Description
RESOURCE SCARCE RAILWAYS CAN TAP THE NEW PENSION RECOVERY FOR ITS SHORT TERM PROJECTS
[A PROJECT REPORT BY THE OS-II TRAINEES AT ZRTI/TPJ
NEW PENSION SCHEME AS
ALTERNATIVE SOURCE OF FINANCE FOR RAILWAY PROJECTS
[A PROJECT REPORT BY THE OS-II TRAINEES AT ZRTI/TPJ
2012
ZONAL RAILWAY TRAINING INSTITUTE, SOUTHERN RAILWAY, TIRUCHCHIRAPPALLI
2
INTRODUCTION
Indian Railways is the life line of this country and is involved in transporting people and materials from one part of the country to another. Besides maintaining the system Indian Railways is also involved in creating the required infrastructure for itself. It is funded by the Central Government for its assets creation for which Indian Railways pays Dividend. Indian Railways also borrows money through Indian Railway Finance Corporation (a subsidiary corporation under the aegis of Ministry of Railways) for Capital Investment and in turn pays enormous amount as leasing charges. Statistics Time and again the Honourable Railway Ministers have been stating about the deteriorating financial health of Indian Railways due severe restriction on the increase in fares and freights, in the floor of the Parliament House. Indian Railways depends on the Central Government to tide over the financial quagmire. The dwindling budgetary support for Indian Railways in the successive Five Year Plans on the one side and the political pressure not to increase the fares and freights has resulted in the steep increase in the operating ratio of the Indian Railways. The social dilemma whether the Indian Railways is a Govt undertaking involved in transportation service or a commercial organisations has cost dearly to the top management. Here it is put forward a better solution by investing the money remitted by the employees in the New Pension Scheme (NPS) for utilizing the same in creation of assets for Railways. The revenue earning projects can be identified and completed with the help of these fund strictly following a time schedule and the returns received can be utilized for the payment of the employees’ settlement at their retirement/exit. This money needs to be paid back only after 30 years approximately and the employees can rest assured of their investment. Presently the employees do not know about the whereabouts of their money. Railways can utilize the money which continues to grow and reap benefits of constant inflow of money without depending on outside borrowings and if it is strictly implemented this scheme can take Indian Railways to new heights. We dedicate this project work to millions of railway workers of the past, present and future that by their undaunted work have helped Indian Railways to survive century after century.
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ZONAL RAILWAY TRAINING INSTITUTE TIRUCHCHIPPALLI 4TH AUG 2012
LDCE OS Trainees – Group F at ZRTI/TPJ-2012 Smt. Jayalakshmi Suresh, OS-II/ZRTI/TPJ Smt.Mini Prasad, OS-II, SSE/PW/CKI/TVC Smt.Vasantha Mohan, OS-II /CPO/O/MAS Shri.P.Raghavendran, OS-II /MTP/R/MS Shri.K.C.Rajamani, OS-II /S&T/ED/SA Shri.Vincent George, OS-II /Sr.DME/O/PGT
4
LIST OF ABBREVIATIONS
BHEL
Bharat Heavy Electrical Limited – a PSU
CPC BOLT BOOT BOT CRA DCRG DF DRF IR IRDA IRFC KRCL NCSRPF NPS NSDL OLWR OWY PFRDA PPP PRAN PSU ROI RPFRDA RS (P) R RTJ SPV UTS VPF WIS WLS
Central Pay Commission Build Operate Lease and Transfer Build Operate Own Transfer Build Operate Transfer Death Cum Retirement Gratuity Development Fund Depreciation Reserve Fund Indian Railways - magazine Insurance Regulatory and Development Authority Indian Railway Finance Corporation Konkan Railway Corporation Limited Non Contributory State Railway Provident Fund New Pension Scheme National stock Open Line Works Revenue Own Your Wagon Pension Fund Regulatory and Development Authority Public Private Partnership Permanent Retirement Number Public Sector Undertaking Return On Investment Railway Pension Fund Regulatory And Development Authority Railway Servants Pension Rules Rail Transport Journal - magazine Special Purpose Vehicle Un-Reserved Ticketing System Voluntary Provident Fund Wagon Investment Scheme Wagon Leasing Scheme
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CONTENTS
NO
1 2 3 4 5 6 7 8 9 10 11 12 10
SUBJECT
INTRODUCTION LIST OF ABBREVIATIONS EXECUTIVE SUMMARY INDIAN RAILWAYS FINANCIAL CRISIS IN INDIAN RAILWAYS
PAGE
PRESENT SET UP PROPOSED SCHEME IMPLEMENTATION BENEFITS RECOMMENDATIONS EPILOGUE BIBLIOGRAPHY
6
7
PROLOGUE
Indian Railways is an ever expanding public sector undertaking commercial business by transporting people and material the length and width of the country. Crores of rupees is needed to meet its expansion programmes. Indian Railway (IR) besides maintaining the system also serves as an Infrastructure Company meeting the capital nature of works like new lines, Gauge conversions, building of Bridges & Tunnels, Service and welfare buildings etc. IR borrows loan capital (Capital-atcharge) on payment of annual dividend. Three Railway Ministers Shri George Fernandez, Shri Nithish Kumar & Ms Mamta Banerjee while presenting the “Status/White Paper” before the Parliament during their tenure had stated that considering the financial health of Indian Railways there is a dearth of capital and for want of the same its projects are time and cost overrun. The plan outlay of Indian Railways comprises of budgetary support i.e., Capital (General Revenues from Ministry of Finance) and expenditure to be met by the Indian Railways from their own internal resources i.e., Depreciation Reserve Fund, Development Fund, Open Line Works (Revenue). The main arm of finance for Indian Railways is through Public Sector Corporation under Ministry of Railways known as Indian Railway Finance Corporation and their objective is to raise loans from the market and lease assets procured with the help of these loans to Indian Railways. The dividend payable by the Railways to the General Revenue is 5.65% and leasing charges payable to IRFC is presently at the rate of 16%. In the “White Paper” presented by then Minister of Railways in 2009 Ms. Mamata Banerjee had observed as under:
“The level of annual investment by IRFC in Rolling Stock assets has risen steadily over the years. As a result, lease rentals paid by Railways to IRFC (including the capital repayment component) have gone up from 3,340 Crores in 2004-05 to 4,674.50 Crores in 2008-09. Rising cost of borrowing on a growing base of borrowed funds poses a risk factor that could have an adverse impact on the capacity for internal generation of revenue of the Railways. In this scenario, higher capital investment in the rail sector calls for higher budgetary support in view of massive investments in the road sector.”
8
In the above context efforts by IR to invite the corporate sector to invest in Railway projects under various Schemes like “Own Your Wagon, Wagon Investment Scheme, Wagon Leasing Scheme, Build Operate Own Transfer (BOOT), Build Operate Lease and Transfer (BOLT) Build Operate Transfer (BOT), Special Purpose Vehicle (SPV), Public Private Partnership (PPP)” have not succeeded. Hence IR is really at financial crossroads facing a severe financial crunch for continuing the existing projects and to contemplate new projects. Therefore, IR has to look elsewhere for alternate source of funding and the NPS can better be utilized for this purpose. Presently, the Government of India has introduced a new defined contributory Pension System for the new entrants to the Central Government Services including Railways except for Armed Forces in the first stage, replacing the existing system of non-contributory pension system and this new Pension System has come into force w.e.f 1.1.2004. According to this New Pension Scheme which is contributory in nature, all the contributions towards Tier I (10% of Basic Pay + DA from employee and 10% from employer) are being transferred to Central Record Keeping Agency monitored by Pension Fund Regulatory Development Authority (PFRDA). Since the contributions made towards Tier I is non-withdrawable the contributions made towards these fund by the employees are utilized only at the time of their retirement on superannuation. In view of the acute need for financial resource for Indian Railways, a Strategic investment of New Pension Scheme as an alternate fund, by creating a separate body i.e., PFRDA for Railway Employees is envisaged and the contribution made by Railway Employees towards Tier I are credited in that fund which will enable Indian Railways for creation of Railway Assets and become self-reliant without resorting to external borrowings and at the same time it will reap benefits for employees as well. The enormity of the organisation makes it as the single largest contributor to the NPS. Instead of contributing to the National Stock Exchange, the contribution both from the employees and the Govt of India (Ministry of Railways) can be utilised for the projects of the IR.
9
EXECUTIVE SUMMARY CHAPTER I INDIAN RAILWAYS
Railways were first introduced to India in 1853. By 1947, the year of India's independence, there were forty-two rail systems. In 1951 the systems were nationalized as one unit, becoming one of the largest networks in the world. IR operates both long distance and suburban rail systems on a multi-gauge network of broad, metre and narrow gauges. It also owns locomotive and coach production facilities.Contents Indian Railways Type Founded Departmental Undertaking of The Ministry of Railways, Government of India 26 April 1853
Headquarters New Delhi, India Area served Key people Industry Products Revenue Employees Parent Website India Union Railway Minister: Minister of State for Railways Minister of State for Railways Chairman, Railway Board: Railways and Locomotives Rail transport, freight transport, services ? Rs. 107.66 billion (US$19.13 billion) 1,406,430 (2007) Ministry of Railways, Government of India www.indianrailways.gov.in
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Indian Railways: (Bh?rat?ya Rail), abbreviated as IR, is the state-owned railway company of India, which owns and operates most of the country's rail transport. It is overseen by the Ministry of Railways of the Government of India. Indian Railways has one of the largest and busiest rail networks in the world, transporting over 18 million passengers and more than 2 million tonnes of freight daily. It is the world's largest commercial or utility employer, with more than 1.4 million employees. The railways traverse the length and breadth of the country, covering 6,909 stations over a total route length of more than 63,327 kilometers (39,350 mi). As to rolling stock, IR owns over 200,000 (freight) wagons, 50,000 coaches and 8,000 locomotives. At present, the Railways are a significant player in the transportation sector of the national economy. The Indian Railways have been the national carriers of goods and passengers with a monopolistic control over the railroads. Indian railways are now about the only major railway system in the world which is functioning without any direct subsidy from the central government. On the contrary , they have consistently been paying a substantial dividend every year to the General exchequer (Rs.1507.46 Crores in 1996-97) on the capital invested in them while carrying over 40 % of the total land freight traffic and 30 % of surface passenger traffic. Today the Indian Railways network sprawling over 63000 kilo meters carrying nearly 120 Lakhs passengers and 11 Lakhs tones freight everyday draws on a unique significance operating as it does under single management The Indian Railways have branched off into a mammoth organization the largest Govt. Dept. employing more than 1.7 million staff and officers, which is 40 % of total Central government employees. STRUCTURE OF THE INDIAN RAILWAYS: The Indian Railways is a Government Department functioning under the Ministry of Railways headed by the Railway Minister (usually a Cabinet Minister) and assisted by the Minster of Railways for State. For policy guidance and overall governance, the Railway Board exists containing various members, directorates and other officers. The Ministry enjoyed a state of Independence from the Ministry of Surface Transport which comprehends all other inland surface transport. Under the Constitution of India, the legislative power with respect to Railways vests with
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exclusively in Parliament in terms of Article 246 read with entries 22, 30 and 89 of List I of the Seventh Schedule to the Constitution of India. The Government of India has also the exclusive executive powers over the Railways. Further, a Board to govern the Railways constituted under a resolution of the Government of India dated 18.02.1905. RAILWAYS AS PUBLIC ENTERPRISE: In an under developed country a high rate of economic progress and the development of a large Public Sector and a co-operative Sector are among the principal areas for effecting transition towards Socialism. The same sentiments were echoed by Mrs. Indira Gandhi when she declared, “We advocate Public Sector for three reasons: To gain control of the commanding heights of the economy, to promote critical development in terms of social gains of strategic value rather than primarily on consideration of profit and to provide commercial surplus with which to finance further economic development” . Public Enterprise can be defined as an activity of the Govt. whether Central or State or Local involving manufacturing or production of goods including agriculture or making available a service for a price such activity being managed either directly that is departmentally, or through an autonomous body with the govt. having a majority ownership that is more than 50 % of Equity. This is known as Govt. Company according to Companies Act, 1956. RAILWAY ZONES
The headquarters of the Indian Railways in New Delhi
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Indian Railways is divided into zones, which are further sub-divided into divisions. The number of zones in Indian Railways increased from six to eight in 1951, nine in 1952, and finally 16 in 2002-03. Each zonal railway is made up of a certain number of divisions, each having a divisional headquarters. There are a total of sixty-seven divisions. The Kolkata Metro is owned and operated by Indian Railways, but is not a part of any of the zones. It is administratively considered to have the status of a zonal railway. A General Manager (GM) who reports directly to the Railway Board heads each of the sixteen zones, as well as the Kolkata Metro. The zones are further divided into divisions under the control of Divisional Railway Managers (DRM). The divisional officers of engineering, mechanical, electrical, signal & telecommunication, accounts, personnel, operating, commercial and safety branches report to the respective Divisional Manager and are in charge of operation and maintenance of assets. Further down the hierarchy tree are the Station Masters who control individual stations and the train movement through the track territory under their stations' administration.
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Sl. No 1.
Name
Abbr.
Date Established November 5, 1951
Headquarters
Divisions Mumbai, Bhusawal, Pune, Solapur, Nagpur Danapur, Dhanbad, Mughalsarai, Samastipur, Sonpur Khurda Road, Sambalpur, Visakhapatnam Howrah, Sealdah, Asansol, Malda Allahabad, Agra, Jhansi Izzatnagar, Lucknow, Varanasi Jaipur, Ajmer, Bikaner, Jodhpur Alipurduar, Katihar, Lumding, Rangia, Tinsukia Delhi, Ambala, Firozpur, Lucknow, Moradabad Secunderabad, Hyderabad, Guntakal, Guntur, Nanded, Vijayawada Bilaspur, Raipur, Nagpur Adra, Chakradharpur, Kharagpur, Ranchi Hubli, Bengaluru, Mysuru Chennai, Madurai, Palakkad, Salem, Tiruchchirapalli, Thiruvanathapuram Jabalpur, Bhopal, Kota Mumbai Central, Vadodara, Ratlam, Ahmedabad, Rajkot, Bhavnagar
Central
CR
Mumbai
2.
East Central
ECR
October 1, 2002
Hajipur
3.
East Coast
ECoR
April 1, 2003
Bhubaneswar
4.
Eastern North Central North Eastern North Western Northeast Frontier Northern
ER
April, 1952
Kolkata
5.
NCR
April 1, 2003
Allahabad
6.
NER
1952
Gorakhpur
7.
NWR
October 1, 2002
Jaipur
8.
NFR
1958
Guwahati
9.
NR
April 14, 1952
Delhi
10.
South Central South East Central South Eastern South Western
SCR
October 2, 1966
Secunderabad
11.
SECR
April 1, 2003
Bilaspur, CG
12.
SER
1955
Kolkata
13.
SWR
April 1, 2003
Hubli
14.
Southern
SR
April 14, 1951
Chennai
15.
West Central
WCR
April 1, 2003
14
Jabalpur
16.
Western
WR
November 5, 1951
Mumbai
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A WAP5 locomotive
A diesel locomotive of Indian Railways powering Express train, that runs in Assam
The Indian Railways manufactures a lot of its rolling stock and heavy engineering components. As with most developing economies, the main reason is import substitution of expensive technology related products. This was relevant when the general state of the national engineering industry was immature. The six manufacturing plants of the Indian Railways, called Production Units, are managed directly by the ministry. These six production units (PUs) are each headed by a
16
General Manager (GM), who also reports directly to the Railway Board. The Production Units are: 1.
2. 3.
4.
5.
6.
