during corresponding period of the last financial year.

APPROPRIATION ACCOUNT: -

After the closure of accounts for the financial year, report is submitted to the Parliament as to how far the budget estimates have been realized i.e. as to how the funds voted by the Parliament and Appropriations sanctioned by the President have been utilized. Three sets of figures are reported namely, Original Grant, Final Grant and Actual Expenditure. Comparision between latter two is made and Variations are worked out

duly explaining the same.

The Appropriation Accounts along-with Railway’s Audit report thereon are presented to the Parliament through Public Account Committee, which is a committee nominated by the Parliament. On passing / acceptance of the Accounts by the parliament, the excess over sanctioned appropriations is regularized and thus cycle of Parliamentary control over Railway’s Finance is ensured.

CONTROL OVER EXPENDITURE: -

The expenditure on railways may be either revenue or capital, chargeable to works demand. The control over expenditure exercised against these heads involves two aspects. –

a) Control with reference to sanctions.

i) Delegation of powers i.e. Railway board to General Managers and to lower sanctioning authorities.

ii) In exercise of their financial powers, the sanctioning authority must pay due regard to the “Cannons/Standards of Financial Propriety”.

b) Control over actual expenditure incurred/booked in the books of railways.

i) Control over expenditures against the budgetary allotments.

ii) Control over expenditures against the estimated cost as shown in works, machinery and rolling stock programme.

In order to ensure that the budget grants as voted by the Parliament and appropriations as sanctioned by the President are utilized for the purpose they are voted/sanctioned, the control is exercised. The requirements of railways are more as compared to the resources available, hence it is important to exercise control over expenditure. Further, railway is also a commercial organization in addition to Government organization, hence

if railway is to earn profit, it is necessary to ensure that control over expenditure is exercised. The control over expenditure is exercised by –

1) THE PARLIAMENT.

As the sanctioning authority for incurrence of expenditure, the parliament exercises control over expenditure by reviewing the Appropriation accounts and the audit report thereon critically. The scrutiny is done by the Public Account Committee on behalf of the Parliament with a view to satisfy that the amount shown in accounts as having been spent was legally available and was spent for the purpose for which the amount was

made available.

The control over expenditure is exercised by the Parliament through –

i) Railway convention committee.

ii) Estimates committee.

iii) Discussion on Railway budget.

iv) National Railway user’s consultative committee.

v) Committee on subordinate Legislation.

vi) Committee on Government assurances.

vii) Public Accounts Committee.

2) THE EXECUTIVES.

Incurrence of expenditure is subject to preparation or prior vetting of the estimates by the Accounts department, sanction of the competent authority being obtained. This is ensured by the executives. He further ensures that the work progresses as per the sanctioned estimate and budget provision. The provisions of Cannons/Standards of Financial Propriety are also to be kept in view, while granting sanctions to the

expenditure.

Cannons/Standards of Financial Propriety –

In exercise of their financial powers, the sanctioning authority must pay due attention to the following principles –

i) The expenditure should not prima facie be more than the occasion demands and that every Government should exercise the same vigilance in respect of expenditures incurred from public money as a person of ordinary prudence, would exercise in respect of expenditure of his own money.

ii) No authority should exercise its powers of sanctioning expenditure to pass an order, which will be directly or indirectly to its own advantage.

iii) Public money should not be utilized for the benefit of a particular person or section of a community unless –

a) The amount of expenditure involved is insignificant.

b) A claim for the amount could be enforced in a court of law.

c) The expenditure is in pursuance of recognized policy or custom.

iv) The amount of allowances such as travelling allowance granted to meet expenditure of a particular type should be so regulated that the allowance are not on a whole a source of profit to the recipient.

3) THE ACCOUNTS DEPARTMENT.

The internal check carried out by the Accounts office on bills, vouchers, estimates and proposals is primarily to ensure that the same are as per codal provisions, however, the end goal is to ensure control over expenditure.

On passing of the bills and adjustment of vouchers, the same are entered in subsidiary registers like Revenue allocation register for revenue expenditure and Works register for works expenditure. At the end of the month these registers are closed and Control statements are prepared and submitted to the executives to enable them to know the pace of expenditure. Control over expenditure is exercised by comparison of these

statements with budget proportions for the month and to end of the month. Similarly, the totals of works registers are compared with budget grant/proportion and estimates to exercise control over expenditure against budget grant and sanctioned estimates.

4) THE AUDIT DEPARTMENT.

The audit department as representative of The Comptroller and Auditor General Of India, scrutinize the Appropriation Accounts with a view to see that the accounts are properly maintained and the figures exhibited in the appropriation accounts are correct as per the books. They also ensure that the expenditure is regular and properly maintained. The scrutinized Appropriation Accounts along-with remarks offered by the

audit are submitted to the Railway Board. Railway Board submits the consolidated Appropriation Account to the Parliament.

PERFORMANCE BUDGET

The expenditure on Indian Railways is fixed in nature to the extent of 60%, to exercise control over expenditure and to know the result of expenditure, a new scheme known as Performance budget is introduced on the Railways. As per this scheme, availability of funds and results obtained from its utilization are compared to know whether the results are to the extent they were expected. In other words, the financial input is compared with the physical output. So far this scheme is put in use for demand no.10 i.e. Operating Expenses – Fuel, since the norms of comparison could be laid down. The scheme is still in the experimental basis on the Railways and will take a lot of years before it could be successfully implemented.

INTEGRATED BUDGET

The annual budget of the Railways consist of assessment of earnings and expenditures for revenue budget and that related to investment decisions taken through Works, Machinery and Rolling stock programme i.e. Works Budget. In order to correlate the decisions relating to all aspects, a consolidated budget called Integrated budget is submitted by Railway for presentation to the Parliament. This budget includes Revenue

as well as Capital budget.

This budget is prepared under personal guidance of General Manager with FA & CAO’s assistance. The Integrated budget will include the projection of traffic and earnings, working expenses, estimated financial results for the ensuing financial year, operating ratio as well as the financial viability of the system.

ZERO BASE BUDGET

Zero base budgeting can be defined as –

1) An operating planning and budgeting process which requires each manager to justify his entire budget request in detail and shifts the burden of proof to each manager to justify why he should spend any amount. The procedure requires that all activities and operations be identified in decision packages, which will be evaluated and ranked in order of importance by systematic analysis.

2) In most literal sense, Zero base budgeting implies constructing a budget without any reference to what has gone before, based on a fundamental re-appraisal of purposes, methods and resources.

3) Zero base budgeting is a technique/management tool which provides a systematic method for involving all operations and programmes current or new, allows for budget reduction and allows re-allocation of resources from low priority programme.

Budget making under Zero base budgeting involves the following: -

i) Identification of Organization’s structures management, decision units and objectives.

ii) Formulation and development of decision packages.

iii) Review and prioritization of decision packages.

iv) Allocation of resources for the chosen decision packages i.e. preparation of budget.