Sources of Finance (Budgetary)

Sources of Finance (Budgetary)

 

Source: 7^th chapter of IR Finance Code Volume One

What are Budgetary sources of finance? 

Sources which are announced / disclosed in the Annual Budget submitted by the Government to Parliament every year.  It may be Capital or Internal Resources or from other Government Funds.

1.    Capital

2.    DRF – Depreciation Reserve Fund

3.    DF – Development Fund

4.    Capital Fund

5.    SF – Safety Fund

6.    RRSK – Rashtriya Rail SanrakshakKosh

7.    Debt Service Fund

 

Note: RRSK -  Rs. 10,000 Crores (Budgetary support - Rs. 5000 Crores& Internal Sources - Rs. 5000 Crores)

 

Railway Funds (Source of Finance)   - Year established

 

Funds	code	Established in year	Remarks
DRF- Depreciation Reserve Fund	21	1924	Previous name is Programme Revenue
D.F – Development Fund I, II, III & IV	23,33,43 & 53	1950	Previous name is Betterment Fund
C.F – Capital Fund	25	1992	Established in place of closed Railway Revenue Reserve Fund
R.S.F – Railway Safety Fund	26	2001
RRSK (Rashtriya Rail SanrakshaKosh)	29	2017	Though it is not specified, it is a Second SRSF – Second Railway Safety Fund

 

 

 

 

 

 

 

Capital

 

·         Provided from General Revenues by Govt of India

Debits: 

1.    The cost of Land

2.    The first cost of constructions and equipment i.e., New Lines, New Production Units,

3.    Cost of maintaining a section of the line not opened for working

4.    The cost of any additions to the Line or equipement of line

5.    The Capital component of IRFC Lease charges (only if adequate funds are not available under Capital Fund)

Credits:  

1.    The cost at debit of Capital of an Asset (other than Land) which is abandoned or disposed of without being replaced.

2.    Replacement of Rolling Stock by another of less tractive power or seating capacity or floor area

3.    Sale proceed of any land when it is sold or surrendered

4.    The difference between the cost at debit of Capital of a replaced asset (when the replaced asset is less than the cost at debit of capital)

 

DRF - Depreciation Reserve Fund

·         The Oldest working Fund in Indian Railways

 

·         Established in 1924 (April 1^st)

 

·         The predecessor to DRF is “Programme Revenue”.  The expenditure chargeable till 31.03.1924 was then then shown under DRF from 01.04.1924 

 

·          This is a Minor Head under the Major Head 8115  - Depreciation / Renewal Reserve Funds

 

·          DRF Account will be maintained in the books of the Railway and in the office of the Railway Board

Debits:

1.    The cost of replacements & renewals (incl: cost of dismantling, handling & shifting)

2.    The cost of replacement of Ballast (incl: improvement type)

3.    The cost at debit of Capital or DF of an Asset (other than Land) which is abandoned or disposed without being replaced. 

4.    Modernization of Rolling Stock

 Credits:

1.    The amount contributed annually from the Railway Revenues (as per the recommendations of RCC – Railway Convention Committee)

2.    The amount realized from the disposal of the original cost (at the Debit of Capital or DF)

3.    The amount of Interest earned on the balance of the Fund.  

 

·         Balance will be carried from year to year.

·         The Railways appropriation to DRF on a Need cum availability basis instead of doing so in a scientific manner duly considering the historical cost, useful life and salvage value i.e., using the Depreciation Methods. 