• •
Chittaranjan Locomotive Works, Diesel Locomotive Works, Varanasi Diesel-Loco Modernisation Works, Patiala Integral Coach Factory, Chennai Rail Coach Factory, Kapurthala Rail Wheel Factory, Bangalore Other independent units of Indian Railways are:
Central Organization For Railway Electrification, Allahabad Central Organization For Modernization of Workshops, New Delhi
Research Design and Standards Organization (RDSO), Lucknow is the R&D division of Indian Railways and functions as the technical advisor to Railway Board, Zonal Railways, and Production Units. Bharat Earth Movers Limited (BEML), Bangalore is an organization unrelated to the Indian Railways; however, it manufactures coaches for both the Indian Railways and the Delhi Metro system. A General Manager also heads the Central Organisation for Railway Electrification (CORE), Metro Railway, Calcutta and construction organisation of NFR. Railway PSU's Apart from these zones and production units, a number of Public Sector Undertakings are under the administrative control of the ministry of railways. These units are: 1. Dedicated Freight Corridor Corporation of India- DFCCLI
2. Indian Railways Catering and Tourism Corporation - IRCTC
3. Konkan Railway Corporation Ltd KRCL
4. Indian Railway Finance Corporation IRFC 5. Mumbai Rail Vikas Corporation MRVC
6. Railtel Corporation of India – Telecommunication Networks RCIL
7. RITES Ltd. – Consulting Division of Indian Railways RITES 8. IRCON International Ltd. – Construction Division IRCON
9. Rail Vikas Nigam Limited RVNL 10. Container Corporation of India CCI
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11. Rail Land Development Authority – RLDA is a statutory authority formed through
an amendment of the Railways' Act, 1989 for commercial development of vacant railway land/
12. Centre for Railway Information Systems – CRIS is an autonomous organisation
under the Railway Board, which is responsible for developing the major software required by Indian Railways.
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PASSENGER SERVICES
Indian Railways operates about 9,000 passenger trains and transports 18 million passengers daily across twenty-eight states and one union territory, Puducherry (formerly Pondicherry). Sikkim, Arunachal Pradesh, and Meghalaya are the only states not connected by rail. The passenger division is the most preferred form of long distance transport in most of the country. A standard passenger train consists of eighteen coaches, but some popular trains can have up to 24 coaches. Coaches are designed to accommodate anywhere from 18 to 81 passengers, but during the holiday seasons or when on busy routes, more passengers may travel in a coach. Most regular trains have coaches connected through vestibules. However, 'unreserved coaches' are not connected with the rest of the train via any vestibule. Reservation against cancellation service is a provision for shared berth in case the travel ticket is not confirmed. It is a way of maximizing the number of wait-listed passengers to be accommodated in case of a cancellation. Suburban rail
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The Delhi Metro Railway
Mumbai's suburban trains handle 6.3 million commuters daily. Many cities have their own dedicated suburban networks to cater to commuters. Currently, suburban networks operate in Mumbai, Chennai, Kolkata , Delhi, Hyderabad, Pune and Lucknow. Hyderabad, Pune and Lucknow do not have dedicated suburban tracks but share the tracks with long distance trains. New Delhi, Kolkata, and Chennai have their own metro networks, namely the New Delhi Metro, the Kolkata Metro and the Chennai MRTS, with dedicated tracks mostly laid on a flyover. Suburban trains that handle commuter traffic are mostly electric multiple units. They usually have nine coaches or sometimes twelve to handle rush hour traffic. One unit of an EMU train consists of one power car and two general coaches. Thus a nine coach EMU is made up of three units having one power car at each end and one at the middle. The rakes in Mumbai run on direct current, while those elsewhere use alternating current. A standard coach is designed to accommodate 96 seated passengers, but the actual number of passengers can easily double or triple with standees during rush hour.
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NOTABLE TRAINS AND ACHIEVEMENTS
A train on the Darjeeling Himalayan Railway
There are two UNESCO World Heritage Sites on IR — the Chatrapati Shivaji Terminus[18] and the Mountain railways of India. The latter is not contiguous, but actually consists of three separate railway lines located in different parts of India: The Darjeeling Himalayan Railway, a narrow gauge railway in West Bengal.
•
The Nilgiri Mountain Railway, a metre gauge railway in the Nilgiri Hills in Tamil The Kalka-Shimla Railway, a narrow gauge railway in the Shivalik mountains in The Palace on Wheels is a specially designed train, frequently hauled by a steam locomotive, for promoting tourism in Rajasthan. On the same lines, the Maharashtra government introduced the Deccan Odyssey covering various tourist destinations in Maharashtra and Goa, and was followed by the Government of Karnataka which introduced the Golden Chariot train connecting popular tourist destinations in Karnataka and Goa. However, neither of them has been able to enjoy the popular success of the Palace on Wheels. The Samjhauta Express is a train that runs between India and Pakistan. However, hostilities between the two nations in 2001 saw the line being closed. It was reopened when the hostilities subsided in 2004. Another train connecting Khokhrapar (Pakistan) and Munabao (India) is the Thar Express that restarted operations on February 18, 2006; it was earlier closed down after the 1965 Indo-Pak war. The Kalka Shimla Railway till recently featured in the Guinness Book of World Records for offering the steepest rise in altitude in the space of 96 kilometres.
21
Nadu.
•
Himachal Pradesh.
CURRENT ISSUES AND UPGRADES Although accidents such as derailment and collisions are less common in recent times, many are run over by trains, especially in crowded areas. Indian Railways have accepted the fact that given the size of operations, eliminating accidents is an unrealistic goal, and at best they can only minimize the accident rate. Human error is the primary cause, leading to 83% of all train accidents in India. In the past, the Konkan Railway route has suffered from landslides in the monsoon season, causing fatal accidents. Outdated communication, safety and signaling equipment, which used to contribute to failures in the system, is being updated with the latest technology. A number of train accidents happened on account of a system of manual signals between stations, so automated signaling is getting a boost at considerable expense. It is felt that this would be required given the gradual increase in train speeds and lengths, that would tend to make accidents more dangerous. In the latest instances of signaling control by means of interlinked stations, failure-detection circuits are provided for each track circuit and signal circuit with notification to the signal control centres in case of problems. Though currently available only in a small subset of the overall IR system, anti-collision devices are to be extended to the entire system. Aging colonial-era bridges and century-old tracks also require regular maintenance and upgrading. In recent years, Indian Railways has laid claim to a financial turnaround, with (unaudited) operating profits going up substantially. Credit for this achievement has been claimed by the previous Indian Railway Minister, Mr. Lalu Prasad Yadav, who asserts that he made significant improvements in the operating efficiency of goods traffic after he took over as Railway Minister in May 2004. Comparison of different gauges common in India with the standard one, which is not common in India The Sixth Pay Commission has been constituted in India to review the pay structure of Government employees, and its recommendations are expected by the end of 2008. Based on its recommendations, the salaries of all Railways officers and staff are expected to be revised with retrospective effect (w.e.f. January 1, 2006). If previous Pay Commissions are taken as an indicator, this revision could be 50%, thus having an impact on present and future Railway budgets. The Rajdhani Express and Shatabadi Express are the fastest trains of Indian Railways, though they face competition from low-cost airlines since they run at a maximum speed
22
of only 150 kilometres per hour (93 mph). At least five corridors are under consideration for the introduction of high speed bullet trains to India with expert assistance from France. It is estimated that to modernise Indian Rail and bring it up to international standards, would require over US$200 billion in new and upgrade investments. IR is in the process of upgrading stations, coaches, tracks, services, safety, and security. Initially, various upgrade and overhaul work will be performed at more than fifty stations, some of it by private contract. All meter gauge lines in the country will be converted to broad gauge (see Project Unigauge). New LHB(Alstom) stainless steel coaches, manufactured in India, have been installed in Premier Rajdhanis and Shatabdis like Howrah Rajdhanis, Sealdah Rajdhanis, Mumbai Rajdhanis, August Kranti Rajdhanis, Patna Rajdhanis, Guwahati Rajdhanis and Bhuwaneshwar Rajdhanis. These coaches enhance the safety and riding comfort of passengers besides having more carrying capacity, and in time will replace thousands of old model coaches throughout Indian Railways. More durable and conforming polyurethane paint is now being used to enhance the quality of rakes and significantly reduce the cost of repainting. Improved ventilation and illumination are part of the new scheme of things, along with the decision to install air brake systems on all coaches. New manufacturing units are being set up to produce state-of-the-art locomotives and coaches. IR is also expanding its telemedicine network facilities to further give its employees in far-flung and remote areas access to specialized medicine. IR has also piloted Internet connectivity on the Mumbai-Ahmedabad Shatabdi Express, powered by Techno Sat Communications. Sanitation in trains and stations throughout the system is getting more attention with the introduction of eco-friendly, discharge-free, green (or bio-) toilets developed by IIT Kanpur. Updated eco-friendly refrigerant is being used in AC systems while fire detection systems will be installed on trains in a phased manner. New rodent-control and cleanliness procedures are working their way into the many zones of IR. Central Railway's 'Operation Saturday' is gradually making progress, station by station, in the cleanup of its Mumbai division. ORGANIZATION CHART MINISTER FOR RAILWAYS ?
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MINISTER OF STATE FOR RAILWAYS ? RAILWAY BOARD CHAIRMAN ? FINANCIAL COMMISSIONER, (Members-Engineering, Mechanical, Traffic, Staff, Electrical) SECRETARY, ? ADVISERS (DIFFERENT AREAS) ? DIRECTOR- GENERAL DIRECTOR - GENERAL RAILWAY PROTECTION FORCE RAILWAY HEALTH SERVICES ? EXECUTIVE DIRECTORS (DIFFERENT DIRECTORATES) ? GENERAL MANGERS (ZONAL RAILWAYS and PRODUCTION UNITS) PUBLIC ENTERPRISE
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1. Enterprises completely owned by the State or Central govt. and functioning as part of the govt. These are known as departmental undertakings. A railway is an example. These are controlled by respective ministries. 2. Enterprises are set up under an Act of the Parliament and owned by the govt. These are known as statutory corporations. Life Insurance Corporation, State Bank of India, and Reserve Bank of India are examples. 3. Enterprises which are company types of organization registered under Companies act of 1956 and known as Govt. Companies (Sec 617). Hindustan Ship Yard, Hindustan Machine Tools, Bharat Heavy Electrical Limited is some examples. OBJECTIVES OF RAILWAY MANAGEMENT: To provide rail transport for both passenger and goods adequate to meet the demand in areas where Railway operation confers optimum benefit to the economy having due regard to the Government’s policy of development of backward areas: To provide such rail transport at the lowest cost consistent with:Requirement of the railway users and safety operations, Adequate provisions for replacement of assets and some provision for development of business and the least amount of pollution of the environment To work in association with or utilize other modes of transportation, such as pipelines and road transport and to engage in ancillary activities necessary to sub serve the above two objectives; To establish a corporate image of the railways as being an up-to-date business organization with the interest of the public and of the nation as its prime objectives; and To develop organizationally effective personnel with pride in their work and faith in the management
I FINANCIAL CRISIS IN INDIAN RAILWAYS
IR on Financial Cross Roads
25
With the loss of monopoly on the bulk movement of goods and the development of well connected road facilities, IR has lost its transport potential both in passenger as well as commodities. Following are the some of the reasons for the financial crisis.
Decline in Budgetary Support: The major source of investment in the past has been the budgetary support, has dwindled from 75 % to 39 %. Railways have therefore, to raise resources from the market on commercial terms and conditions.1 This is considered as the severe blow to the IR as it enjoyed the unstinted support from the GOI. With the increasing cost of input and services on the one side (especially after the implementation of VI CPC Pay Scale Recommendations and the resultant steep increase in Pension liability- as per the Railway Budget 2012-13 staff wages and Pension liability has reached 53 %) and the political impasse to increase the fares and freight, IR has reached the stage of winding up. Budgetary support started declining and came down from 75 % in V Five Year Plan to 58 in VI Five Year Plan and to 42 % in VII Five Year Plan. It has drastically come down to 39 % in XI Five Year Plan in the terminal year(2007-12). It is likely to slide down in the coming years as has been pointed out by Birkhe Ram. 2 Declining governmental support has caught the railways between the need to carry higher traffic and increasing cost of operations. 3 It is likely to be further reduced in the XII Plan (2009-14).4 Outside Borrowing: Market borrowing for financing the railway plans are comparatively expensive - high cost of market borrowing - high cost of operation - the rate of interest on Taxable bonds is 9 % against the dividend rate of 7 %.5 Similar view was already expressed by George Fernandes, Nitish Kumar and Mamata Bannerjee.6 If the railways have to maintain their financial viability, the market borrowings have to be kept under very close scrutiny. Charges have risen from a modest in 1998- 99 ( Estimated )8 ? Social Costs: Social Service Obligation
1 N. P. Srivastava, Brief Report on the Seminar on “Investment Opportunities In Rail Transportation And Service”, RTJ, Jan- March 1996, p. 2 Birkh Ram, “Improving Railway Finances, I R, Aug.96, p. 39. 3 V. Sivakumaran,
“ Privatisation And Modernisation In Indian Railways - Financial consideration”, I R, April 96 p. 17 29 & 30 17 5
7
The Lease 2392 Crores
25 Crores in 1987 - 88 to a mammoth
4 Arun Bhagra, -Lt. Col “Role Of Indian Railways In The Future Transportation Scenario”. RTJ, July - Sept., 1996 PP. 5 V. Sivakumaran , “Privatisation And Modernisation In Indian Railways - Financial consideration ”, I R , April 96 p. 6 George Fernandes, “Status Paper On Railways”- Ministry of Railways, Govt. of India, 1990 para 30. 7 White Paper on Railway Projects, Ministry of Railways, Govt. of India, 1998 p.7 8 Status Paper on Indian Railways, Some Issues and Options, Ministry of Railways, Govt. of India, 1998.p. 9
26
Indian
Railways (IR), carries out certain transport activities which are essentially uneconomic in nature in the larger interest of the economically disadvantaged sections of the society. Losses incurred on this account fall under social service obligation of IR. Net social service obligation borne by IR in 2008-09 is assessed at .11,477.53 crore excluding staff welfare cost ( .2,582.93crore) and law and order cost ( .1,586.73 crore). These costs impinge upon the viability of Indian Railways system. Elements of Social Service Obligation: The main elements of social service obligation in IR are losses relating to: (i) Essential commodities carried below cost; (ii) Passenger and other coaching services; (iii) Operation of uneconomic branch lines; (iv) New lines opened for traffic during the last 15 years. Losses on transportation of essential commodities carried below cost: As part of the Railways’ social service obligation, certain essential commodities of mass consumption like sugarcane, fruits and vegetables, paper, live stock, provisions, bamboos etc. are carried below cost of operation in order to contain their market prices. The total losses on the movement of these commodities 95 in 2008-09 amounted to
Commodities Fruit &Vegetables Bamboos Paper Charcol Cotton Raw Pressed Live Stock Cotton Manufactured other piece goods Others (Wood Unrough, Provisions, Sugarcane, Coir Products and Wool Raw & Waste) Total
.78.76 crore, as shown below:
Losses ( . in crore ) 55.81 06.30 05.46 03.60 02.89 01.33 01.05 02.32 78.76
These commodities constituted 1.27% of the total revenue NTKMs and 0.55% of freight earnings in the year 2008-09. Losses on passenger and other coaching services: Analysis of the profitability of coaching services in 2008-09 has revealed an overall loss of .15,568.83 crore to which net suburban losses in Chennai, Kolkata and Mumbai provided with EMU and Non-EMU services contributed .1,707.69 crore. While the lag in the rise of passenger fares with respect to inflationary pressures prevalent in the economy has contributed to coaching losses, other factors have also exacerbated the situation which include (i) low second class ordinary fares; (ii) non-suburban commuters availing season ticket concessions up to a distance of 150 kilometres. These journeys constituted 26.1% of non-suburban traffic ; (iii) commuters availing concession monthly and quarterly season tickets on suburban sections of Mumbai, Kolkata and Chennai. Journeys performed by passengers holding season tickets formed 65.6% of suburban traffic; 27
(iv) concessions in fare extended to various categories such as recipients of gallantry awards and National sports awards, 96 participants in National and State sports tournaments, teachers honoured with National awards, Shram awardees, war widows, patients suffering from cancer, tuberculosis and other serious diseases, handicapped persons, unemployed youths etc. Concessions are also extended to military traffic, postal traffic, transportation of seeds, milk etc. and traffic to the North East. IR also steps in to provide emergency relief by transporting materials like food, water to areas affected by natural disasters like drought, cyclone, earthquake etc. Compensation for Social Service Obligations in Other Countries: Railways, the world over, are called upon to meet certain public service obligations at lower tariffs for which they are adequately compensated for by the Government. Such support is provided in various forms and for different purposes like: (i) compensation for losses on account of concessional tariffs; (ii) out-right grant to cover deficits; (iii) soft loans to meet the deficits; (iv) financial support to maintain viability of the system and to earn marginal profits; (v) writing off of accumulated debts and unproductive capital; and (vi) support for investment and infrastructure maintenance. Indian Railways incur losses every year by performing a variety of unremunerative services. These losses are mostly due to low ordinary second class fare, suburban and non-suburban season fare, a variety of concessions granted on passenger ticket and transportation of certain commodities below cost. Working of uneconomic branch lines, too, imposes a heavy burden on IR’s finances. A gap is thus created between the revenue income generated through these services and their running costs. The Net social service obligation borne by IR in 2008-09 assessed at .11,477.93 Crore, constitutes 14.38% of the total revenue earnings and 15.89% of the total expenditure. Uneconomic Branch Lines: Despite concerted efforts to enhance earnings from branch lines operation, most of these lines remain commercially unviable. The Railway Reforms Committee recommended closure of 40 such lines but due to stiff public resistance and opposition by State Governments towards withdrawal of such services, only 15 lines have been closed permanently by the Railways. A review of the financial results of existing 100 uneconomic branch lines for the year 2008-09 shows that, on an original investment on these lines of the order of .732 crore. Social Costs are those costs involved in carrying certain commodities and passenger category below cost and the consequent loss incurred by the Railways. Essential Commodities Carried rates below cost: Essential Commodities Carried at concessional rates below cost include food grains, sugarcane, salt, fruits ,vegetables, timber wrought, live stock, wood wrought, edible oils, coir products, oil products, fodder, bamboo, cotton raw and unprocessed, acids, bones, lime etc., The total loss on this account is . XXXX Crores during 2011-12 * . Losses on Passengers and other coaching services: 28 .785 Crore, losses during the year 2008-09 amounted to
Losses on Passengers and other coaching services operated at subsidized rates due to short distance passenger traffic by Second Class ordinary fares, non-suburban passengers availing Season Ticket concessions, commuters on monthly and quarterly season tickets on suburban sections of Calcutta, Chennai and Mumbai., concessions granted to award winners, sick ,blind, deaf and dumb, orthopedically handicapped persons, other categories of police, military personnel, students, war widows, senior citizens, and others . The loss on passenger traffic during 2011-12 accounted for XXXX Crores. (Source: INDIAN RAILWAYS, YEAR BOOK, 2011-12).
