Ahead of Budget, railway finances way short of Prabhu’s promise

When Rail Minister presented his maidenlast February, he promised a freight growth target never achieved before in the national transporter’s 160 year-old history. was to carry an incremental 85 million tonnes (mt) of goods in 2015-16, against the traditional average loading of less than 50 mt annually. That was the biggest announcement of the Budget.

“Freight traffic is pegged at an all time-high incremental traffic of 85 mt, anticipating a healthier growth in the core sector of the economy, specially where rail co-efficient is high and by tapping full railway potential to cater maximum to demand side,” Prabhu had said. Railway board members had explained the tall target was based on an expectation of 8-9 per cent GDP growth and increased coal traffic, amid a mood of hope and celebration of change.
Read our full coverage on Union Budget 2016

Ahead of Budget, railway finances way short of Prabhu's promise

A year later, the mood has turned somber and the grim reality of dismal freight growth, which accounted for 65 per cent of railways’ total earnings of Rs 1.63 lakh crore in FY15, is staring at Indian Railways in the face. Railways’ freight volumes were budgeted to rise eight per cent to 1,186 mt in 2015-16 from 1,101 mt in 2014-15. Between April and December 2015, freight volumes stood at 816 mt, seven per cent less than the targeted 880 mt during the period and a marginal one per cent higher than 808 mt recorded in the corresponding period in the last financial year.

The Railways had budgeted for a six per cent increase in goods earnings to Rs 1,11,852 crore in 2015-16 from Rs 1,05,791 crore in FY15. Between April and December 2015, freight earnings stood at Rs 80,526 crore, three per cent less than the targeted Rs 82,676 crore during this period and six per cent more than Rs 75,779 crore recorded in the corresponding period in the last financial year. This increase in the year-on-year earnings despite low growth in volumes is explained by the average four per cent hike in announced in the last Budget.

Ahead of the Budget to be presented on February 25, Prabhu has acknowledged subdued freight volumes, apart from the impact of the seventh pay commission, as major problem areas for Railway finances. Of the incremental 85-mt tonnage target, 42 mt was to come only from coal, the largest component of Railways’ commodity traffic basket. Also, nine mt extra was to come from iron ore and seven mt from cement traffic.

Railway officials blamed the lower-than-expected economic growth and worsened finances of power utilities for the dismal performance on the freight front. “There is enough coal for transport and railway rakes, too, are available in plenty. But, thanks to the precarious financial situation of power discoms, demand for power and in turn the requirement of coal from utilities has fallen sharply,” said a senior rail ministry official.

Concerned over the freight problem, the rail ministry’s brass has held a series of meetings in the past month with its counterparts in the coal and power sectors. In one such meeting chaired by member-traffic of the Railway Board Mohammed Jamshed on January 13, it was noted that railways’ rake supply had increased 10 per cent in the April-December 2015 period against a 9.1 per cent rise in Coal India’s production. “The rake loading could have been further increased but for the muted demand from the power sector due to unprecedented coal stocks of 32 mt in power plants compared to 13 mt in January 2015,” said a senior rail ministry official.

In this year’s Budget, the rail ministry is likely to announce new Dedicated Freight Corridors while no new passenger lines are likely to be announced. With constrained budgetary suppport and the absence of a major fare or freight hike, the rail ministry’s dependence on borrowed funds may go up may in the year ahead.

“Low GDP growth has surely pulled down demand for goods traffic. But how would they explain such a huge overestimation of freight growth? All the other line ministries, too, including coal, power and mines must answer this question,” said former Railway Board Financial Commissioner R Sivadasan.

It is the same story on the passenger side. In line with an already decreasing trend, railways had budgeted for a mere three per cent rise in passenger volumes to 8,601 million in 2015-16 from 8,350 million in the last financial year. Between April and November 2015, railways carried 5,453 million passengers – 5.3 per cent less than the targeted 5,760 million during the period and 2.2 per cent less than 5,578 million recorded in the corresponding period a year ago. In this year’s Budget, the rail ministry is likely to announce new Dedicated Freight Corridors while no new passenger lines are likely to be announced. With constrained budgetary suppport and the absence of a major fare or freight hike, the rail ministry’s dependence on borrowed funds may go up may in the year ahead.

Similarly, passenger earnings of Rs 33,105 crore for the April-December 2015 period were nine per cent less than the target of Rs 35,042 crore, but 5.4 per cent more than Rs 31,406 crore earned from passenger segment in the same period in the last financial year.

Ahead of Budget, railway finances way short of Prabhu’s promise

Budget 2016: Ahead of Union Budget, Government to come out with GDP numbers

The Central Statistics Office (CSO) will also be releasing the data for the third quarter of the current financial year.