 

·         This negligible appropriations resulted in creation of SRSF – Special Railway Safety Fund with an amount of Rs. 17000 Crores in 2001 and RRSK – Rashtriya Rail SanrakshaKosh with an amount of Rs. 1,00,000 Crores in 2017-18

Development Fund

·         4 parts – I, II, III & IV  - P L U S

Debits: (PLUS)

1.    Passenger Amenities and Other Railway Users Amenities 

2.    Labour Welfare works 

3.    Unremunerative works (improvement of operational efficiency)

4.    Safety works

Passenger Amenities:  Water supply at Stations, waiting halls, refreshment rooms, retiring rooms, wash rooms, provision of fans in existing coaches, PRS, Public announcements etc

Other User Amenities: Facilities in Goods sheds, Parcel offices such water facility, waiting room etc

Labour Welfare works:  Provision of New Hospitals, dispensaries, Schools, Railway Institutes, Recreation rooms, sports facilities, clubs, staff canteens, rest rooms, water supply, sanitation in Railway colonies, Railway quarters for Non Gazetted staff,

Unremunerative Works: Improvement of water supply at Stations for loco traffic purpose, removal of infringements, converting dead end sidings into through loops, additional loops at stations, electric lighting at sheds / stations, improvement in signaling facilities,  Provision of guard rails on Major bridges, telecommunication works, remodeling of stations yards, workshops, shed, store depots, provision of running rooms, rest houses for officers and subordinates, firefighting arrangement at stations, washable aprons on passenger platform lines, approach roads to stations,

Safety Works:  All Safety works other than LC Gates / ROBs/RUBs

 Credits:

1.    Amount appropriated from Railway Surplus

2.    The cost at debit of DF of an Asset which is abandoned without being replaced

3.    Interest earned on the balance of the DF

 

 

Capital Fund:

·         Createdw.e.f 1992-93 in pursuance of the recommendation of RCC 1991.

 

·         Operated as a Minor Head under Major Head 8118.

 

·         Established in place of Railway Revenue Reserve Fund.

 

Credits:

 

A)     Appropriation of the Revenue Surplus after meeting obligations of

 

§  Payment of Principal as well as Interest on Loan to  D.F.

§  Appropriation of current year D.F.

§  Payment of deferred dividend.

 

B)      Interest on Capital Fund ( at the rate decided by the RCC)

 

Debits: 

 

1.    This Fund is utilized to finance expenditure until now charged to Loan Capital , to the extent of balance available under this Head.

 

2.    No separate rules existing for utilizing this Fund usually charged to all Plan Heads (except Plan Heads 11 & 51).

 

3.    Capital component of IRFC Lease charges (if adequate funds are not available, then it is charged to Capital.

 

4.    All other expenditure as per allocation projected in yearly Pink Book

 

5.    The distribution of between Capital and Capital Fund from 1998-99 onwards is to be done as per allocation indicated in yearly Pink Book.    

 

 

 RATIONALE OF CREATING CAPITAL FUND:

 

       -  To reduce the borrowings from General Revenues (i.e., Loan Capital or Gross Budgetary Support (GBS) from Government).  Because the loan capital  is non -refundable and interest bearing loan.  The Interest is paid in the form of Dividend to General Revenues.  Since Loan Capital is non – refundable, the payment of dividend also perpetual. 

 

        - Year by year, the GBS (Gross Budgetary Support to Railways is declining. During 1975-76, the GBS is around 75 %.  Now in the year 2011-12, it came down to 34%.

 

       -  Plan Size of the Railways cannot be reduced, since capacity restrictions would endanger the economic progress of the country.   The gap between the requirements and the availability is to be bridged.  The only way is to increase internal resources, that’s why the creation of Capital Fund.

 

       -  No dividend will be paid on the expenditure met from the Capital Fund, as the same is generated from internal resources ( not borrowing from General Revenues).  On the other hand, Interest is credited to the Capital Fund on the balance of the Fund at the end of financial year.  (Rate of interest is equal to the Dividend rate and recommended by RCC from time to time)

 

·         After merger of Railway budget with General Budget (from 2017-18 onwards), there is no relevance of dividend impact on Railways

 

SF- Safety Fund

 

 

   ØObjects:  1. Conversion of Unmanned LC gates into manned LC gates 2. Conversion of busy manned LC Gates into Grade Separator i.e., ROB/RUB/LHS

 

-Since inception of Railways, there has been policy to provide unmanned level crossings where Train Vehicle Units (TVU) are low and manned if expected TVU is on higher side. 

