Railway Budget Separation: Why It Was Merged with Union Budget in 2017

On February 1, Union Finance Minister Nirmala Sitharaman will present the Union Budget for the upcoming fiscal year, outlining India’s financial strategy and priorities. The Union Budget, as it stands today, is a comprehensive document detailing India’s expenditure and revenue collection. However, this was not always the case. Before 2017, the Railway Budget was a separate entity, a practice inherited from colonial times. It was only in 2017 that then Finance Minister Arun Jaitley and Railway Minister Suresh Prabhu merged the Railway Budget with the Union Budget, marking a historic shift in India’s budgetary process.

Why Was the Railway Budget Separated Initially?

The Railway Budget was separated from the Union Budget in 1924, following the recommendations of the Acworth Committee. This separation was intended to give the Indian Railways greater financial autonomy and focus on its development as a critical infrastructure asset. For over 92 years, the Railway Budget was presented a few days before the Union Budget, allowing it to function as a distinct financial entity.

Why Was the Railway Budget Merged with the Union Budget?

In 2016, a NITI Aayog committee headed by economist Bibek Debroy, along with a separate paper titled ‘Dispensing with the Railway Budget’ co-authored by Debroy and Kishore Desai, recommended merging the two budgets. The committee argued that the separation had outlived its purpose and created unnecessary complications. Based on these recommendations, the Railway Budget was merged with the Union Budget in 2017, and Arun Jaitley presented the first combined budget that year.

Key Reasons for the Merger

• Holistic Financial Picture: The merger provided a unified view of the government’s financial position, making it easier to allocate resources efficiently.
• End of Dividend Payments: The Railways were exempted from paying dividends to the government, freeing up funds for infrastructure development.
• Capital-at-Charge Wiped Off: The capital-at-charge (the historical debt of the Railways) was written off, reducing financial burdens.
• Multimodal Transport Planning: The merger facilitated better coordination between railways, highways, and inland waterways for integrated transport planning.
• Greater Flexibility: The Ministry of Finance gained more flexibility to reallocate resources during mid-year reviews.
• Simplified Process: A single Appropriation Bill was introduced, streamlining the legislative process.

Salient Features of the Merger

• The Ministry of Railways continues to function as a departmentally run commercial undertaking.
• A separate Statement of Budget Estimates and Demand for Grants is created for Railways.
• A single Appropriation Bill, including Railway estimates, is presented by the Ministry of Finance.
• Railways can raise resources through Extra-Budgetary Resources (EBR) for capital expenditure.
• The merger supports multimodal transport planning and better resource allocation.

Impact of the Merger

The merger has had several positive outcomes:

• It eliminated the duplication of efforts in presenting two separate budgets.
• It provided a clearer picture of the government’s overall financial health.
• It allowed the Railways to focus on operational efficiency and infrastructure development without the pressure of dividend payments.
• It enabled better coordination between different modes of transport, promoting integrated development.