Table 16 : Loss
on Coaching Operations
(Rs in Crore) 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Earnings 15045.62 15896.26 17420.34 20419.14 22722.01 26088.09 Expenditure 20826.46 23829.47 23986.47 26711.34 30244.46 40045.88 Profit/Loss -5780.84 -7933.21 -6566.13 -6292.2 -7522.45 -13957.79 Uneconomic Branch Lines: A number of branch lines carry traffic below capacity and are not commercially viable. With the development of roads, change in the pattern of industrial activity and progress in the urbanization, many branch liens have lost their original utility. However, in the face of the strong public resistance to any proposal for closure of these branch lines and reluctance on the part of the State governments to support any suggestion for their closure, it has increasingly difficult to close these lines. The loss on this account is XXXX Crores during 2011-12 (Source: INDIAN RAILWAYS, YEAR BOOK, 2011-
12). Such subsidies affect the railway’s capacity to invest further unless railways have the freedom to
do their own pricing of services.9 Financing the social costs is a great burden not only to Indian Railways but to railways all over the world. However, in many countries the losses are compensated by hefty grants from the governments. However unlike in India, all over the world the State compensates the Railways for incurring social costs. British Railways have been receiving Public Service Obligation‘ Grants, Swiss Federal Government has also been contributing as Federal Compensation for Regional Passenger and Piggy-back Freight support for investment and infrastructure maintenance. German and French Governments have also been contributing towards the cost of social services in these countries. The amount of subsidies in some of the select countries is indicated below for the year XXXXXXXX Table No: 1 and Graph No: 1 as below: Loss of market share: In a study made by M/s RITES, has revealed that the share of railways in the freight percentage has drastically slide from 89 % to 30.08 %. The same is explained in the following table and the pie chart.
9 Lakshmi Narasiah, Dr. CHEAP TRANSPORT FOR INDIA’S MILLIONS IR, Feb.-March 97, p . 41.
29
TABLE NO: 6 MODAL SHARES OF VARIOUS MODES OF TRANSPORT IN PERCENTAGE BASIS
SL. No. 1 2 3 4 5 6 RAIL ROAD AIR
MODE
SHARE OF NTKM 30.08 61.00 0.01 2.31 2.16 4.44 100
COASTAL SHIPPING INLAND WATER PIPELINES & OTHERS TOTAL
2% 0%
2%
4% 30%
62%
RAIL COASTAL SHIPPING
ROAD INLAND WATER
AIR PIPELINES & OTHERS
NTKM: Net Tonne Kilo Metres
Source:
RITES Draft Final Report 2009: "Total Transport System Study on Traffic Flows and Modal Costs”
It will be seen that the market share of rail transport has reduced drastically from 89% in 1950-51 to 30% in 2007-08. The road sector has been the biggest gainer and pipelines also have gained share by 4.5%. Comparison of Tonne kilometers for different modes for the year 2007-08 indicates share of railways at 36.06% (against 30% if compared in tonnes),
30
highways 50.12%, coastal shipping 6.08%, airlines 0.02%, pipelines 7.48% and inland water transport 0.24%. 10
TABLE NO: 1 COMPARISON OF SUBSIDIES IN RAILWAYS ABROAD Sl.No. Railway System Earnings in Subsidy in Total Earnings % of Subsidy to Total Revenue
Millions Millions 1 British Railway 2062.3 451.9 2725.0 16.6 2 Swiss Federal 1572.0 2100.0 582.0 35.7 3 German Federal 5710.0 12166.4 23770.0 51.2 4 French National 32190.0 42500.0 88909.0 47.8 The figures are indicated in the respective currencies. Britain: Pound Sterling ; Switzerland : Swiss Francs; Germany: DM ; France: French Francs.11 GRAPH NO: 1 COMPARISON OF SUBSIDIES IN RAILWAYS ABROAD
90 80 70 60 50 40 30 20 10 0 British Railw ay Sw iss Federal Germ an Federal French National
% of Earnings % of Subsidy
Spiralling cost of input and services: According to the White Paper On Indian Railways – Govt. of India, Ministry Of Railways,
(Railway Board) December 2009 presented by the then Minister of Raiwlays Mamata banerjee has observed “During the period under consideration, working expenses of the Railways grew at a lower rate in comparison to earnings except in 2008-09 when there was a considerable jump in expenditure on account of the disbursement of 6th Pay Commission
10 White Paper On Indian Railways – Govt. of India, Ministry Of Railways, (Railway Board) December 2009 11 JANE’S WORLD RAILWAYS, 1993-94 quoted at p.
80 ,” INDIAN RAILWAYS YEAR BOOK, 1992-93”
31
arrears and increased salaries and wages and rates of allowances- White Paper On Indian Railways – Govt. of India, Ministry Of Railways, (Railway Board) December 2009” 12
SCOPE OF THE STUDY: The study is on the utilisation of the money recovered from the employees of IR and its won equal contribution in the name of NPS contribution to its own use in the short term projects instead of depending on the GOI or market. The study is surmised on the monthly contribution from the NPS category of employees of the Southern Railway. The amount so collected is projected for the entire IR and the postulation is proposed. The study also excludes the apportioned earnings of this railway that have accrued at other Zonal railway systems as these earnings are transferred to this railway not on cash basis but on book transfer basis. Similarly the study excludes such of those expenditure related to this railway but incurred at other Zonal railway systems and transferred back to this railway on the book transfer basis.
12 White Paper On Indian Railways – Govt. of India, Ministry Of Railways, (Railway Board) December 2009
32
PRESENT SYSTEM
The Indian Railways is the largest employer in India and is having approximately 12 Lakhs Pensioners alone under existing Railway Services (Pension) Rules 1993 and the pension bill continues to rise every year. In order to bring down this burden the Government has implemented the New Pension Scheme with effect from 01.01.2004. The salient features of the Scheme are as under: TIER I System:The system is mandatory for all govt. servants who joined govt. service on or after 1.1.2004 on regular basis. It has two Tiers i.e. Tier I & II. (i) In Tier I, government servant shall compulsorily make a contribution at the rate of 10 % of Basic pay (BP) + Dearness Allowance (DA) & a matching contribution will be made by the Govt. The contributions & the investment returns would be deposited in a non-withdrawal pension tier I account. (ii) (iii) (iv) At present at least 85% of pension wealth is invested in debt instruments and up to 15% in equity and equity linked mutual fund. Rate of interest on the amount deposited in Tier- I, is 8 % during the year 2007-08 and 2008-09. Government servant covered under the new system can only exit at or after attaining the age of 60 years from the tier- I of the system. At exit, it would be mandatory for the individual to invest 40% of the pension wealth to purchase an annuity from an Insurance Regulatory Development Authority (IRDA) regulated life insurance company, which will provide pension for lifetime of the employee & his dependent parents / spouse at the time of retirement. (v) In the case of Govt. servant, who leaves the system before attaining the age of 60 years, the mandatory annuitization would be 80 % of pension wealth. In order to implement the system, there will be a Central Record Keeping Agency (CRA) & several Pension Fund Managers. Important features of NPS The NPS offers two approaches to invest in subscribers account :Active choice – Individual Funds Auto choice – Lifecycle fund Active choice - Individual Funds
33
Subscriber will have the option to actively decide as to how his NPS pension wealth is to be invested in the following three options : E - “High return, High risk” _ investments in predominantly equity market instruments.
C – “Medium return, medium risk” – investments in predominantly fixed income bearing instruments. G – “Low return, Low risk” investments in purely fixed income instruments.
Subscriber can choose to invest his entire pension wealth in C or G asset classes and up to a maximum of 50% in equity (Asset class E). He can also distribute his pension wealth across E, C and G asset classes, subject to such conditions as maybe prescribed by PFRDA. In case he decide to actively exercise his choice about investment options, he shall be required to mandatorily indicate his choice of Pension Fund from among the six Pension Funds appointed by PFRDA. Auto choice – Life cycle Fund NPS offers an easy option for those participants who do not wish to specify the allocation for their NPS investments. In case he is unwilling to exercise any choice, his funds will be invested in accordance with the Auto Choice option. In this option the investment will be made in life-cycle fund. Here, the percentage of funds invested across three asset classes will be determined by a pre-defined portfolio. At the lowest age of entry (18 years), the auto choice will entail investment of 50% of pension wealth in “E” Class, 30% in “C” class and 20% in “G” Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in “E” and “C” asset class will decrease annually and the weight in “G” class will increase annually till it reaches 10% in “E”, 10% in ”C” and 80% in “G” class at age 55. All new entrants who join service on or after 1.4.2009 have to fill the application for allotment of Permanent Retirement Account Number (PRAN) & submit the same to the drawing officer. The drawing officer would then forward it to National Securities Depository Limited (NSDL) for generation & allotment of PRAN & dispatch of PRAN Kit which would be handed over to the subscriber. TIER II Account 34
(i) Any subscriber in NPS having an active Tier I account has the option to open an investment and trading account referred to as “Tier II account”. (ii) Tier II is a pension savings account, with a facility for withdrawal to meet financial contingencies. (iii) Interfacing entity for Tier II account PFRDA has appointed various banks and financial institutes as Point of PresencePOP. The registered branches of the POP are termed as Point of Presence Service Provider – POPSP. (iv) Opening a Tier II Account Tier II account is a voluntary saving facility wherein the withdrawal is as per subscriber’s choice. Any government employee who is mandatorily covered under NPS can activate the Tier II account by submitting duly filled form UOSS10 along with the copy of PRAN Card and initial contribution of 1000/- to any POP-SP. (v) Key features of tier II account – a) Subscriber can enjoy unlimited number of withdrawals depending upon their requirements. The only criteria is that he have to maintain a minimum balance of the end of Financial Year i.e., as on March 31st (b) Minimum amount for contribution is made in a financial year. (c) Separate nomination details and scheme preference are possible for Tier II (d) For Tier II account, no additional CRA charges for annual account maintenance. Though the present NPS is in operation since 01.01.2004, so far no clarification is received for the following: (i) (ii) (iii) Retirement Gratuity Benefits in the event of death in service Payment in the event Removal/Dismissal. 250/- and minimum 4 contributions to be 2000 at
However considering the hardships being faced by the employees appointed on or after 1.1.2004 & who are discharged on invalidation / disablement and by the families of such employees who have died during service since 1.1.2004, the benefits like Invalid Pension/Gratuity, Family Pension/Death Gratuity under normal & Extra ordinary Pension Rules are extended to those covered by the New Pension Scheme, on provisional basis till further orderand also to be adjusted against the future payments to be made in accordance with the NPS Rules. (No. 2008/AC-II/21/19. RBE31/2009 dt. 29.05.2009)
35
PROPOSED SCHEME
As per the current year 2012 – 2013 budget report presented by Railway Minister in the Parliament, a major share i.e. about 65% of budget goes towards employees Salary & Pension. As per 2012-13 budget, the Annual Plan for 2012-13 is as shown below:Gross traffic Receipts – 1,32,552 Crores and the distribution towards expenditure is as under: TABLE NO 2 TOTAL WORKING EXPENSES OF THE IR Sl.No 1 2 3 4 5 Description Working expenses Pension Fund Dividend Payment Appropriation to DRF Loan with Interest in Crores 84,400 18500 6676 9500 3000
The annual plan out lay for 2012-13 is 60,100 crores TABLE NO 3 TOTAL ANNUAL PLAN OUT LAY Sl.No 1 2 3 4 5 Description Gross Budgetary Support Railway Safety Fund Internal Resources Market Borrowings PPP in Crores 24000 2000 18050 15000 1050
The Operating Ratio during 2011-12 was 94% & the present year estimated at 84.9 % (2012-13). The Railways is paying 6.5% dividend towards General Revenues to Ministry of Finance. We have our own internal resources viz., DRF, DF, OLW(R) etc., constitutes around 30% of Annual Outlay for which no dividend is paid. Indian Railways is entirely depends upon IRFC which is a public sector Corporation under the Ministry of Railways. Ministry of Railways is not authorized to raise loans from the market. IRFC raises the loan from the market and lease assets procured with the help of these loans for the use of Indian Railways duly receiving leasing charges at 16%. INVESTMENT STRATEGY FOR NPS FUND
36
The proposed Investment strategy for NPS fund will be formulated as an alternate Finance for the benefit of Indian Railways. This scheme will reduce the financial constraint of IR to a major extent. An authority named Railway Pension Fund Regulatory & Development Authority for Indian Railways will function initially under Indian Railway Finance Corporation is Personnel, to be set up and the Nodal authority will be Ministry of Public Grievances & Pension The Scheme will be operative prospectively. However the Railway Ministry will instruct the PFRDA for the book transfer of amount pertaining to Railway employees already invested along with dividend accrued since the inception of the Scheme from 01.01.2004, to RPFRDA to build a corpus fund of its own.
Salient Features:
`All the employees who joined the NPS on or after 01.01.2004 will be deemed to have come under RPFRDA and is mandatory. The contribution towards the scheme will be operated in Two Tiers.
Tier – I Account:
(i) In Tier I Account the 10% of Pay (Pay+G.P.+ D.A) will be recovered from the salary of the employees with matching contribution from Railways. The contribution by employees is mandatory and the same is nonwithdrawable. (ii) The consolidated amount recovered from the employees under Tier I Account will be sent to newly constituted RPFRA for IR every month by individual Zonal Railways. (iii) (iv) (v) 70% of this amount is to be used to finance new Railway time bound projects. 20% of the amount will be invested in Government Securities/Bonds. Remaining 10% may be credited to a fund named Contingency Reserve Fund to meet the exigencies that may cause due to Medical Invalidation/Death of employees.
PROPOSED TERMINAL BENEFITS:
A. At the time of Superannuation: (i) 40% to be invested in RPFRDA for which interest will be paid in the form of monthly pension.
