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Will railways lose its autonomy post the merger of rail & general budget?

21 September, 2016

The Union Cabinet on Wednesday approved a proposal to merge the railway and the general budgets. This will end a 92-year-old British era practice of having two separate budgets. The government also decided to bring the union budget forward. Here is what the new move will mean for the budget making process and for the economy in general.

What does the merging of railway and general budget mean?

Being the largest civilian employer in India and the country’s predominant transporter, the railways enjoyed the privilege of having its own budget, which the government has now effectively ended. This means that from now on, there will be no separate railway budget, which was usually presented a couple of days before the main budget. Instead, the railway budget will be part of the general budget.

But will the government have to change the law for this?

Not really. There is nothing codified about the railway budget in the constitution. This was a colonial era practice, having begun in 1924, and it carried on all this while. An executive decision of the cabinet should suffice to do away with the practice.

This is not the first time the union government has changed a budgetary practice. In fact, as VCCircle noted in an earlier report, in 2001, the then government led by former prime minister Atal Behari Vajpayee had ended another British era tradition by moving the time for the presentation of the budget from 5 pm to 11 am.

Why has the government decided to merge the two budgets?

In June this year, Niti Aayog, the government’s think tank that replaced the Planning Commission, had recommended that the railway budget should be merged with the main budget. Citing a report by Niti Aayog member Bibek Debroy, The Times of India had reported that he was of the view that doing away with the rail budget will depoliticise the transporter’s operations and help the government take tough decisions. This is significant because for several decades now the railways has been hostage to populist and  conomically unviable policies adopted by successive governments. The Niti Aayog believes that scrapping the railway budget could lay the foundation for overhauling the railways and make it a more business oriented commercial body.

But will this curb the financial autonomy of the railways?

The government insists it will not. Some experts, however, feel that the railway board, the ministry’s apex decision making body has always been autonomous of the finance ministry, and that with the merger, this will no longer be the case. They say that before the accounts of the railways are merged with that of the general budget, the issue of autonomy will have to be settled.

Why does the government want to advance the presentation of the general budget?

The cabinet on Wednesday also decided in-principle to advance the date of the presentation of the general budget from the end of February. No final date, however, has been announced yet. The government hopes that advancing the date will help mobilise revenues for the new financial year from the beginning itself. That, the government feels, will give it enough time to allocate funds to departments for the new financial year from 1 April, instead of May, as the legislative process related to budget making gets completed only by then. Bringing the budget forward will also eliminate the need to hold a vote-on-account to meet government expenses during this intervening period.

But are there any pitfalls to advancing the budget date?

Some experts, including former finance minister Yashwant Sinha, believe that the late passage of the budget is not responsible for the ‘bunching’ up of expenditure and that the ministries themselves delay the process due to administrative reasons. In fact, these experts say that the late presentation, towards the end of the financial year, helps the government anticipate the fiscal and other issues that are likely to arise during the new financial year, and make amends for the same. This also helps get a firmer grip on the fiscal deficit target for the new financial year, which could now become tougher.

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Will railways lose its autonomy post the merger of rail & general budget?

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