Dividend transfer from the Railways

The Railway Ministry has been compelled to transfer the dividend it earns from investment in Public Sector Units to the Finance Ministry post the historic merger of the Railways Budget with the Union Budget 2017-18.  The Railway Ministry argues that it was promised financial and functional autonomy for agreeing upon this proposal and now it has been asked to transfer dividend worth Rs 1,050 crore from PSUs to the Centre. 

Why was the Railway Budget merged with the Union Budget?

In 1924, Railway budget was 84% of the main budget, the reason mainly being that the railway was in its development stages. But now it is only at 4% of Union Budget.  Since it has diminished significantly over the years, there is no need to present it separately just because it is a tradition. Hence the Railway Budget was amalgamated with the Union Budget and was made a part of the government’s overall fiscal discipline. All proposals with regard to railways would be part of the general budget. 

Analysis

The Finance Ministry has ascertained that railways do not have to transfer the dividend received from the government investment made in the railways (capital-at-charge). But it has to transfer dividend received from 14 central PSUs as it is integral in budget making and giving exception to the railways will invite objection from the other ministries such as power ministry, petroleum ministry, etc.

After the separate budget issue was scrapped, railways would save about Rs 10,000 crore. Also, after the amalgamation, any shortfalls in earnings over the expenditure would be taken care of by the Union. The revenue deficit would also be transferred to the finance ministry. 

Assessment

There are positive implications of handing over dividend from PSUs to the Central as it will be a fair decision when other ministries in the country come into picture. Investment being made in PSUs under the railways would be considered as having come from the centre’s account. Earnings from Central Public Sector Units (CPSU’s) are estimated to be Rs 850 crore for 2017-18 and giving this away would hit the earnings of the Railways. However, it has to adapt to the change as the new merger gives it a saving much more than what it has to pay.