37
(ii) 60% to be paid to the employees as a lumpsum. B. At the time of exit by employees before retirement but after completing minimum lock in period (ie) 10 years the payment shall be made as under:
(i)
20% of the amount accumulated with Interest at the credit of the employees’ account shall be paid as Lumpsum. 80% to be re-invested in RPFRDA which will fetch them a monthly pension. Gratuity will be paid as per Gratuity Act and Encashment of Leave salary at the time of exit will be dealt as per extent Leave Rules for A and B above.
(ii)
C. At the time of exit on own volition before completing 10 years of service the payment shall be made as under: (i) The amount of employee’s contribution alone accumulated at his/her credit with interest at 8% p.a. shall only be payable to him/her with an option for reinvesting the same in Railways. (ii) He/she shall forfeit the entire portion of Employer’s contribution as well as Gratuity. D. In case of Death and Medical invalidation during service (i) (ii) 80% of the total amount with interest accumulated at the credit of employee’s account to be paid to his family. 20% of the total amount with interest accumulated at the credit of employee’s account reinvested with RPFRDA so that monthly family pension can be paid either to the spouse or the next legal heir of the employee alone as the case may be. No further extension of the scheme of family pension to other family members or dependents. In consultation with Finance Ministry all contributions towards the above fund will be fully exempted from Income tax. Tier II Account: 1. It is a voluntary saving scheme applicable to all NPS subscribers and is fully optional.
2. Those employees who are willing to join the scheme have to deposit a
minimum sum of
1000/- or its multiples every month for a period of
5/10/15 years as per his/her choice.
38
3. They will be allowed to withdraw upto a maximum of 70% of the amount
standing at the credit of the account as on every 1st April as loan.
4. The interest charged for the loan will be adjusted against the interest
accrues. 5. The 30% of the amount kept fixed will carry an interest as per guidelines of RBI issued from time to time. During the first year it cannot be withdrawn. 6. At the time of expiry of the term the amount accumulated with interest at the credit of the employee will be payable to him. 7. The fund available under this head can be utilized for short term projects. 8. This will also have Income Tax exemption.
IMPLEMENTATION OF THE PLAN
Formation of Railway Pension Fund Regulatory & Development Authority
39
It is proposed to form a separate Railway Pension Fund Regulatory & Development Authority (RPFRDA) which will function initially under Indian Railway Finance Corporation and controlled by Ministry of Railways and Ministry of Finance horizontally. The Nodal authority for RPFRDA will be Ministry of Personnel, Public Grievances and Pension. This will function exactly in the lines of existing PFRDA.
SCOPE AND MODALITIES OF RPFRDA:
The RPFRDA will be entrusted with a task of collection of contribution from NPS & maintenance of accounts of the Railway employees. Also it will distribute finance for investment projects. For this purpose it will have a separate High Level Expert Committee which will identify and decide the projects in which the money is to be invested. The total allocation towards the fund shall not exceed the percentage already notified under the proposed scheme. All the projects undertaken under this Scheme are to be time bound. Once the project is decided the fund will be released through IRFC which will closely monitor all the projects in which the money is invested. It will ensure that the project is completed within the target time.
FUNCTIONS OF RPFRDA:
The RPFRDA is vested with task of collection and managing the pension fund collected from the NPS employees of IR. The main functions of RPFRDA will be as follows: 1. Issuing of unique number PRAN to the employees as issued by PFRDA duly continuing the existing PRAN number for the existing Railway employees covered under NPS. 2. Collection of contribution (Tier I & Tier II) from the employees/employers through salary. 3. Maintenance of accounts of the NPS employees & their data. 4. Distribution of 70% of funds for the projects as per the recommendation of High Level Expert Committee. Short terms to ensure immediate returns like expansion of UTS facilities in wayside stations, Yathri Nivas, Youth Hostels, Budget Hotels and commercial complexes. 5. Investing in Government Securities as per the percentage proposed earlier (ie) 20%
40
6. Maintaining 10% Contingency Reserve fund. 7. Crediting of Interest to the subscribers account. 8. Distributing Annual statement to the employees. 9. Distributing relief from the contingency reserve fund as and when necessary. 10. Distribution of terminal benefits when it accrues under Tier I as per the schedule prescribed under proposed Scheme A, B, C and D. 11. Publishing Annual performance report. 12. DCRG and Leave salary will be paid as per existing rules.
41
VERTICAL AND HORIZONTAL INTEGRATION OF RPFRDA
PFRDA
Ministry Of Railways Indian Railway Finance Corporation Ministry Of Pension
RAILWAY PFRDA
SHORT TERM PROJECTS 70 %
GOVT SECURITIES 20 %
CONTINGENCY RESERVE FUND 10 %
ENDED GROWTH FUNDS IN FUTURE
MUTUAL FUNDS THROUGH BANKS IN FUTURE
BENEFITS
42
The benefits derived from the Scheme are not only boon to the employees but also to the Indian Railways as a whole which can never be derived from any other Scheme. Hence the benefits may be categorised as under:
1. FOR RAILWAY ORGANISATION:
(i)
As the Railways' finances are separated from general finances, Railways are
expected to not only meet its operational expenses along with ever increasing pension commitments but also generate adequate resources for meeting plan investment requirement including asset renewal. Finding resources to finance rail infrastructure has been a subject of several reviews and expert committee reports. A common theme has been that Railways must increasingly rely on internal generation of resources, market borrowing and PPP initiatives since there are limitations on the extent to which the General Exchequer can support Railways infrastructure expansion. In the above scenario a prudent suggestion for the finance generation through the afore said Investment Scheme shall play a vital role for the development of Indian Railway Organisation as a whole. A report on how the IR earned one rupee and spent in the year 2010 – 2011 is as follows: GRAPH NO 2
43
GRAPH NO 3
Dividend payable to General Revenues for the year 2011 – 2012 is 5.65% It is apparent that IR is spending 10% of its earnings towards Leasing charges and payment of Dividend to General Revenues and 16% towards Pension. The subscription towards NPS for the Year 2010 –2011 and 2011 – 2012 as far as Southern Railway is concerned that has been remitted to NSDL is as follows: TABLE NO 4 ANNUAL SUBSCRIPTION OF PRESENT NPS IN SR Sl.No 1 2 Year 2010 -2011 2011 - 2012 Amount in 49.23 Crores 59.74 Crores
TABLE NO 5MONTHLY SUBSCRIPTION OF PRESENT NPS IN SR & THE PROJECTION FOR THE IR
Month & Year Subscription for the month of June 2012 Approximately for the year 2012 – 2013 Approximately for the year 2012 - 2013 Amount in 6.5 Crores 78 Crores 1400 Crores*
* (over Indian Railways (i.e.) 17 Zonal Railways & Six Production Units)
44
As on date this works out to 2.3% ( 1400 Crores x 100 / 100 /
60000 Crores) of
total annual plan outlay of 2012-13 and 5.83 % of Budgetary Support( 1400 Crores x 24000 Crores) . This contribution continues to rise every month with increase At the rate of 21 % growth over the last two years ie 2010-11 and 2001-12 the following trend can be envisaged. Based on the percentage of growth, five years growth is worked out in the following table. The growth percentage does not include the non–NPS (i.e. NSCRPF subscriber) who would be willing to invest their VPF in railway projects. TABLE No 6 TREND BASED ON GROWTH PERCENTAGE No 1 2 3 4 5 6 7 Year 201011 201112 201213 201314 201415 201516 201617 S R Amount in Crores All Railways Amount in Crores 49.23 1132.29 59.74 72.49 87.97 106.75 129.55 157.20 1374.02 1667.37 2023.36 2455.34 2979.56 3615.70 in DA and staff strength.
45
4000 3500 3000 2500 2000 1500 1000 500 0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
All Railways Amount in Crores
180 160 140 120 100 80 60 40 20 0 2010-11 2011-12 2012-13
46
2013-14 2014-15 2015-16 2016-17
S R Amount in Crores
180 160 140 120 100 80 60 40 20 0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
S R Amount in Crores
47
YEAR
2010 -2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018
SRLY
49.23 59.74 72.49 87.97 106.75 129.55 157.20 190.77
% OF GROWTH 21.35 21.35 21.35 21.35 21.35 21.35 21.35
ALL RAILWAYS 23 1132.29 23 1374.02 23 1667.37 23 2023.36 23 2455.34 23 2979.56 23 3615.70 23 4387.65
In the White Paper presentation by MOR for the year 2012 it is pointed out in the Plan out lay for 2012 – 2013 the Market borrowings works out to 15,000 Crores. Again the annual NPS subscription if utilized as a source of fund for IR it will form part of 9 to 10% of Market borrowings. Hence it will considerably reduce the Market borrowings and leasing charges. If the NPS fund for the Railway employees is maintained by IR as per the above Scheme, the approximate sum of 78 Crores may be made as book adjustment and actual payment as of now need not be made. Since the normal wastage of NPS employees by way of superannuation will occur after a minimum of 30 years the amount can be utilized for the time being as a temporary measure to complete the ongoing projects which are clogged for want of funds and which will fetch immediate returns.
(ii)
Cost escalations in many infrastructure projects, mainly on Account of
inadequate funds allotment from year to year which weakens project management may also be effectively managed with this scheme. (iii) If the amount accumulated in the existing NPS subscribers which are
invested in shares and securities by the NSDL from 01.01.2004 is transferred as book transfer, the same can be used as Corpus Fund and the future returns from the investments will also form part of source of fund for IR.
48
(i)
As there is constant flow of money in the proposed scheme new
projects can be confidently envisaged and it will take IR to new heights. (ii) (iii) Investment in Electrification Projects will ease out our fuel bills.
The amount of pension liability of Railways under RS(P)R will reduce
considerably by 2045.
(iv)
The Pension Scheme in Indian Railways is the silver lining of the
Organisation and Lakhs of people were attracted to this. By this integrated Pension Scheme we will be successful in bringing back the lost shine to our Organisation with our own sources and need not depend on outside agencies. (v)
1)
With the availability of the internal sources through NPS, the Railways Infrastructure – short term projects like refrigerated storage facilities at way side stations for perishable food items.
can undertake/improve in the following fields.
2) Roll In and Roll Out in commercially viable routes as it is a success in KRCL. 3) Creation of Inland Container Depot stations which will fetch returns. 4) Dedicated Freight corridor – time bound projects split into two or three segments 5) Electrification 6) Rail Road Link 7) Tourism Special Trains connecting important pilgrimage /tourism special.
2. FOR THE EMPLOYEES COVERED UNDER NPS:
(i)
The greatest achievement will be the Government can eliminate the fear from the mind of employees regarding their Return On Investment(ROI). Employees will also have a detailed knowledge about the whereabouts of the money recovered from them and how it is being utilized since they are
(ii)
49
presently groping in the dark as far as present NPS investment plan is concerned. (iii) They will feel secured and it will also motivate them to perform their duties efficiently and it be a boon to the fresh recruits and overall economic health of IR. (iv) (v) It would create a sense of pride in the mind of employees and make them to feel that their participation in Management is also ensured. The social commitment of IR can also be met and the employees will have the confidence that they can take home a considerable sum on their superannuation apart from continued monthly returns from their Investment. The more they invest, the more they reap from the projects’ success. (vi) Thus this scheme will have appreciation from the organised trade unions which was the subject matter of criticism from them for the past 8 years and there is so far no judicious solution has been arrived to meet both the ends. (vii) Under Tier II, the new Scheme will inculcate a sense of savings among employees. The Indian Railways will be self reliant over a period of time and can grow as the largest Organisation in India and serve the nation .
50
TABLE No 7 SOURCE OF FUNDS FOR PLAN OUTLAY 2012-131 NO SOURCE 1 2 3 4 5 INTERNAL SOURCES RSF PPP MARKET BORROWINGS GROSS SUPPORT BUDGETARY IN CRORES 18050 2000 1050 15000 24000 60100
TOTAL PLAN OUT LAY
40%
30%
3% 25% 2%
Internal sources PPP GROSS BUDGETARY SUPPORT
RSF MARKET BORROWINGS
The above graphic representation reveals IR has the liability to pay dividend and lease charges for the 65 % (Gross Budgetary Support 40 % and market borrowings 25 %) of the Plan outlay. (Source: Explanatory Memorandum Railway Budget 201213)
51
TABLE NO 8 COMPARISON OF MARKET BORROWING AND NPS FUNDS NO 1 2 SOURCE MARKET BORROWINGS FUNDS THROUGH NPS TOTAL PLAN OUT LAY IN CRORES 13600 1400 15000*
9%
91%
MARKET BORROWINGS
FUNDS THROUGH NPS
*(Source: Explanatory Memorandum Railway Budget 2012-13) From the above graph it can deduced that out of the 100 % market borrowing, the leverage of funds raised through NPS can make change
52
RECOMMENDATIONS
(i)
RPFRDA will initially function under the aegis of IRFC. On gaining sufficient expertise, RPFRDA will function as an independent entity. This System can be extended to all other serving Railway employees in the near future.
(ii)
(iii) If feasible, we can extend this to retired employees as long term investment of
their money for which RPFRDA has to work out the legal modalities.
(iv) The pattern of Railway financing now in force is that the entire capital is
provided by the Central Government through the budgetary support as Capitalat-charge. This Capital in the form of non refundable interest bearing perpetual loans, albeit at an interest rate lower than the market rate. Indian Railways has a strong case for Capital restructuring. In the present system, the entire capital is provided as Capital-at-charge. This Capital-at-charge may be converted to debt and equity on an appropriate basis as is followed in certain PSU’s like BHEL to reduce the payment of Dividend and Leasing charges and it will also pave the way for more surplus to be appropriated to DRF, DF and other funds.
(v)
At a later stage once the organisation is stabilized the Investment Scheme can be extended to General Public also.
53
EPILOGUE
Indian Railways being the lifeline of the country huge investments are required for materializing various projects. By implementation of this Investment Strategy for New Pension Scheme funds, the market borrowings from IRFC can be reduced gradually. A saving and investing habit can be inculcated in the Railway employees. The dedicated projects, with a strong technically sound manpower and strong financial set up will send Indian Railways to new heights. Therefore time for a change has certainly arrived for taking bold new approach for better resource mobilisation and we hope that the effective utilization of this project Indian Railways will soar to International standards. With this project, we the Team “F” have tried to address the concern of our Honourable Railway Ministers by giving alternate source for generation of funds through NPS. We hope, this humble effort of ours will be appreciated and implemented.
54
ACKNOWLEDGEMENT
This project is in partial fulfilment of the requirement of mandatory training for the post of Office Superintendent (OS) who have passed the Limited Departmental Competitive Examinations (LDCE). The training was conducted for the in Zonal We Railway Training thank Institute, Shri R Southern Railways IRTS, Tiruchchirappalli. We wholeheartedly thank the CPO/MAS, Southern Railway training. sincerely Raghuraman, Principal/ZRTI/TPJ who has offered us an opportunity to present this project on the subject related to our work area. The Project has been carried out under the guidance and supervision of Shri D Xavier Gnanaraj, Sr AFA/ZRTI/TPJ. We wish to express our sincere gratitude to him for his excellent inspiration, guidance, encouragement and motivation extended in undertaking this project. We also deeply indebted to Shri S Vaidhyanathan, APO/T/TPJ, Shri R Padmanabhan, Instructor/Establishment/ZRTI/TPJ and Shri R Srinivasan, Instructor/Stores/ZRTI/TPJ for their moral support in presenting this project.