 

          Road Over Bridge can be built over level crossings with Train Vehicle Unit (TVU) more than one lakh provided state government or local body is agreed to share of Approach Road to Bridge ( around 50 percent cost of the project).·

 

-As on 01.04.2013, Indian Railways have 31,254 level crossings out of which,18,672 (60%) are manned and balance 12,582 (40%) are unmanned. These unmanned level crossings account for maximum number of consequential train accidents.

  

   RSF created w.e.f., 01.04.2001.Ø

 

- Created based on the recommendations of RCC - Railway Convention Committee, 1999.

 

- It is Non-Interest bearing Fund.

 

- Credits:   1.   Surplus after meeting the dividend liability in Railway Revenues.  2. Transfer of funds from CRIF - Central Road Infrastructure Fund by the Central Government. 

 

- New Plan Head 2900 - for conversion of unmanned level crossings into manned level crossings.

 

- New Plan head 3000 - construction of ROB/RUB/LHSs in place of manned level crossings.

 Debt Service Fund

 

- Created a new fund in the year 2013-14 year.

                                                              

-  Object: To meet the liabilities for debt servicing of Japan International Cooperation Agency and the World Bank loans taken for the Dedicated Freight Corridor project and obligations of future Pay Commissions/Awards.

 

- Credits to the Fund:  A) From the net surplus (Railways' excess of receipts over expenditure) of the Indian Railways after appropriating the amounts to Development Fund and Capital Fund. B) Interest on closing balance of the Fund.

 

-  Debits to the Fund:  A) to meet committed liabilities of debt servicing for World Bank and JICA- Japan International Cooperation Agency loans for DFC B) Other future liabilities arise due to implementation of future Pay Commissions/Awards etc.

-Importance:

 

A) Railways finances were burdened so much in the years 2008-09 and 2009-10 years due to implementation of 6th Pay Commission recommendations retrospectively from the year 01.01.2006 onwards. Also JICA and World Bank financing on very big scale the ambitious project of DFC - Dedicated Freight Corridor which is expecting the cost of Rs. 95,836 Crores. 

 

B) Western DFC (1,499 km) is being funded by loan from Japan International Cooperation Agency (JICA) to the extent of 77% of the project cost. Out of 1,839 km of Eastern DFC, 1,183 km of Ludhiana-Khurja-Dadri-Kanpur-Mughalsarai section is being funded through loan from World Bank to the extent of 66% of the project cost.

 

C) Unless contributing annually from the surpluses, the repayment of loans to the JICA and World Bank and meeting the 8th Pay commission obligations will be a major burden on the Railway Finances.  In order to prevent the huge burden on Railway finances, this Fund is created and planned to allocate the contributions from the excess of Receipts over Expenditure from 2013-14 year onwards.

v  During the year 2016-17 , Rs.3000 Crores from the Fund balances were utilised to meet 7th Pay commission arrears.  To accountal this, separate Classification/Allocation was enabled under all Demands (i.e., Demand No.4 to 13) - Sub Head 990 under Credits & Recoveries- Amount met from Railway Debt Service Fund Link is ACS 128 to Finance Code II

 

v  However, for the last few years, there is no appropriation to this Fund due to lack of sufficient Internal Resources.

 

RRSK – Rashtriya Rail SanrakshaKosh

 

         Dedicated fund for Railway Safety.·

 

         Established in the year 2017-18 (announced in Budget speech of 2017-18)·

 

         Based on the recommendations of High Level Safety Review Committee, 2012 headed by Shri Anil Kakodkar, former chairman of Atomic Energy Commission.·

 

         Period – Five years·

 

         Fund proposed – Rs.1,00,000Crores (i.e., Rs.20,000 Crores for every year)·

   ·Objects: 1 ) Strengthen the safety measures on the Rail Network to prevent accidents in order to accomplish the “ZERO ACCIDENT MISSION”

 

         ·Unique feature of this Fund is Non-lapsable .  That means the grant allotted for this Fund is not lapsed with the completion of financial year.

