Implementation of 7th Pay Commission increased costs for Indian Railways, explains Union Minister Piyush Goyal

Union Railway Minister Piyush Goyal answered questions on CAG report on Indian Railways during Question Hour (image:

The CAG report on Railway Finances tabled in the Parliament on Monday raised questions on the operations of the Indian Railway. It said that the Indian Railways recorded its worst operating ratio in 10 years in 2017-18 at 98.44%. The operating ratio (OR) is the amount of money the national transporter spends to earn each rupee. Lower the ratio, the healthier the railways’ finances. This means that the Indian Railway spent Rs. 98.44 to earn every hundred rupees.

Addressing the issue of OR, Union Minister for Railways Piyush Goyal spoke on it during the Question Hour in the Lok Sabha. He asserted that the increase in the salaries of the employees has affected the operational costs of the Indian Railway. He said, “After the implementation of 7th Pay Commission recommendations, there has been an over expenditure of Rs 22,000 crore for salaries and pension of railway employees. This has contributed to the overall operating loss.”

“When we see the overall picture, implementation of the 7th Pay Commission recommendations and running trains under social obligations lead to operating ratio going down by 15% in just one year,” he stated. Goyal also remarked that following the implementation of the 7th pay commission, employees’ salaries have gone up from 14 percent to 26 percent.

The Union Minister also provided other reasons for the increase in OR. “We try to restrain ourselves from any significant increase in the passenger fares, which also results in a huge cross-subsidy where the passenger fares do not recover over 43% of the cost that is incurred for providing the passenger services,” Goyal said.

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“But the time has also come for the nation to consider whether the social cost should be separately considered as a part for the budget which the govt also gives budgetary support,” Goyal said, suggesting that the OR should only reflect the actual cost of running the Indian Railway efficiently.

Regarding the issue of decline in generation of internal revenues as raised by the CAG report, Ministry sources told us, “Continuing pressure on working expenses without commensurate growth in earnings led to reduced share of internal resource in the Capex. Railways Capex has witnessed a significant jump over the last five years (from Rs. 58,718 cr in 2014-15 to Rs. 1,33,377 cr in 2018-19) with focus on safety, capacity augmentation and removal of bottlenecks. Though presently Capex is financed mainly from GBS and EBR, with the completion of capacity augmentation works and removal on bottlenecks, revenues will increase leading to sufficient internal surplus for redeployment as Capex.”

The CAG report further mentions that the appropriation to Depreciation Reserve Fund (DRF) has decreased significantly in 2017-18. We were told by sources that to clear the back log of over-aged assets, the Government has created a new fund named ‘Rashtriya Rail Sanraksha Kosh’ with committed funding of Rs.1 lakh crore in 5 years. This fund was specifically created to cater to arrears of safety related renewal works and has helped in focused investment in safety works. Since a majority of safety works earlier funded from DRF are currently being funded out of RRSK, it takes care of the major part of the requirement under DRF.

The CAG report also highlighted the fact that certain ‘concessions’ are being misused by passengers. Sources within the Ministry clarified that privilege Pass/PTO facility is not akin to “concessions” granted to passengers but a service entitlement granted to railway servants and extended to the officers and staff of Railway Audit Department under the statutory provisions of Railway Servants (Pass) Rules, 1986, as amended from time to time. An IT project of the Human Resource Management System (HRMS) has also been sanctioned and is under implementation over Indian Railways to ensure that duty and privilege passes are not misused.

The Indian Railways under Piyush Goyal has undertaken various initiatives to increase its revenue. Recently, it was announced that the movie industry could use special trains for promotion of their products. Housefull 4 was the first movie to use the new service. In another ambitious move, the Indian Railways has decided to run as many as 150 private trains by 2023-24. In October, the first private train to run on Indian tracks, the Tejas Express, completed its first run.

This post was last modified on December 4, 2019 8:26 pm

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