LDCE OS Trainees – Group F at ZRTI/TPJ
S/Smt/Shri Jayalakshmi Suresh, OS-II /ZRTI/TPJ Mini Prasad, OS-II, SSE/PW/CKI/TVC Vasantha Mohan, OS-II /CPO/O/MAS P.Raghavendran, OS-II /CPO/O/MAS K.C.Rajamani, OS-II /S&T/ED/SA Vincent George, OS-II /Sr.DME/O/PGT
EDITED AND IMPROVED BY
D XAVIER GNANARAJ
MA, MCom, MBA-Fin, MPhil, PGDIR&PM, PGDFM, PGDCA
SR ASST FINANCIAL ADVISOR, ZONAL RAILWAY TRAINING INSTITUTE SOUTHERN RAILWAY, TIRUCHCHIRAPPALLI 620001
55
doc_167235990.doc
RESOURCE SCARCE RAILWAYS CAN TAP THE NEW PENSION RECOVERY FOR ITS SHORT TERM PROJECTS
[A PROJECT REPORT BY THE OS-II TRAINEES AT ZRTI/TPJ
NEW PENSION SCHEME AS
ALTERNATIVE SOURCE OF FINANCE FOR RAILWAY PROJECTS
[A PROJECT REPORT BY THE OS-II TRAINEES AT ZRTI/TPJ
2012
ZONAL RAILWAY TRAINING INSTITUTE, SOUTHERN RAILWAY, TIRUCHCHIRAPPALLI
2
INTRODUCTION
Indian Railways is the life line of this country and is involved in transporting people and materials from one part of the country to another. Besides maintaining the system Indian Railways is also involved in creating the required infrastructure for itself. It is funded by the Central Government for its assets creation for which Indian Railways pays Dividend. Indian Railways also borrows money through Indian Railway Finance Corporation (a subsidiary corporation under the aegis of Ministry of Railways) for Capital Investment and in turn pays enormous amount as leasing charges. Statistics Time and again the Honourable Railway Ministers have been stating about the deteriorating financial health of Indian Railways due severe restriction on the increase in fares and freights, in the floor of the Parliament House. Indian Railways depends on the Central Government to tide over the financial quagmire. The dwindling budgetary support for Indian Railways in the successive Five Year Plans on the one side and the political pressure not to increase the fares and freights has resulted in the steep increase in the operating ratio of the Indian Railways. The social dilemma whether the Indian Railways is a Govt undertaking involved in transportation service or a commercial organisations has cost dearly to the top management. Here it is put forward a better solution by investing the money remitted by the employees in the New Pension Scheme (NPS) for utilizing the same in creation of assets for Railways. The revenue earning projects can be identified and completed with the help of these fund strictly following a time schedule and the returns received can be utilized for the payment of the employees’ settlement at their retirement/exit. This money needs to be paid back only after 30 years approximately and the employees can rest assured of their investment. Presently the employees do not know about the whereabouts of their money. Railways can utilize the money which continues to grow and reap benefits of constant inflow of money without depending on outside borrowings and if it is strictly implemented this scheme can take Indian Railways to new heights. We dedicate this project work to millions of railway workers of the past, present and future that by their undaunted work have helped Indian Railways to survive century after century.
3
ZONAL RAILWAY TRAINING INSTITUTE TIRUCHCHIPPALLI 4TH AUG 2012
LDCE OS Trainees – Group F at ZRTI/TPJ-2012 Smt. Jayalakshmi Suresh, OS-II/ZRTI/TPJ Smt.Mini Prasad, OS-II, SSE/PW/CKI/TVC Smt.Vasantha Mohan, OS-II /CPO/O/MAS Shri.P.Raghavendran, OS-II /MTP/R/MS Shri.K.C.Rajamani, OS-II /S&T/ED/SA Shri.Vincent George, OS-II /Sr.DME/O/PGT
4
LIST OF ABBREVIATIONS
BHEL
Bharat Heavy Electrical Limited – a PSU
CPC BOLT BOOT BOT CRA DCRG DF DRF IR IRDA IRFC KRCL NCSRPF NPS NSDL OLWR OWY PFRDA PPP PRAN PSU ROI RPFRDA RS (P) R RTJ SPV UTS VPF WIS WLS
Central Pay Commission Build Operate Lease and Transfer Build Operate Own Transfer Build Operate Transfer Death Cum Retirement Gratuity Development Fund Depreciation Reserve Fund Indian Railways - magazine Insurance Regulatory and Development Authority Indian Railway Finance Corporation Konkan Railway Corporation Limited Non Contributory State Railway Provident Fund New Pension Scheme National stock Open Line Works Revenue Own Your Wagon Pension Fund Regulatory and Development Authority Public Private Partnership Permanent Retirement Number Public Sector Undertaking Return On Investment Railway Pension Fund Regulatory And Development Authority Railway Servants Pension Rules Rail Transport Journal - magazine Special Purpose Vehicle Un-Reserved Ticketing System Voluntary Provident Fund Wagon Investment Scheme Wagon Leasing Scheme
5
CONTENTS
NO
1 2 3 4 5 6 7 8 9 10 11 12 10
SUBJECT
INTRODUCTION LIST OF ABBREVIATIONS EXECUTIVE SUMMARY INDIAN RAILWAYS FINANCIAL CRISIS IN INDIAN RAILWAYS
PAGE
PRESENT SET UP PROPOSED SCHEME IMPLEMENTATION BENEFITS RECOMMENDATIONS EPILOGUE BIBLIOGRAPHY
6
7
PROLOGUE
Indian Railways is an ever expanding public sector undertaking commercial business by transporting people and material the length and width of the country. Crores of rupees is needed to meet its expansion programmes. Indian Railway (IR) besides maintaining the system also serves as an Infrastructure Company meeting the capital nature of works like new lines, Gauge conversions, building of Bridges & Tunnels, Service and welfare buildings etc. IR borrows loan capital (Capital-atcharge) on payment of annual dividend. Three Railway Ministers Shri George Fernandez, Shri Nithish Kumar & Ms Mamta Banerjee while presenting the “Status/White Paper” before the Parliament during their tenure had stated that considering the financial health of Indian Railways there is a dearth of capital and for want of the same its projects are time and cost overrun. The plan outlay of Indian Railways comprises of budgetary support i.e., Capital (General Revenues from Ministry of Finance) and expenditure to be met by the Indian Railways from their own internal resources i.e., Depreciation Reserve Fund, Development Fund, Open Line Works (Revenue). The main arm of finance for Indian Railways is through Public Sector Corporation under Ministry of Railways known as Indian Railway Finance Corporation and their objective is to raise loans from the market and lease assets procured with the help of these loans to Indian Railways. The dividend payable by the Railways to the General Revenue is 5.65% and leasing charges payable to IRFC is presently at the rate of 16%. In the “White Paper” presented by then Minister of Railways in 2009 Ms. Mamata Banerjee had observed as under:
“The level of annual investment by IRFC in Rolling Stock assets has risen steadily over the years. As a result, lease rentals paid by Railways to IRFC (including the capital repayment component) have gone up from 3,340 Crores in 2004-05 to 4,674.50 Crores in 2008-09. Rising cost of borrowing on a growing base of borrowed funds poses a risk factor that could have an adverse impact on the capacity for internal generation of revenue of the Railways. In this scenario, higher capital investment in the rail sector calls for higher budgetary support in view of massive investments in the road sector.”
8
In the above context efforts by IR to invite the corporate sector to invest in Railway projects under various Schemes like “Own Your Wagon, Wagon Investment Scheme, Wagon Leasing Scheme, Build Operate Own Transfer (BOOT), Build Operate Lease and Transfer (BOLT) Build Operate Transfer (BOT), Special Purpose Vehicle (SPV), Public Private Partnership (PPP)” have not succeeded. Hence IR is really at financial crossroads facing a severe financial crunch for continuing the existing projects and to contemplate new projects. Therefore, IR has to look elsewhere for alternate source of funding and the NPS can better be utilized for this purpose. Presently, the Government of India has introduced a new defined contributory Pension System for the new entrants to the Central Government Services including Railways except for Armed Forces in the first stage, replacing the existing system of non-contributory pension system and this new Pension System has come into force w.e.f 1.1.2004. According to this New Pension Scheme which is contributory in nature, all the contributions towards Tier I (10% of Basic Pay + DA from employee and 10% from employer) are being transferred to Central Record Keeping Agency monitored by Pension Fund Regulatory Development Authority (PFRDA). Since the contributions made towards Tier I is non-withdrawable the contributions made towards these fund by the employees are utilized only at the time of their retirement on superannuation. In view of the acute need for financial resource for Indian Railways, a Strategic investment of New Pension Scheme as an alternate fund, by creating a separate body i.e., PFRDA for Railway Employees is envisaged and the contribution made by Railway Employees towards Tier I are credited in that fund which will enable Indian Railways for creation of Railway Assets and become self-reliant without resorting to external borrowings and at the same time it will reap benefits for employees as well. The enormity of the organisation makes it as the single largest contributor to the NPS. Instead of contributing to the National Stock Exchange, the contribution both from the employees and the Govt of India (Ministry of Railways) can be utilised for the projects of the IR.
9
EXECUTIVE SUMMARY CHAPTER I INDIAN RAILWAYS
Railways were first introduced to India in 1853. By 1947, the year of India's independence, there were forty-two rail systems. In 1951 the systems were nationalized as one unit, becoming one of the largest networks in the world. IR operates both long distance and suburban rail systems on a multi-gauge network of broad, metre and narrow gauges. It also owns locomotive and coach production facilities.Contents Indian Railways Type Founded Departmental Undertaking of The Ministry of Railways, Government of India 26 April 1853
Headquarters New Delhi, India Area served Key people Industry Products Revenue Employees Parent Website India Union Railway Minister: Minister of State for Railways Minister of State for Railways Chairman, Railway Board: Railways and Locomotives Rail transport, freight transport, services ? Rs. 107.66 billion (US$19.13 billion) 1,406,430 (2007) Ministry of Railways, Government of India www.indianrailways.gov.in
10
Indian Railways: (Bh?rat?ya Rail), abbreviated as IR, is the state-owned railway company of India, which owns and operates most of the country's rail transport. It is overseen by the Ministry of Railways of the Government of India. Indian Railways has one of the largest and busiest rail networks in the world, transporting over 18 million passengers and more than 2 million tonnes of freight daily. It is the world's largest commercial or utility employer, with more than 1.4 million employees. The railways traverse the length and breadth of the country, covering 6,909 stations over a total route length of more than 63,327 kilometers (39,350 mi). As to rolling stock, IR owns over 200,000 (freight) wagons, 50,000 coaches and 8,000 locomotives. At present, the Railways are a significant player in the transportation sector of the national economy. The Indian Railways have been the national carriers of goods and passengers with a monopolistic control over the railroads. Indian railways are now about the only major railway system in the world which is functioning without any direct subsidy from the central government. On the contrary , they have consistently been paying a substantial dividend every year to the General exchequer (Rs.1507.46 Crores in 1996-97) on the capital invested in them while carrying over 40 % of the total land freight traffic and 30 % of surface passenger traffic. Today the Indian Railways network sprawling over 63000 kilo meters carrying nearly 120 Lakhs passengers and 11 Lakhs tones freight everyday draws on a unique significance operating as it does under single management The Indian Railways have branched off into a mammoth organization the largest Govt. Dept. employing more than 1.7 million staff and officers, which is 40 % of total Central government employees. STRUCTURE OF THE INDIAN RAILWAYS: The Indian Railways is a Government Department functioning under the Ministry of Railways headed by the Railway Minister (usually a Cabinet Minister) and assisted by the Minster of Railways for State. For policy guidance and overall governance, the Railway Board exists containing various members, directorates and other officers. The Ministry enjoyed a state of Independence from the Ministry of Surface Transport which comprehends all other inland surface transport. Under the Constitution of India, the legislative power with respect to Railways vests with
11
exclusively in Parliament in terms of Article 246 read with entries 22, 30 and 89 of List I of the Seventh Schedule to the Constitution of India. The Government of India has also the exclusive executive powers over the Railways. Further, a Board to govern the Railways constituted under a resolution of the Government of India dated 18.02.1905. RAILWAYS AS PUBLIC ENTERPRISE: In an under developed country a high rate of economic progress and the development of a large Public Sector and a co-operative Sector are among the principal areas for effecting transition towards Socialism. The same sentiments were echoed by Mrs. Indira Gandhi when she declared, “We advocate Public Sector for three reasons: To gain control of the commanding heights of the economy, to promote critical development in terms of social gains of strategic value rather than primarily on consideration of profit and to provide commercial surplus with which to finance further economic development” . Public Enterprise can be defined as an activity of the Govt. whether Central or State or Local involving manufacturing or production of goods including agriculture or making available a service for a price such activity being managed either directly that is departmentally, or through an autonomous body with the govt. having a majority ownership that is more than 50 % of Equity. This is known as Govt. Company according to Companies Act, 1956. RAILWAY ZONES
The headquarters of the Indian Railways in New Delhi
12
Indian Railways is divided into zones, which are further sub-divided into divisions. The number of zones in Indian Railways increased from six to eight in 1951, nine in 1952, and finally 16 in 2002-03. Each zonal railway is made up of a certain number of divisions, each having a divisional headquarters. There are a total of sixty-seven divisions. The Kolkata Metro is owned and operated by Indian Railways, but is not a part of any of the zones. It is administratively considered to have the status of a zonal railway. A General Manager (GM) who reports directly to the Railway Board heads each of the sixteen zones, as well as the Kolkata Metro. The zones are further divided into divisions under the control of Divisional Railway Managers (DRM). The divisional officers of engineering, mechanical, electrical, signal & telecommunication, accounts, personnel, operating, commercial and safety branches report to the respective Divisional Manager and are in charge of operation and maintenance of assets. Further down the hierarchy tree are the Station Masters who control individual stations and the train movement through the track territory under their stations' administration.
13
Sl. No 1.
Name
Abbr.
Date Established November 5, 1951
Headquarters
Divisions Mumbai, Bhusawal, Pune, Solapur, Nagpur Danapur, Dhanbad, Mughalsarai, Samastipur, Sonpur Khurda Road, Sambalpur, Visakhapatnam Howrah, Sealdah, Asansol, Malda Allahabad, Agra, Jhansi Izzatnagar, Lucknow, Varanasi Jaipur, Ajmer, Bikaner, Jodhpur Alipurduar, Katihar, Lumding, Rangia, Tinsukia Delhi, Ambala, Firozpur, Lucknow, Moradabad Secunderabad, Hyderabad, Guntakal, Guntur, Nanded, Vijayawada Bilaspur, Raipur, Nagpur Adra, Chakradharpur, Kharagpur, Ranchi Hubli, Bengaluru, Mysuru Chennai, Madurai, Palakkad, Salem, Tiruchchirapalli, Thiruvanathapuram Jabalpur, Bhopal, Kota Mumbai Central, Vadodara, Ratlam, Ahmedabad, Rajkot, Bhavnagar
Central
CR
Mumbai
2.
East Central
ECR
October 1, 2002
Hajipur
3.
East Coast
ECoR
April 1, 2003
Bhubaneswar
4.
Eastern North Central North Eastern North Western Northeast Frontier Northern
ER
April, 1952
Kolkata
5.
NCR
April 1, 2003
Allahabad
6.
NER
1952
Gorakhpur
7.
NWR
October 1, 2002
Jaipur
8.
NFR
1958
Guwahati
9.
NR
April 14, 1952
Delhi
10.
South Central South East Central South Eastern South Western
SCR
October 2, 1966
Secunderabad
11.
SECR
April 1, 2003
Bilaspur, CG
12.
SER
1955
Kolkata
13.
SWR
April 1, 2003
Hubli
14.
Southern
SR
April 14, 1951
Chennai
15.
West Central
WCR
April 1, 2003
14
Jabalpur
16.
Western
WR
November 5, 1951
Mumbai
15
A WAP5 locomotive
A diesel locomotive of Indian Railways powering Express train, that runs in Assam
The Indian Railways manufactures a lot of its rolling stock and heavy engineering components. As with most developing economies, the main reason is import substitution of expensive technology related products. This was relevant when the general state of the national engineering industry was immature. The six manufacturing plants of the Indian Railways, called Production Units, are managed directly by the ministry. These six production units (PUs) are each headed by a
16
General Manager (GM), who also reports directly to the Railway Board. The Production Units are: 1.
2. 3.
4.
5.
6.