Read our full coverage on Union Budget2016

A declining GDP growth rate in nominal terms has already made difficult the government’s task of reining in the at 3.9% of GDP for 2015-16. If the inflation trajectory remains more or less same, the task to check the deficit at 3.5% of GDP for the next financial year will also remain a challenge.
It should be noted that the government has already deferred the fiscal consolidation roadmap by a year. According to a roadmap, laid down by the then P Chidambaram, the deficit was to be curtailed at 3.6% of GDP in the current financial year and 3% by 2016-17.
Nominal GDP, assumed to grow 11.5% for the current financial year in the Budget, has grown only 7.4% in the first half of the current financial year. The mid-year economic analysis of 2015-16 projected the nominal GDP to grow by 8.2% in the entire 2015-16.
The Budget assumed 11.5% growth for 2015-16 over nominal GDP of Rs 126,537,62 crore (advance estimates) for the previous year. That meant nominal GDP of Rs 141,08,945 crore. Fiscal deficit at 3.9% of this GDP turns out to be Rs 5,55,649 crore, according to the Budget Estimates for 2015-16.
However, actual nominal GDP for 2014-15 turned out to be lower at Rs 124,88,205 crore. So, lower growth of 8.2% (projected by the mid-year analysis) would make the growth to be 135,12,238 crore. Fiscal deficit at 3.9% of this GDP means Rs 5,26,977 crore. Thus, the government will have to restrict the deficit by Rs 28,672 crore (Rs 55,649 crore-Rs 4,87,040 crore) more to retain it at 3.9% of GDP.
If one assumes slightly higher growth rate at 8.5% of nominal GDP for 2016-17 than 8.2% projected for the current financial year, then nominal GDP would be Rs 146,60,778 crore for 2017-18. Retaining fiscal deficit at 3.5% of GDP would mean Rs 5,13,127 crore in absolute terms. This means that the government has to tighten its fiscal belt by just over Rs 13,000 crore more.
Even then, there are many who say this is a greater challenge as the seventh pay commission report and one rank one pension (OROP) are to be implemented and the need to have greater public expenditure to perk up the economy.
For instance, a report by Deutsche Bank said the government is likely to meet its fiscal deficit target of 3.9% for the current financial year and is expected to set it at 3.8% of the GDP for the next fiscal.
It said the target of reining in fiscal deficit at 3% of GDP would be deferred by a year more from 2017-18 to 2018-19.
Together with advance estimates, the government would also come out with third quarter GDP data for the current financial year.
India Ratings has projected the economic growth at 7.6% in the October-December quarter of the current financial year — the fastest pace of expansion in five quarters.
“Growth may have ticked higher in third quarter by 7.6%. The growth is likely to get support from a favourable base effect, as gross domestic product (GDP) in third quarter of last financial year grew by 6.6%,” Devendra Pant, Chief Economist, India Ratings  said.
In the current financial year, Indian grew by 7% in first quarter and 7.4% in second quarter. These figures may also be revised in the data to be released today.
“Domestic demand witnessed during the festival season is expected to support growth in the third quarter, even as global headwinds have had an adverse impact on manufacturing and exports,” Pant said.
He added that investment has been muted due to low capacity utilisation in several manufacturing sectors, highly-leveraged balance sheets of infrastructure firms and stretched balance sheets of banks.
Budget 2016: Ahead of Union Budget, Government to come out with GDP numbers

For Budget 2016, 5 expectations from the common man

2016 countdown has begun and all eyes are yet again on Finance Minister Arun Jaitley with many more expectations. Below is the list of 5 expectations from the common man.
1) Interest on housing loan:
Currently, the deduction of interest on a self-occupied house is capped at Rs. 200,000.

Read our full coverage on Union Budget 2016

Further, if the construction of the house is completed after 3 years then the deduction is restricted to just Rs. 30,000. This 3 year period is calculated from the end of the year in which the loan was taken. The deduction is allowed only from the year in which the buyer obtains the possession of the house.
Lately there have been significant delays, often well beyond the 3 year period, in completion of housing projects. These delays have caused significant hardships to the property buyers.
In order to provide them some relief, the government may consider allowing interest deduction in such cases without the cap of Rs. 30,000, and from the year in which the possession was due to the buyer as per the terms of the agreement.
2) Rationalize exemption:
HRA exemption is calculated as the amount which is least of 10% of basic salary, actual rent paid and 50% of basic salary if you stay in a metro city or 40% if you stay in any other city. Currently metro cities include Delhi, Mumbai, Chennai and Kolkata.
Considering the current scenario of many cities like Hyderabad, Bengaluru, Gurgaon and Pune where rents have skyrocketed in the past decade, the rule of 50% of rent can be extended to these cities as well. These cities attract a lot of qualified individuals from across India who stay in rented accommodations and lose out on the benefit in spite of paying a high rent.
3) National Pension Scheme or NPS:
The tax laws provide for a deduction on contribution to the National Pension Scheme. is unique in a sense that the investor has discretion over the type of investments (debt, equity or hybrid).
However, the NPS is structured as an Exempt Exempt Tax (EET) scheme meaning that while deductions (or exemptions) are provided at the time of making the investment and when returns are earned on the investment, there is taxation when the corpus is encashed. This element of taxation makes this scheme less attractive, especially compared with public provident fund or employees’ provident fund schemes which allows for tax free withdrawals.
Therefore, for a wider participation in NPS, the scheme should be made exempt.
4) Widen tax base: 
In a country of over 120 crore people, there are only about 4 crore taxpayers. Theoretically, the narrow base of tax payers results in higher rate of income tax on the compliant taxpayers who develop a sense of unfairness.
While widening of tax base has been an important objective for the government, and the government indeed has taken certain steps in the direction, some more concrete measures would only help in bringing more people under the tax net and help evenly distribute the tax burden.
Some measures could be in the form of more awareness campaigns how taxes help in nation building, providing some form of social recognition to the taxpayers, and maybe even routing some social benefits through the tax filing mechanism like what US has done.
5) Standard deduction for foreign salary and credit of state and municipal income taxes paid: 