 ·         2021-22 – Budget provision for RRSK is Rs.10000 Crores (Rs. 5000 Crores from Internal and Rs. 5000  crores from Budgetary Support)

·         Same allocation too in the previous year i.e., in 2020-21

 

         ·Works falling under this Fund category: -

 

1.    Track renewals &upgradation

2.    Bridge rehabilitation

3.    Elimination of LC gates on BG routes by 2022  

4. Construction of ROBs/RUBs    

5.    Replacement & Improvement of Signaling system.

6.    Improvement & up gradation of Rolling Stock.

7.    Replacement of Electrical assets

8.    HRD – Human Resources Development.

 

NIF - National Investments Fund

 

·         One of the sources of finance for Indian Railways Capex - Capital Expenditure

 

·         Established in 2005

 

·         Maintained by : DIPAM - Dept of Investments & Public Asset Management

 

·         Credits: Proceeds from disinvestment of CPSEs - Central Public Sector Enterprises.  Initially the proceeds are kept under Public Account of India.

 

·         Corpus(Amount) of NIF - Permanent nature.  That means  the money with the NIF is permanent in nature and is professionally managed to provide returns (income) to the Government without depleting its value (corpus) 

 

·         Managed by : Professional Managers such as SBI Funds Managmentpvt ltd, UTI Asset Management Company ltd, LIC Mutual Fund Asset Management Company ltd.

 

·         NIF income- utilised for the following purposes.

 

1.    Subscribing - shares being issued by the CPSE on Rights basis or Preferential allotment of shares as per SEBI regulations  ( to ensure 51% ownership by the Govt)

2.    For capital infusion in Public Sector Banks & Public Sector Insurance companies to meet BASEL III norms.

3.    Investments in Regional Rural Banks/NABARD- National Bank for Agriculture & Rural Development/EXIM Bank - Export - Import Bank/IIFCL - India Infrastructure Finance Company Limited.

4.    Equity infusion in Metro Projects

5.    Investment in BhartiyaNabhikiyaVidyut Nigam Limited (BNVNL) & Uranium Corporation of India Limited.

6.    Investment in Indian Railways towards Capital Expenditure.

 

CRIF - Central Road & Infrastructure Fund

                  

·         One of the Sources of Finance under Capital Expenditure (Capex) of Indian Railways

 

·         Rs. 18,500 Crores - allocated to Capex of Indian Railways in 2020-21 Budget (Rs. 15,250 Crores in 2019-20).  Usually spend on LC Gates and ROB/RUBs under Plan Heads 2900 & 3000

 

·         Established in 2000   (The Central Road and Infrastructure Act, 2000) Fund Act, 2000he Central

 

·         Old name is CRF - Central Road Fund

 

·         Managed by Dept of Economic Affairs (DEA) under Ministry of Finance. (Previously it is under Ministry of Road Transport & Highways)

 

·         Source of Fund -  Levy & collect by way of Cess, a duty of excise and duty of customs on Petrol and Diesel  (in 2018-19 - Rs. 1,13,000 Crores collected).  It is approximately Rs. 10 per liter of Diesel / Petrol.

 

·         Object: To finance infrastructure projects such as Railways, Inland Waterways, Roads & Bridges, Ports, Shipyards, Urban Public Transport, Energy, Water & Sanitation, Communication & Social infrastructure (educational institutions)

 

·         Ministerial panel on CRIF - 4 Ministers (of Finance, Railways, Road transport & Highways, HRD) - for allocation of funds under CRIF

 

·         The 15-member sub-committee has Secretaries from different Ministries - Examine and evaluate proposals received from Ministries on infrastructure projects.

 

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