• •
Chittaranjan Locomotive Works, Diesel Locomotive Works, Varanasi Diesel-Loco Modernisation Works, Patiala Integral Coach Factory, Chennai Rail Coach Factory, Kapurthala Rail Wheel Factory, Bangalore Other independent units of Indian Railways are:
Central Organization For Railway Electrification, Allahabad Central Organization For Modernization of Workshops, New Delhi
Research Design and Standards Organization (RDSO), Lucknow is the R&D division of Indian Railways and functions as the technical advisor to Railway Board, Zonal Railways, and Production Units. Bharat Earth Movers Limited (BEML), Bangalore is an organization unrelated to the Indian Railways; however, it manufactures coaches for both the Indian Railways and the Delhi Metro system. A General Manager also heads the Central Organisation for Railway Electrification (CORE), Metro Railway, Calcutta and construction organisation of NFR. Railway PSU's Apart from these zones and production units, a number of Public Sector Undertakings are under the administrative control of the ministry of railways. These units are: 1. Dedicated Freight Corridor Corporation of India- DFCCLI
2. Indian Railways Catering and Tourism Corporation - IRCTC
3. Konkan Railway Corporation Ltd KRCL
4. Indian Railway Finance Corporation IRFC 5. Mumbai Rail Vikas Corporation MRVC
6. Railtel Corporation of India – Telecommunication Networks RCIL
7. RITES Ltd. – Consulting Division of Indian Railways RITES 8. IRCON International Ltd. – Construction Division IRCON
9. Rail Vikas Nigam Limited RVNL 10. Container Corporation of India CCI
17
11. Rail Land Development Authority – RLDA is a statutory authority formed through
an amendment of the Railways' Act, 1989 for commercial development of vacant railway land/
12. Centre for Railway Information Systems – CRIS is an autonomous organisation
under the Railway Board, which is responsible for developing the major software required by Indian Railways.
18
PASSENGER SERVICES
Indian Railways operates about 9,000 passenger trains and transports 18 million passengers daily across twenty-eight states and one union territory, Puducherry (formerly Pondicherry). Sikkim, Arunachal Pradesh, and Meghalaya are the only states not connected by rail. The passenger division is the most preferred form of long distance transport in most of the country. A standard passenger train consists of eighteen coaches, but some popular trains can have up to 24 coaches. Coaches are designed to accommodate anywhere from 18 to 81 passengers, but during the holiday seasons or when on busy routes, more passengers may travel in a coach. Most regular trains have coaches connected through vestibules. However, 'unreserved coaches' are not connected with the rest of the train via any vestibule. Reservation against cancellation service is a provision for shared berth in case the travel ticket is not confirmed. It is a way of maximizing the number of wait-listed passengers to be accommodated in case of a cancellation. Suburban rail
19
The Delhi Metro Railway
Mumbai's suburban trains handle 6.3 million commuters daily. Many cities have their own dedicated suburban networks to cater to commuters. Currently, suburban networks operate in Mumbai, Chennai, Kolkata , Delhi, Hyderabad, Pune and Lucknow. Hyderabad, Pune and Lucknow do not have dedicated suburban tracks but share the tracks with long distance trains. New Delhi, Kolkata, and Chennai have their own metro networks, namely the New Delhi Metro, the Kolkata Metro and the Chennai MRTS, with dedicated tracks mostly laid on a flyover. Suburban trains that handle commuter traffic are mostly electric multiple units. They usually have nine coaches or sometimes twelve to handle rush hour traffic. One unit of an EMU train consists of one power car and two general coaches. Thus a nine coach EMU is made up of three units having one power car at each end and one at the middle. The rakes in Mumbai run on direct current, while those elsewhere use alternating current. A standard coach is designed to accommodate 96 seated passengers, but the actual number of passengers can easily double or triple with standees during rush hour.
20
NOTABLE TRAINS AND ACHIEVEMENTS
A train on the Darjeeling Himalayan Railway
There are two UNESCO World Heritage Sites on IR — the Chatrapati Shivaji Terminus[18] and the Mountain railways of India. The latter is not contiguous, but actually consists of three separate railway lines located in different parts of India: The Darjeeling Himalayan Railway, a narrow gauge railway in West Bengal.
•
The Nilgiri Mountain Railway, a metre gauge railway in the Nilgiri Hills in Tamil The Kalka-Shimla Railway, a narrow gauge railway in the Shivalik mountains in The Palace on Wheels is a specially designed train, frequently hauled by a steam locomotive, for promoting tourism in Rajasthan. On the same lines, the Maharashtra government introduced the Deccan Odyssey covering various tourist destinations in Maharashtra and Goa, and was followed by the Government of Karnataka which introduced the Golden Chariot train connecting popular tourist destinations in Karnataka and Goa. However, neither of them has been able to enjoy the popular success of the Palace on Wheels. The Samjhauta Express is a train that runs between India and Pakistan. However, hostilities between the two nations in 2001 saw the line being closed. It was reopened when the hostilities subsided in 2004. Another train connecting Khokhrapar (Pakistan) and Munabao (India) is the Thar Express that restarted operations on February 18, 2006; it was earlier closed down after the 1965 Indo-Pak war. The Kalka Shimla Railway till recently featured in the Guinness Book of World Records for offering the steepest rise in altitude in the space of 96 kilometres.
21
Nadu.
•
Himachal Pradesh.
CURRENT ISSUES AND UPGRADES Although accidents such as derailment and collisions are less common in recent times, many are run over by trains, especially in crowded areas. Indian Railways have accepted the fact that given the size of operations, eliminating accidents is an unrealistic goal, and at best they can only minimize the accident rate. Human error is the primary cause, leading to 83% of all train accidents in India. In the past, the Konkan Railway route has suffered from landslides in the monsoon season, causing fatal accidents. Outdated communication, safety and signaling equipment, which used to contribute to failures in the system, is being updated with the latest technology. A number of train accidents happened on account of a system of manual signals between stations, so automated signaling is getting a boost at considerable expense. It is felt that this would be required given the gradual increase in train speeds and lengths, that would tend to make accidents more dangerous. In the latest instances of signaling control by means of interlinked stations, failure-detection circuits are provided for each track circuit and signal circuit with notification to the signal control centres in case of problems. Though currently available only in a small subset of the overall IR system, anti-collision devices are to be extended to the entire system. Aging colonial-era bridges and century-old tracks also require regular maintenance and upgrading. In recent years, Indian Railways has laid claim to a financial turnaround, with (unaudited) operating profits going up substantially. Credit for this achievement has been claimed by the previous Indian Railway Minister, Mr. Lalu Prasad Yadav, who asserts that he made significant improvements in the operating efficiency of goods traffic after he took over as Railway Minister in May 2004. Comparison of different gauges common in India with the standard one, which is not common in India The Sixth Pay Commission has been constituted in India to review the pay structure of Government employees, and its recommendations are expected by the end of 2008. Based on its recommendations, the salaries of all Railways officers and staff are expected to be revised with retrospective effect (w.e.f. January 1, 2006). If previous Pay Commissions are taken as an indicator, this revision could be 50%, thus having an impact on present and future Railway budgets. The Rajdhani Express and Shatabadi Express are the fastest trains of Indian Railways, though they face competition from low-cost airlines since they run at a maximum speed
22
of only 150 kilometres per hour (93 mph). At least five corridors are under consideration for the introduction of high speed bullet trains to India with expert assistance from France. It is estimated that to modernise Indian Rail and bring it up to international standards, would require over US$200 billion in new and upgrade investments. IR is in the process of upgrading stations, coaches, tracks, services, safety, and security. Initially, various upgrade and overhaul work will be performed at more than fifty stations, some of it by private contract. All meter gauge lines in the country will be converted to broad gauge (see Project Unigauge). New LHB(Alstom) stainless steel coaches, manufactured in India, have been installed in Premier Rajdhanis and Shatabdis like Howrah Rajdhanis, Sealdah Rajdhanis, Mumbai Rajdhanis, August Kranti Rajdhanis, Patna Rajdhanis, Guwahati Rajdhanis and Bhuwaneshwar Rajdhanis. These coaches enhance the safety and riding comfort of passengers besides having more carrying capacity, and in time will replace thousands of old model coaches throughout Indian Railways. More durable and conforming polyurethane paint is now being used to enhance the quality of rakes and significantly reduce the cost of repainting. Improved ventilation and illumination are part of the new scheme of things, along with the decision to install air brake systems on all coaches. New manufacturing units are being set up to produce state-of-the-art locomotives and coaches. IR is also expanding its telemedicine network facilities to further give its employees in far-flung and remote areas access to specialized medicine. IR has also piloted Internet connectivity on the Mumbai-Ahmedabad Shatabdi Express, powered by Techno Sat Communications. Sanitation in trains and stations throughout the system is getting more attention with the introduction of eco-friendly, discharge-free, green (or bio-) toilets developed by IIT Kanpur. Updated eco-friendly refrigerant is being used in AC systems while fire detection systems will be installed on trains in a phased manner. New rodent-control and cleanliness procedures are working their way into the many zones of IR. Central Railway's 'Operation Saturday' is gradually making progress, station by station, in the cleanup of its Mumbai division. ORGANIZATION CHART MINISTER FOR RAILWAYS ?
23
MINISTER OF STATE FOR RAILWAYS ? RAILWAY BOARD CHAIRMAN ? FINANCIAL COMMISSIONER, (Members-Engineering, Mechanical, Traffic, Staff, Electrical) SECRETARY, ? ADVISERS (DIFFERENT AREAS) ? DIRECTOR- GENERAL DIRECTOR - GENERAL RAILWAY PROTECTION FORCE RAILWAY HEALTH SERVICES ? EXECUTIVE DIRECTORS (DIFFERENT DIRECTORATES) ? GENERAL MANGERS (ZONAL RAILWAYS and PRODUCTION UNITS) PUBLIC ENTERPRISE
24
1. Enterprises completely owned by the State or Central govt. and functioning as part of the govt. These are known as departmental undertakings. A railway is an example. These are controlled by respective ministries. 2. Enterprises are set up under an Act of the Parliament and owned by the govt. These are known as statutory corporations. Life Insurance Corporation, State Bank of India, and Reserve Bank of India are examples. 3. Enterprises which are company types of organization registered under Companies act of 1956 and known as Govt. Companies (Sec 617). Hindustan Ship Yard, Hindustan Machine Tools, Bharat Heavy Electrical Limited is some examples. OBJECTIVES OF RAILWAY MANAGEMENT: To provide rail transport for both passenger and goods adequate to meet the demand in areas where Railway operation confers optimum benefit to the economy having due regard to the Government’s policy of development of backward areas: To provide such rail transport at the lowest cost consistent with:Requirement of the railway users and safety operations, Adequate provisions for replacement of assets and some provision for development of business and the least amount of pollution of the environment To work in association with or utilize other modes of transportation, such as pipelines and road transport and to engage in ancillary activities necessary to sub serve the above two objectives; To establish a corporate image of the railways as being an up-to-date business organization with the interest of the public and of the nation as its prime objectives; and To develop organizationally effective personnel with pride in their work and faith in the management
I FINANCIAL CRISIS IN INDIAN RAILWAYS
IR on Financial Cross Roads
25
With the loss of monopoly on the bulk movement of goods and the development of well connected road facilities, IR has lost its transport potential both in passenger as well as commodities. Following are the some of the reasons for the financial crisis.
Decline in Budgetary Support: The major source of investment in the past has been the budgetary support, has dwindled from 75 % to 39 %. Railways have therefore, to raise resources from the market on commercial terms and conditions.1 This is considered as the severe blow to the IR as it enjoyed the unstinted support from the GOI. With the increasing cost of input and services on the one side (especially after the implementation of VI CPC Pay Scale Recommendations and the resultant steep increase in Pension liability- as per the Railway Budget 2012-13 staff wages and Pension liability has reached 53 %) and the political impasse to increase the fares and freight, IR has reached the stage of winding up. Budgetary support started declining and came down from 75 % in V Five Year Plan to 58 in VI Five Year Plan and to 42 % in VII Five Year Plan. It has drastically come down to 39 % in XI Five Year Plan in the terminal year(2007-12). It is likely to slide down in the coming years as has been pointed out by Birkhe Ram. 2 Declining governmental support has caught the railways between the need to carry higher traffic and increasing cost of operations. 3 It is likely to be further reduced in the XII Plan (2009-14).4 Outside Borrowing: Market borrowing for financing the railway plans are comparatively expensive - high cost of market borrowing - high cost of operation - the rate of interest on Taxable bonds is 9 % against the dividend rate of 7 %.5 Similar view was already expressed by George Fernandes, Nitish Kumar and Mamata Bannerjee.6 If the railways have to maintain their financial viability, the market borrowings have to be kept under very close scrutiny. Charges have risen from a modest in 1998- 99 ( Estimated )8 ? Social Costs: Social Service Obligation
1 N. P. Srivastava, Brief Report on the Seminar on “Investment Opportunities In Rail Transportation And Service”, RTJ, Jan- March 1996, p. 2 Birkh Ram, “Improving Railway Finances, I R, Aug.96, p. 39. 3 V. Sivakumaran,
“ Privatisation And Modernisation In Indian Railways - Financial consideration”, I R, April 96 p. 17 29 & 30 17 5
7
The Lease 2392 Crores
25 Crores in 1987 - 88 to a mammoth
4 Arun Bhagra, -Lt. Col “Role Of Indian Railways In The Future Transportation Scenario”. RTJ, July - Sept., 1996 PP. 5 V. Sivakumaran , “Privatisation And Modernisation In Indian Railways - Financial consideration ”, I R , April 96 p. 6 George Fernandes, “Status Paper On Railways”- Ministry of Railways, Govt. of India, 1990 para 30. 7 White Paper on Railway Projects, Ministry of Railways, Govt. of India, 1998 p.7 8 Status Paper on Indian Railways, Some Issues and Options, Ministry of Railways, Govt. of India, 1998.p. 9
26
Indian
Railways (IR), carries out certain transport activities which are essentially uneconomic in nature in the larger interest of the economically disadvantaged sections of the society. Losses incurred on this account fall under social service obligation of IR. Net social service obligation borne by IR in 2008-09 is assessed at .11,477.53 crore excluding staff welfare cost ( .2,582.93crore) and law and order cost ( .1,586.73 crore). These costs impinge upon the viability of Indian Railways system. Elements of Social Service Obligation: The main elements of social service obligation in IR are losses relating to: (i) Essential commodities carried below cost; (ii) Passenger and other coaching services; (iii) Operation of uneconomic branch lines; (iv) New lines opened for traffic during the last 15 years. Losses on transportation of essential commodities carried below cost: As part of the Railways’ social service obligation, certain essential commodities of mass consumption like sugarcane, fruits and vegetables, paper, live stock, provisions, bamboos etc. are carried below cost of operation in order to contain their market prices. The total losses on the movement of these commodities 95 in 2008-09 amounted to
Commodities Fruit &Vegetables Bamboos Paper Charcol Cotton Raw Pressed Live Stock Cotton Manufactured other piece goods Others (Wood Unrough, Provisions, Sugarcane, Coir Products and Wool Raw & Waste) Total
.78.76 crore, as shown below:
Losses ( . in crore ) 55.81 06.30 05.46 03.60 02.89 01.33 01.05 02.32 78.76
These commodities constituted 1.27% of the total revenue NTKMs and 0.55% of freight earnings in the year 2008-09. Losses on passenger and other coaching services: Analysis of the profitability of coaching services in 2008-09 has revealed an overall loss of .15,568.83 crore to which net suburban losses in Chennai, Kolkata and Mumbai provided with EMU and Non-EMU services contributed .1,707.69 crore. While the lag in the rise of passenger fares with respect to inflationary pressures prevalent in the economy has contributed to coaching losses, other factors have also exacerbated the situation which include (i) low second class ordinary fares; (ii) non-suburban commuters availing season ticket concessions up to a distance of 150 kilometres. These journeys constituted 26.1% of non-suburban traffic ; (iii) commuters availing concession monthly and quarterly season tickets on suburban sections of Mumbai, Kolkata and Chennai. Journeys performed by passengers holding season tickets formed 65.6% of suburban traffic; 27
(iv) concessions in fare extended to various categories such as recipients of gallantry awards and National sports awards, 96 participants in National and State sports tournaments, teachers honoured with National awards, Shram awardees, war widows, patients suffering from cancer, tuberculosis and other serious diseases, handicapped persons, unemployed youths etc. Concessions are also extended to military traffic, postal traffic, transportation of seeds, milk etc. and traffic to the North East. IR also steps in to provide emergency relief by transporting materials like food, water to areas affected by natural disasters like drought, cyclone, earthquake etc. Compensation for Social Service Obligations in Other Countries: Railways, the world over, are called upon to meet certain public service obligations at lower tariffs for which they are adequately compensated for by the Government. Such support is provided in various forms and for different purposes like: (i) compensation for losses on account of concessional tariffs; (ii) out-right grant to cover deficits; (iii) soft loans to meet the deficits; (iv) financial support to maintain viability of the system and to earn marginal profits; (v) writing off of accumulated debts and unproductive capital; and (vi) support for investment and infrastructure maintenance. Indian Railways incur losses every year by performing a variety of unremunerative services. These losses are mostly due to low ordinary second class fare, suburban and non-suburban season fare, a variety of concessions granted on passenger ticket and transportation of certain commodities below cost. Working of uneconomic branch lines, too, imposes a heavy burden on IR’s finances. A gap is thus created between the revenue income generated through these services and their running costs. The Net social service obligation borne by IR in 2008-09 assessed at .11,477.93 Crore, constitutes 14.38% of the total revenue earnings and 15.89% of the total expenditure. Uneconomic Branch Lines: Despite concerted efforts to enhance earnings from branch lines operation, most of these lines remain commercially unviable. The Railway Reforms Committee recommended closure of 40 such lines but due to stiff public resistance and opposition by State Governments towards withdrawal of such services, only 15 lines have been closed permanently by the Railways. A review of the financial results of existing 100 uneconomic branch lines for the year 2008-09 shows that, on an original investment on these lines of the order of .732 crore. Social Costs are those costs involved in carrying certain commodities and passenger category below cost and the consequent loss incurred by the Railways. Essential Commodities Carried rates below cost: Essential Commodities Carried at concessional rates below cost include food grains, sugarcane, salt, fruits ,vegetables, timber wrought, live stock, wood wrought, edible oils, coir products, oil products, fodder, bamboo, cotton raw and unprocessed, acids, bones, lime etc., The total loss on this account is . XXXX Crores during 2011-12 * . Losses on Passengers and other coaching services: 28 .785 Crore, losses during the year 2008-09 amounted to
Losses on Passengers and other coaching services operated at subsidized rates due to short distance passenger traffic by Second Class ordinary fares, non-suburban passengers availing Season Ticket concessions, commuters on monthly and quarterly season tickets on suburban sections of Calcutta, Chennai and Mumbai., concessions granted to award winners, sick ,blind, deaf and dumb, orthopedically handicapped persons, other categories of police, military personnel, students, war widows, senior citizens, and others . The loss on passenger traffic during 2011-12 accounted for XXXX Crores. (Source: INDIAN RAILWAYS, YEAR BOOK, 2011-12).
