[Answered] Evaluate the effectiveness of merging the Railways budget with the main budget. Has it led to better capital expenditure?

Introduction: Give brief context to the merger of Rail budget

Body: How effective has been the merger?

Conclusion: Way forward

The government of India decided to merge the Rail Budget with the Union Budget from the budget year 2017-18 based on the recommendations of the Committee headed by Shri Bibek Debroy. The practice of a separate budget for railways was started in 1924 based on the recommendations of the Acworth Committee. The merger aimed to simplify the budgetary process and improve financial management.

How effectiveness has been the merger?

  • Focus on modernization: The goal of the merger was to provide funding for the railway network’s long-overdue upgrade and safety enhancements. Along with this merger, there is a need to address various factors, including government priorities, bureaucratic hurdles, and operational efficiency to modernize our railway infrastructure.
  • Transparency and accountability: Combining the budgets made it simpler to monitor the use of railway funding and was viewed as a step toward increased accountability and transparency.
  • Budgetary process simplification: Combining the budgets made handling several budgets less difficult and streamlined the budgetary process overall. It made it unnecessary for the Railways to give the government dividend payments in exchange for budgetary support, freeing up money for capital expenditures.
  • Allocation of Resources: The merger allowed the government to allocate resources based on priorities rather than allocating funds to the railways separately. This flexibility in resource allocation can be advantageous.

Has it led to better capital expenditure?

  • Revamp operations: Capital expenditures for the Indian Railways increased by 14% to ₹2.45 trillion for 2022–2023 from ₹2.15 trillion in the previous fiscal year. The appropriate decision was made to combine the rail and general budget, and as a result, average annual investments, which previously stood at ₹40,000–45,000 crore, have increased to ₹90,000 crore which helps in the modernization of railways.
  • Increased Focus on Capital Expenditure: The merger was expected to enhance the focus on capital expenditure in the railways by eliminating the need for the payment of a dividend to the government. It was anticipated that more resources would be available for modernization and infrastructure development.
  • Balance between freight and passengers: Despite the merger the passenger segment has faced losses in comparison to the freight segment which is profitable despite annual growth in freight volume and revenue of the railways in the period April-July 2023 at 1% and 3%. Indian railways’ share in freight business has steadily decreased to approx. 27% from upwards of 80% at the time of independence.

Conclusion

The merger of the Railways budget with the main budget in India was a significant reform aimed at simplifying the budgetary process and potentially improving capital expenditure in the railway sector. However, the effectiveness of this reform. depends on factors like efficient allocation of resources, transparency in financial management, and the government’s priorities.

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