If an individual takes up employment outside of India and is a resident in India for that year then he has to report his foreign salary in the Indian tax return and pay income tax thereon in India. The tax laws do allow credit of foreign income tax paid on such salary.

The employees, despite spending significant amount on rent, do not get any deduction for HRA as HRA is often not a part of the salary component. They can claim deduction of rent only under section 80G which is restricted to a small amount of Rs. 2,000 per month. Plus his overall living expenses are also increased. Therefore, to reduce the burden of taxation for such employees, the government can consider an ad-hoc deduction of say 30% of the foreign gross salary.

Further, sometimes such employees have to pay state or municipal income tax in addition to the federal (or Union/National) income tax. The government should explicitly allow credit of such income taxes too to avoid onerous double taxation.


There isn’t any comment in this page yet!

Do you want to be the first commenter?

New Comment


Your Comment:


For Budget 2016, 5 expectations from the common man

States demand more money from Centre ahead of Budget

Even as the Centre harped on devolving higher share of funds to following the recommendations of the 14th finance commission, the latter demanded that they be given more money and the Union government should retain its share of funding for centrally-sponsored schemes in the upcoming Budget.

At the pre-meeting with Finance Minister on Saturday, states also sought more funds to pay higher salary to their employees after the Centre implements the recommendations of the Seventh Pay Commission. States suggested that the Centre should spend more on agriculture. And as a bargain for the proposed Goods and Services Tax (GST), states demanded the Centre should clear all dues on account of phasing out of the Central Sales Tax (CST).
Read our full coverage on Union Budget 2016

Speaking to reporters after the meeting with state finance ministers, Jaitley said he expected states to increase spending on infrastructure and poverty alleviation schemes as the has devolved higher funds to them. “We expect that those states whose resources have been increased after the implementation of the 14th Finance Commission will spend further on infrastructure creation and anti-poverty programmes since their income have increased considerably,” Jaitley said.

“Each state is competing for higher resources, higher investment and they are all geared up to fight this environment of global slowdown so that India remains an which is on the move,” Jaitley said, adding almost all states have demanded that agriculture be given a boost.

State finance ministers were, however, less conciliatory in their statements and said the Centre should uphold the spirit of cooperative federalism and release more funds. “As many as 39 important schemes were simply eliminated in the last Budget. These include building of model schools and police modernisation. Now we cannot sit back. We have to build those schools and we have to modernise the police forces, especially in a state where the threat of left-wing extremists exists,” said Amit Mitra, finance minister of West Bengal.

Tamil Nadu finance minister O Panneerselvam said that his state was adversely impacted because of the “deliberate actions” of the Centre. He said the excise duty of Rs 4 on every litre of petrol or diesel has been converted into a cess. As a result, the revenue is no longer shared with the state. Similarly, the Wealth Tax, a measure that used to be shareable, has been replaced by a surcharge of two per cent.

Tamil Nadu has 11 MPs in the Rajya Sabha and is opposing the Bill. The Jayalalithaa government has hinted that its position on GST is negotiable. Both Tamil Nadu and West Bengal will go to Assembly polls this year. Other election-bound states – Kerala, Assam and Puducherry – also asked Jaitley for higher allocation.

All states demanded that the Centre should spend more to reduce rural distress and drought-like situation in nearly half the districts. Several states, including poll-bound Assam, said Centre should allow them to raise more money from markets. The 14th Finance Commission had recommended that states which have maintained financial discipline should be allowed to borrow 3.5 per cent of the state’s GDP, up from three per cent. “Since we have maintained financial discipline, the government should allow us to increase borrowing limit. This will allow us to raise Rs 3,000 crore more for FY 2016,” said Jayant Malaiya, finance minister of Madhya Pradesh.

States with huge power discom debts also demanded that the methodology for calculation fiscal deficit of states under the fiscal responsibility and budget management (FRBM) Act be relaxed to exclude proposed bonds to be issued by the state government as part of the restructuring package proposed under the UDAY scheme.

States demand more money from Centre ahead of Budget