Table 16 : Loss
on Coaching Operations
(Rs in Crore) 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Earnings 15045.62 15896.26 17420.34 20419.14 22722.01 26088.09 Expenditure 20826.46 23829.47 23986.47 26711.34 30244.46 40045.88 Profit/Loss -5780.84 -7933.21 -6566.13 -6292.2 -7522.45 -13957.79 Uneconomic Branch Lines: A number of branch lines carry traffic below capacity and are not commercially viable. With the development of roads, change in the pattern of industrial activity and progress in the urbanization, many branch liens have lost their original utility. However, in the face of the strong public resistance to any proposal for closure of these branch lines and reluctance on the part of the State governments to support any suggestion for their closure, it has increasingly difficult to close these lines. The loss on this account is XXXX Crores during 2011-12 (Source: INDIAN RAILWAYS, YEAR BOOK, 2011-
12). Such subsidies affect the railway’s capacity to invest further unless railways have the freedom to
do their own pricing of services.9 Financing the social costs is a great burden not only to Indian Railways but to railways all over the world. However, in many countries the losses are compensated by hefty grants from the governments. However unlike in India, all over the world the State compensates the Railways for incurring social costs. British Railways have been receiving Public Service Obligation‘ Grants, Swiss Federal Government has also been contributing as Federal Compensation for Regional Passenger and Piggy-back Freight support for investment and infrastructure maintenance. German and French Governments have also been contributing towards the cost of social services in these countries. The amount of subsidies in some of the select countries is indicated below for the year XXXXXXXX Table No: 1 and Graph No: 1 as below: Loss of market share: In a study made by M/s RITES, has revealed that the share of railways in the freight percentage has drastically slide from 89 % to 30.08 %. The same is explained in the following table and the pie chart.
9 Lakshmi Narasiah, Dr. CHEAP TRANSPORT FOR INDIA’S MILLIONS IR, Feb.-March 97, p . 41.
29
TABLE NO: 6 MODAL SHARES OF VARIOUS MODES OF TRANSPORT IN PERCENTAGE BASIS
SL. No. 1 2 3 4 5 6 RAIL ROAD AIR
MODE
SHARE OF NTKM 30.08 61.00 0.01 2.31 2.16 4.44 100
COASTAL SHIPPING INLAND WATER PIPELINES & OTHERS TOTAL
2% 0%
2%
4% 30%
62%
RAIL COASTAL SHIPPING
ROAD INLAND WATER
AIR PIPELINES & OTHERS
NTKM: Net Tonne Kilo Metres
Source:
RITES Draft Final Report 2009: "Total Transport System Study on Traffic Flows and Modal Costs”
It will be seen that the market share of rail transport has reduced drastically from 89% in 1950-51 to 30% in 2007-08. The road sector has been the biggest gainer and pipelines also have gained share by 4.5%. Comparison of Tonne kilometers for different modes for the year 2007-08 indicates share of railways at 36.06% (against 30% if compared in tonnes),
30
highways 50.12%, coastal shipping 6.08%, airlines 0.02%, pipelines 7.48% and inland water transport 0.24%. 10
TABLE NO: 1 COMPARISON OF SUBSIDIES IN RAILWAYS ABROAD Sl.No. Railway System Earnings in Subsidy in Total Earnings % of Subsidy to Total Revenue
Millions Millions 1 British Railway 2062.3 451.9 2725.0 16.6 2 Swiss Federal 1572.0 2100.0 582.0 35.7 3 German Federal 5710.0 12166.4 23770.0 51.2 4 French National 32190.0 42500.0 88909.0 47.8 The figures are indicated in the respective currencies. Britain: Pound Sterling ; Switzerland : Swiss Francs; Germany: DM ; France: French Francs.11 GRAPH NO: 1 COMPARISON OF SUBSIDIES IN RAILWAYS ABROAD
90 80 70 60 50 40 30 20 10 0 British Railw ay Sw iss Federal Germ an Federal French National
% of Earnings % of Subsidy
Spiralling cost of input and services: According to the White Paper On Indian Railways – Govt. of India, Ministry Of Railways,
(Railway Board) December 2009 presented by the then Minister of Raiwlays Mamata banerjee has observed “During the period under consideration, working expenses of the Railways grew at a lower rate in comparison to earnings except in 2008-09 when there was a considerable jump in expenditure on account of the disbursement of 6th Pay Commission
10 White Paper On Indian Railways – Govt. of India, Ministry Of Railways, (Railway Board) December 2009 11 JANE’S WORLD RAILWAYS, 1993-94 quoted at p.
80 ,” INDIAN RAILWAYS YEAR BOOK, 1992-93”
31
arrears and increased salaries and wages and rates of allowances- White Paper On Indian Railways – Govt. of India, Ministry Of Railways, (Railway Board) December 2009” 12
SCOPE OF THE STUDY: The study is on the utilisation of the money recovered from the employees of IR and its won equal contribution in the name of NPS contribution to its own use in the short term projects instead of depending on the GOI or market. The study is surmised on the monthly contribution from the NPS category of employees of the Southern Railway. The amount so collected is projected for the entire IR and the postulation is proposed. The study also excludes the apportioned earnings of this railway that have accrued at other Zonal railway systems as these earnings are transferred to this railway not on cash basis but on book transfer basis. Similarly the study excludes such of those expenditure related to this railway but incurred at other Zonal railway systems and transferred back to this railway on the book transfer basis.
12 White Paper On Indian Railways – Govt. of India, Ministry Of Railways, (Railway Board) December 2009
32
PRESENT SYSTEM
The Indian Railways is the largest employer in India and is having approximately 12 Lakhs Pensioners alone under existing Railway Services (Pension) Rules 1993 and the pension bill continues to rise every year. In order to bring down this burden the Government has implemented the New Pension Scheme with effect from 01.01.2004. The salient features of the Scheme are as under: TIER I System:The system is mandatory for all govt. servants who joined govt. service on or after 1.1.2004 on regular basis. It has two Tiers i.e. Tier I & II. (i) In Tier I, government servant shall compulsorily make a contribution at the rate of 10 % of Basic pay (BP) + Dearness Allowance (DA) & a matching contribution will be made by the Govt. The contributions & the investment returns would be deposited in a non-withdrawal pension tier I account. (ii) (iii) (iv) At present at least 85% of pension wealth is invested in debt instruments and up to 15% in equity and equity linked mutual fund. Rate of interest on the amount deposited in Tier- I, is 8 % during the year 2007-08 and 2008-09. Government servant covered under the new system can only exit at or after attaining the age of 60 years from the tier- I of the system. At exit, it would be mandatory for the individual to invest 40% of the pension wealth to purchase an annuity from an Insurance Regulatory Development Authority (IRDA) regulated life insurance company, which will provide pension for lifetime of the employee & his dependent parents / spouse at the time of retirement. (v) In the case of Govt. servant, who leaves the system before attaining the age of 60 years, the mandatory annuitization would be 80 % of pension wealth. In order to implement the system, there will be a Central Record Keeping Agency (CRA) & several Pension Fund Managers. Important features of NPS The NPS offers two approaches to invest in subscribers account :Active choice – Individual Funds Auto choice – Lifecycle fund Active choice - Individual Funds
33
Subscriber will have the option to actively decide as to how his NPS pension wealth is to be invested in the following three options : E - “High return, High risk” _ investments in predominantly equity market instruments.
C – “Medium return, medium risk” – investments in predominantly fixed income bearing instruments. G – “Low return, Low risk” investments in purely fixed income instruments.
Subscriber can choose to invest his entire pension wealth in C or G asset classes and up to a maximum of 50% in equity (Asset class E). He can also distribute his pension wealth across E, C and G asset classes, subject to such conditions as maybe prescribed by PFRDA. In case he decide to actively exercise his choice about investment options, he shall be required to mandatorily indicate his choice of Pension Fund from among the six Pension Funds appointed by PFRDA. Auto choice – Life cycle Fund NPS offers an easy option for those participants who do not wish to specify the allocation for their NPS investments. In case he is unwilling to exercise any choice, his funds will be invested in accordance with the Auto Choice option. In this option the investment will be made in life-cycle fund. Here, the percentage of funds invested across three asset classes will be determined by a pre-defined portfolio. At the lowest age of entry (18 years), the auto choice will entail investment of 50% of pension wealth in “E” Class, 30% in “C” class and 20% in “G” Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in “E” and “C” asset class will decrease annually and the weight in “G” class will increase annually till it reaches 10% in “E”, 10% in ”C” and 80% in “G” class at age 55. All new entrants who join service on or after 1.4.2009 have to fill the application for allotment of Permanent Retirement Account Number (PRAN) & submit the same to the drawing officer. The drawing officer would then forward it to National Securities Depository Limited (NSDL) for generation & allotment of PRAN & dispatch of PRAN Kit which would be handed over to the subscriber. TIER II Account 34
(i) Any subscriber in NPS having an active Tier I account has the option to open an investment and trading account referred to as “Tier II account”. (ii) Tier II is a pension savings account, with a facility for withdrawal to meet financial contingencies. (iii) Interfacing entity for Tier II account PFRDA has appointed various banks and financial institutes as Point of PresencePOP. The registered branches of the POP are termed as Point of Presence Service Provider – POPSP. (iv) Opening a Tier II Account Tier II account is a voluntary saving facility wherein the withdrawal is as per subscriber’s choice. Any government employee who is mandatorily covered under NPS can activate the Tier II account by submitting duly filled form UOSS10 along with the copy of PRAN Card and initial contribution of 1000/- to any POP-SP. (v) Key features of tier II account – a) Subscriber can enjoy unlimited number of withdrawals depending upon their requirements. The only criteria is that he have to maintain a minimum balance of the end of Financial Year i.e., as on March 31st (b) Minimum amount for contribution is made in a financial year. (c) Separate nomination details and scheme preference are possible for Tier II (d) For Tier II account, no additional CRA charges for annual account maintenance. Though the present NPS is in operation since 01.01.2004, so far no clarification is received for the following: (i) (ii) (iii) Retirement Gratuity Benefits in the event of death in service Payment in the event Removal/Dismissal. 250/- and minimum 4 contributions to be 2000 at
However considering the hardships being faced by the employees appointed on or after 1.1.2004 & who are discharged on invalidation / disablement and by the families of such employees who have died during service since 1.1.2004, the benefits like Invalid Pension/Gratuity, Family Pension/Death Gratuity under normal & Extra ordinary Pension Rules are extended to those covered by the New Pension Scheme, on provisional basis till further orderand also to be adjusted against the future payments to be made in accordance with the NPS Rules. (No. 2008/AC-II/21/19. RBE31/2009 dt. 29.05.2009)
35
PROPOSED SCHEME
As per the current year 2012 – 2013 budget report presented by Railway Minister in the Parliament, a major share i.e. about 65% of budget goes towards employees Salary & Pension. As per 2012-13 budget, the Annual Plan for 2012-13 is as shown below:Gross traffic Receipts – 1,32,552 Crores and the distribution towards expenditure is as under: TABLE NO 2 TOTAL WORKING EXPENSES OF THE IR Sl.No 1 2 3 4 5 Description Working expenses Pension Fund Dividend Payment Appropriation to DRF Loan with Interest in Crores 84,400 18500 6676 9500 3000
The annual plan out lay for 2012-13 is 60,100 crores TABLE NO 3 TOTAL ANNUAL PLAN OUT LAY Sl.No 1 2 3 4 5 Description Gross Budgetary Support Railway Safety Fund Internal Resources Market Borrowings PPP in Crores 24000 2000 18050 15000 1050
The Operating Ratio during 2011-12 was 94% & the present year estimated at 84.9 % (2012-13). The Railways is paying 6.5% dividend towards General Revenues to Ministry of Finance. We have our own internal resources viz., DRF, DF, OLW(R) etc., constitutes around 30% of Annual Outlay for which no dividend is paid. Indian Railways is entirely depends upon IRFC which is a public sector Corporation under the Ministry of Railways. Ministry of Railways is not authorized to raise loans from the market. IRFC raises the loan from the market and lease assets procured with the help of these loans for the use of Indian Railways duly receiving leasing charges at 16%. INVESTMENT STRATEGY FOR NPS FUND
36
The proposed Investment strategy for NPS fund will be formulated as an alternate Finance for the benefit of Indian Railways. This scheme will reduce the financial constraint of IR to a major extent. An authority named Railway Pension Fund Regulatory & Development Authority for Indian Railways will function initially under Indian Railway Finance Corporation is Personnel, to be set up and the Nodal authority will be Ministry of Public Grievances & Pension The Scheme will be operative prospectively. However the Railway Ministry will instruct the PFRDA for the book transfer of amount pertaining to Railway employees already invested along with dividend accrued since the inception of the Scheme from 01.01.2004, to RPFRDA to build a corpus fund of its own.
Salient Features:
`All the employees who joined the NPS on or after 01.01.2004 will be deemed to have come under RPFRDA and is mandatory. The contribution towards the scheme will be operated in Two Tiers.
Tier – I Account:
(i) In Tier I Account the 10% of Pay (Pay+G.P.+ D.A) will be recovered from the salary of the employees with matching contribution from Railways. The contribution by employees is mandatory and the same is nonwithdrawable. (ii) The consolidated amount recovered from the employees under Tier I Account will be sent to newly constituted RPFRA for IR every month by individual Zonal Railways. (iii) (iv) (v) 70% of this amount is to be used to finance new Railway time bound projects. 20% of the amount will be invested in Government Securities/Bonds. Remaining 10% may be credited to a fund named Contingency Reserve Fund to meet the exigencies that may cause due to Medical Invalidation/Death of employees.
PROPOSED TERMINAL BENEFITS:
A. At the time of Superannuation: (i) 40% to be invested in RPFRDA for which interest will be paid in the form of monthly pension.
