Railway Minister Suresh Prabhu hopes that during this 3-4 years period, railways would be able to absorb the impact from their resources through gradual adjustment of fares and other non-tariff revenue measures.
Railways has sought a financial grant of about Rs 32,000 crore from Finance Ministry to tide over the the impending impact of 7th Pay Commission recommendations on the public transporter.
In a letter to Finance Minister Arun Jaitley, Railway Minister Suresh Prabhu cited the prevailing financial position of railways, efforts at cost cutting and possible gradual adjustment of fares and other non-tariff revenue measures to absorb the impact while requesting the exchequer's help for implementation of the Commission recommendations.
"I would therefore earnestly request you to help the Ministry of Railways and handhold it for the implementation of 7th CPC recommendations," the Railway Minister said in the letter.
"This may be done either through compensation of loss for coaching services (Rs 31,727 crore in 2013-14) or directly by virtue of a revenue grant, matching the amount of the 7th CPC's liability placed upon railways for the next 3-4 years," he said.
Mr Prabhu hoped that during this 3-4 years period, railways would be able to absorb the impact from their resources through gradual adjustment of fares and other non-tariff revenue measures.
However, Railway Minister has expressed his reservation about increasing the freight rate in the given scenario contending that it would have a "deleterious impact" on national economy.
He said, "In order to maintain these expenses at the current proportion - at 51.5 per cent of the gross receipts, the railway revenues will need to grow substantially by 40 per cent in 2016-17 which is well nigh impossible given the fact that till October 2015 growth was only 8.4 per cent."
"The first factor of freight earnings originating loading is demand driven and is largely not within the control of railways. The second factor that is freight rates, though is within railways competence, there is hardly any headroom available for increasing the same without affecting railways competitiveness adversely."
He said, "Moreover, exercising this option will have a deleterious impact on the national economy as well as on critical sectors such as coal, cement, foodgrains."
According to the Pay Commission report, the annual financial impact on Railways will be approximately Rs 28,450 crore in addition to the normal growth which will require to be built into the Railway Budget 2016-17.
"Our initial assessment however is that this additional impact would be around Rs 30,031 crore over and above the normal assessed growth of Rs 10,816 crore," Railway Minister stated.
Mr Prabhu has pointed out that the Railways bear 35.6 per cent of the total pay and allowances of the government which is more than 1/3rd of the Pay Commission's burden for serving staff would be borne by railways. "Further nearly 28 per cent of the pension impact of central government would be on the Railways," the letter sent last week said.
Currently, pay & allowances and pension account for 51.5 per cent of the gross receipts of railways. With the financial impact of the 7th CPC, this will increase to 68 per cent of the gross receipts in 2016-17 at present level of growth.
Mr Prabhu has also mentioned the details about the cost cutting measures in railways.
"While we have put in place serious cost cutting measures and are focusing on fuel management and lowering of staff intake, more than 2.3rd of the railway expenditure is inelastic - staff cost, pension, lease charges, maintenance of fixed assets."
Mr Prabhu has sent a detailed note along with the letter on the Railways financial position vis-a-vis impact of 7th CPC's recommendation.