CAG flags Railways’ parlous finances

CAG flags Railways’ parlous finances

Context

High Operating Costs of Indian Railways

Wrong value reported in 2016-17

The reported operating ratio of 96.5% in 2016-17

Correct Value

99.54% if the actual expenditure on pension payments was taken into account, according to the CAG report tabled in Parliament.

What does this mean?

An operating ratio of 99.54% means that Railways is spending 99.54 paise to earn 100 paise.

Reasons according to CAG

One of the factors for not recovering full cost from these classes could be the issue of free and concessional fare passes [or] tickets to various beneficiaries in good numbers, this practice needs to be scaled down

Other recommendations of the CAG

Fares should be based on Cost involved

The CAG said passenger fares and freight charges should be based on the cost involved so that it brings both rationality and flexibility in pricing, considering the financial health of Railways and the current market scenario.

Insufficient funds in the Depreciation Reserve Fund

• Non-availability of sufficient funds in Depreciation Reserve Fund to replace the overaged assets is indicative of weak financial health of Indian Railways
• The huge backlog of renewal and replacement of over aged assets in railway system needs to be addressed for safe running of trains

Strengthen Control mechanisms

There is a need to strengthen internal control mechanisms to reduce instances of misclassification of expenditure

Disclosing accounting policies

Further, the CAG said that the Indian Railways should follow the system of disclosing significant accounting policies forming the basis of preparation of financial statements such as accounting of fixed assets, depreciation and investments.