37
(ii) 60% to be paid to the employees as a lumpsum. B. At the time of exit by employees before retirement but after completing minimum lock in period (ie) 10 years the payment shall be made as under:
(i)
20% of the amount accumulated with Interest at the credit of the employees’ account shall be paid as Lumpsum. 80% to be re-invested in RPFRDA which will fetch them a monthly pension. Gratuity will be paid as per Gratuity Act and Encashment of Leave salary at the time of exit will be dealt as per extent Leave Rules for A and B above.
(ii)
C. At the time of exit on own volition before completing 10 years of service the payment shall be made as under: (i) The amount of employee’s contribution alone accumulated at his/her credit with interest at 8% p.a. shall only be payable to him/her with an option for reinvesting the same in Railways. (ii) He/she shall forfeit the entire portion of Employer’s contribution as well as Gratuity. D. In case of Death and Medical invalidation during service (i) (ii) 80% of the total amount with interest accumulated at the credit of employee’s account to be paid to his family. 20% of the total amount with interest accumulated at the credit of employee’s account reinvested with RPFRDA so that monthly family pension can be paid either to the spouse or the next legal heir of the employee alone as the case may be. No further extension of the scheme of family pension to other family members or dependents. In consultation with Finance Ministry all contributions towards the above fund will be fully exempted from Income tax. Tier II Account: 1. It is a voluntary saving scheme applicable to all NPS subscribers and is fully optional.
2. Those employees who are willing to join the scheme have to deposit a
minimum sum of
1000/- or its multiples every month for a period of
5/10/15 years as per his/her choice.
38
3. They will be allowed to withdraw upto a maximum of 70% of the amount
standing at the credit of the account as on every 1st April as loan.
4. The interest charged for the loan will be adjusted against the interest
accrues. 5. The 30% of the amount kept fixed will carry an interest as per guidelines of RBI issued from time to time. During the first year it cannot be withdrawn. 6. At the time of expiry of the term the amount accumulated with interest at the credit of the employee will be payable to him. 7. The fund available under this head can be utilized for short term projects. 8. This will also have Income Tax exemption.
IMPLEMENTATION OF THE PLAN
Formation of Railway Pension Fund Regulatory & Development Authority
39
It is proposed to form a separate Railway Pension Fund Regulatory & Development Authority (RPFRDA) which will function initially under Indian Railway Finance Corporation and controlled by Ministry of Railways and Ministry of Finance horizontally. The Nodal authority for RPFRDA will be Ministry of Personnel, Public Grievances and Pension. This will function exactly in the lines of existing PFRDA.
SCOPE AND MODALITIES OF RPFRDA:
The RPFRDA will be entrusted with a task of collection of contribution from NPS & maintenance of accounts of the Railway employees. Also it will distribute finance for investment projects. For this purpose it will have a separate High Level Expert Committee which will identify and decide the projects in which the money is to be invested. The total allocation towards the fund shall not exceed the percentage already notified under the proposed scheme. All the projects undertaken under this Scheme are to be time bound. Once the project is decided the fund will be released through IRFC which will closely monitor all the projects in which the money is invested. It will ensure that the project is completed within the target time.
FUNCTIONS OF RPFRDA:
The RPFRDA is vested with task of collection and managing the pension fund collected from the NPS employees of IR. The main functions of RPFRDA will be as follows: 1. Issuing of unique number PRAN to the employees as issued by PFRDA duly continuing the existing PRAN number for the existing Railway employees covered under NPS. 2. Collection of contribution (Tier I & Tier II) from the employees/employers through salary. 3. Maintenance of accounts of the NPS employees & their data. 4. Distribution of 70% of funds for the projects as per the recommendation of High Level Expert Committee. Short terms to ensure immediate returns like expansion of UTS facilities in wayside stations, Yathri Nivas, Youth Hostels, Budget Hotels and commercial complexes. 5. Investing in Government Securities as per the percentage proposed earlier (ie) 20%
40
6. Maintaining 10% Contingency Reserve fund. 7. Crediting of Interest to the subscribers account. 8. Distributing Annual statement to the employees. 9. Distributing relief from the contingency reserve fund as and when necessary. 10. Distribution of terminal benefits when it accrues under Tier I as per the schedule prescribed under proposed Scheme A, B, C and D. 11. Publishing Annual performance report. 12. DCRG and Leave salary will be paid as per existing rules.
41
VERTICAL AND HORIZONTAL INTEGRATION OF RPFRDA
PFRDA
Ministry Of Railways Indian Railway Finance Corporation Ministry Of Pension
RAILWAY PFRDA
SHORT TERM PROJECTS 70 %
GOVT SECURITIES 20 %
CONTINGENCY RESERVE FUND 10 %
ENDED GROWTH FUNDS IN FUTURE
MUTUAL FUNDS THROUGH BANKS IN FUTURE
BENEFITS
42
The benefits derived from the Scheme are not only boon to the employees but also to the Indian Railways as a whole which can never be derived from any other Scheme. Hence the benefits may be categorised as under:
1. FOR RAILWAY ORGANISATION:
(i)
As the Railways' finances are separated from general finances, Railways are
expected to not only meet its operational expenses along with ever increasing pension commitments but also generate adequate resources for meeting plan investment requirement including asset renewal. Finding resources to finance rail infrastructure has been a subject of several reviews and expert committee reports. A common theme has been that Railways must increasingly rely on internal generation of resources, market borrowing and PPP initiatives since there are limitations on the extent to which the General Exchequer can support Railways infrastructure expansion. In the above scenario a prudent suggestion for the finance generation through the afore said Investment Scheme shall play a vital role for the development of Indian Railway Organisation as a whole. A report on how the IR earned one rupee and spent in the year 2010 – 2011 is as follows: GRAPH NO 2
43
GRAPH NO 3
Dividend payable to General Revenues for the year 2011 – 2012 is 5.65% It is apparent that IR is spending 10% of its earnings towards Leasing charges and payment of Dividend to General Revenues and 16% towards Pension. The subscription towards NPS for the Year 2010 –2011 and 2011 – 2012 as far as Southern Railway is concerned that has been remitted to NSDL is as follows: TABLE NO 4 ANNUAL SUBSCRIPTION OF PRESENT NPS IN SR Sl.No 1 2 Year 2010 -2011 2011 - 2012 Amount in 49.23 Crores 59.74 Crores
TABLE NO 5MONTHLY SUBSCRIPTION OF PRESENT NPS IN SR & THE PROJECTION FOR THE IR
Month & Year Subscription for the month of June 2012 Approximately for the year 2012 – 2013 Approximately for the year 2012 - 2013 Amount in 6.5 Crores 78 Crores 1400 Crores*
* (over Indian Railways (i.e.) 17 Zonal Railways & Six Production Units)
44
As on date this works out to 2.3% ( 1400 Crores x 100 / 100 /
60000 Crores) of
total annual plan outlay of 2012-13 and 5.83 % of Budgetary Support( 1400 Crores x 24000 Crores) . This contribution continues to rise every month with increase At the rate of 21 % growth over the last two years ie 2010-11 and 2001-12 the following trend can be envisaged. Based on the percentage of growth, five years growth is worked out in the following table. The growth percentage does not include the non–NPS (i.e. NSCRPF subscriber) who would be willing to invest their VPF in railway projects. TABLE No 6 TREND BASED ON GROWTH PERCENTAGE No 1 2 3 4 5 6 7 Year 201011 201112 201213 201314 201415 201516 201617 S R Amount in Crores All Railways Amount in Crores 49.23 1132.29 59.74 72.49 87.97 106.75 129.55 157.20 1374.02 1667.37 2023.36 2455.34 2979.56 3615.70 in DA and staff strength.
45
4000 3500 3000 2500 2000 1500 1000 500 0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
All Railways Amount in Crores
180 160 140 120 100 80 60 40 20 0 2010-11 2011-12 2012-13
46
2013-14 2014-15 2015-16 2016-17
S R Amount in Crores
180 160 140 120 100 80 60 40 20 0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
S R Amount in Crores
47
YEAR
2010 -2011 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016 - 2017 2017 - 2018
SRLY
49.23 59.74 72.49 87.97 106.75 129.55 157.20 190.77
% OF GROWTH 21.35 21.35 21.35 21.35 21.35 21.35 21.35
ALL RAILWAYS 23 1132.29 23 1374.02 23 1667.37 23 2023.36 23 2455.34 23 2979.56 23 3615.70 23 4387.65
In the White Paper presentation by MOR for the year 2012 it is pointed out in the Plan out lay for 2012 – 2013 the Market borrowings works out to 15,000 Crores. Again the annual NPS subscription if utilized as a source of fund for IR it will form part of 9 to 10% of Market borrowings. Hence it will considerably reduce the Market borrowings and leasing charges. If the NPS fund for the Railway employees is maintained by IR as per the above Scheme, the approximate sum of 78 Crores may be made as book adjustment and actual payment as of now need not be made. Since the normal wastage of NPS employees by way of superannuation will occur after a minimum of 30 years the amount can be utilized for the time being as a temporary measure to complete the ongoing projects which are clogged for want of funds and which will fetch immediate returns.
(ii)
Cost escalations in many infrastructure projects, mainly on Account of
inadequate funds allotment from year to year which weakens project management may also be effectively managed with this scheme. (iii) If the amount accumulated in the existing NPS subscribers which are
invested in shares and securities by the NSDL from 01.01.2004 is transferred as book transfer, the same can be used as Corpus Fund and the future returns from the investments will also form part of source of fund for IR.
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(i)
As there is constant flow of money in the proposed scheme new
projects can be confidently envisaged and it will take IR to new heights. (ii) (iii) Investment in Electrification Projects will ease out our fuel bills.
The amount of pension liability of Railways under RS(P)R will reduce
considerably by 2045.
(iv)
The Pension Scheme in Indian Railways is the silver lining of the
Organisation and Lakhs of people were attracted to this. By this integrated Pension Scheme we will be successful in bringing back the lost shine to our Organisation with our own sources and need not depend on outside agencies. (v)
1)
With the availability of the internal sources through NPS, the Railways Infrastructure – short term projects like refrigerated storage facilities at way side stations for perishable food items.
can undertake/improve in the following fields.
2) Roll In and Roll Out in commercially viable routes as it is a success in KRCL. 3) Creation of Inland Container Depot stations which will fetch returns. 4) Dedicated Freight corridor – time bound projects split into two or three segments 5) Electrification 6) Rail Road Link 7) Tourism Special Trains connecting important pilgrimage /tourism special.
2. FOR THE EMPLOYEES COVERED UNDER NPS:
(i)
The greatest achievement will be the Government can eliminate the fear from the mind of employees regarding their Return On Investment(ROI). Employees will also have a detailed knowledge about the whereabouts of the money recovered from them and how it is being utilized since they are
(ii)
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presently groping in the dark as far as present NPS investment plan is concerned. (iii) They will feel secured and it will also motivate them to perform their duties efficiently and it be a boon to the fresh recruits and overall economic health of IR. (iv) (v) It would create a sense of pride in the mind of employees and make them to feel that their participation in Management is also ensured. The social commitment of IR can also be met and the employees will have the confidence that they can take home a considerable sum on their superannuation apart from continued monthly returns from their Investment. The more they invest, the more they reap from the projects’ success. (vi) Thus this scheme will have appreciation from the organised trade unions which was the subject matter of criticism from them for the past 8 years and there is so far no judicious solution has been arrived to meet both the ends. (vii) Under Tier II, the new Scheme will inculcate a sense of savings among employees. The Indian Railways will be self reliant over a period of time and can grow as the largest Organisation in India and serve the nation .
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TABLE No 7 SOURCE OF FUNDS FOR PLAN OUTLAY 2012-131 NO SOURCE 1 2 3 4 5 INTERNAL SOURCES RSF PPP MARKET BORROWINGS GROSS SUPPORT BUDGETARY IN CRORES 18050 2000 1050 15000 24000 60100
TOTAL PLAN OUT LAY
40%
30%
3% 25% 2%
Internal sources PPP GROSS BUDGETARY SUPPORT
RSF MARKET BORROWINGS
The above graphic representation reveals IR has the liability to pay dividend and lease charges for the 65 % (Gross Budgetary Support 40 % and market borrowings 25 %) of the Plan outlay. (Source: Explanatory Memorandum Railway Budget 201213)
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TABLE NO 8 COMPARISON OF MARKET BORROWING AND NPS FUNDS NO 1 2 SOURCE MARKET BORROWINGS FUNDS THROUGH NPS TOTAL PLAN OUT LAY IN CRORES 13600 1400 15000*
9%
91%
MARKET BORROWINGS
FUNDS THROUGH NPS
*(Source: Explanatory Memorandum Railway Budget 2012-13) From the above graph it can deduced that out of the 100 % market borrowing, the leverage of funds raised through NPS can make change
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RECOMMENDATIONS
(i)
RPFRDA will initially function under the aegis of IRFC. On gaining sufficient expertise, RPFRDA will function as an independent entity. This System can be extended to all other serving Railway employees in the near future.
(ii)
(iii) If feasible, we can extend this to retired employees as long term investment of
their money for which RPFRDA has to work out the legal modalities.
(iv) The pattern of Railway financing now in force is that the entire capital is
provided by the Central Government through the budgetary support as Capitalat-charge. This Capital in the form of non refundable interest bearing perpetual loans, albeit at an interest rate lower than the market rate. Indian Railways has a strong case for Capital restructuring. In the present system, the entire capital is provided as Capital-at-charge. This Capital-at-charge may be converted to debt and equity on an appropriate basis as is followed in certain PSU’s like BHEL to reduce the payment of Dividend and Leasing charges and it will also pave the way for more surplus to be appropriated to DRF, DF and other funds.
(v)
At a later stage once the organisation is stabilized the Investment Scheme can be extended to General Public also.
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EPILOGUE
Indian Railways being the lifeline of the country huge investments are required for materializing various projects. By implementation of this Investment Strategy for New Pension Scheme funds, the market borrowings from IRFC can be reduced gradually. A saving and investing habit can be inculcated in the Railway employees. The dedicated projects, with a strong technically sound manpower and strong financial set up will send Indian Railways to new heights. Therefore time for a change has certainly arrived for taking bold new approach for better resource mobilisation and we hope that the effective utilization of this project Indian Railways will soar to International standards. With this project, we the Team “F” have tried to address the concern of our Honourable Railway Ministers by giving alternate source for generation of funds through NPS. We hope, this humble effort of ours will be appreciated and implemented.
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ACKNOWLEDGEMENT
This project is in partial fulfilment of the requirement of mandatory training for the post of Office Superintendent (OS) who have passed the Limited Departmental Competitive Examinations (LDCE). The training was conducted for the in Zonal We Railway Training thank Institute, Shri R Southern Railways IRTS, Tiruchchirappalli. We wholeheartedly thank the CPO/MAS, Southern Railway training. sincerely Raghuraman, Principal/ZRTI/TPJ who has offered us an opportunity to present this project on the subject related to our work area. The Project has been carried out under the guidance and supervision of Shri D Xavier Gnanaraj, Sr AFA/ZRTI/TPJ. We wish to express our sincere gratitude to him for his excellent inspiration, guidance, encouragement and motivation extended in undertaking this project. We also deeply indebted to Shri S Vaidhyanathan, APO/T/TPJ, Shri R Padmanabhan, Instructor/Establishment/ZRTI/TPJ and Shri R Srinivasan, Instructor/Stores/ZRTI/TPJ for their moral support in presenting this project.
LDCE OS Trainees – Group F at ZRTI/TPJ
S/Smt/Shri Jayalakshmi Suresh, OS-II /ZRTI/TPJ Mini Prasad, OS-II, SSE/PW/CKI/TVC Vasantha Mohan, OS-II /CPO/O/MAS P.Raghavendran, OS-II /CPO/O/MAS K.C.Rajamani, OS-II /S&T/ED/SA Vincent George, OS-II /Sr.DME/O/PGT
EDITED AND IMPROVED BY
D XAVIER GNANARAJ
MA, MCom, MBA-Fin, MPhil, PGDIR&PM, PGDFM, PGDCA
SR ASST FINANCIAL ADVISOR, ZONAL RAILWAY TRAINING INSTITUTE SOUTHERN RAILWAY, TIRUCHCHIRAPPALLI 620001
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