Railway Finance And

Expenditure
by
Shri. R.L. Wasnik*

SYNOPSIS
This topic aims to generate awareness towards Railway financing sources and activities involved in
Railway Budget and machineries involved right from planning to execution of project and control
measures for economy in expenditure with role of accounts as a link between executives and
management in brief. Focus is also been highlighted on nature of expenditure and its accountal in brief.

1. Prior to 1924, the Railway Finance was merged in the

General Finance of Govt. of India.
Due to violent
fluctuations in Railway estimates and to enable railways to
carry out a continuous policy , building resource generation
and to have definite return to General Revenue with
flexibility in Railway administration a committee known as
Acworth Committee recommended separation of Railway
finance from General finance and thus through Separation
Convention of September 20th, 1920 the railway finance got
separated.

2. Financial Organisation
The professional head of the Railway financial
Organisation is known as Financial Commissioner and
represents the Govt.of India , finance department on
Rly.board. He/She is also the ex officio Secretary to the
Govt.of India in Ministry of Railways in financial Matter and
vested with full powers for sanction of Railways expenditure
subject to the control of Minister of Finance. In the event of
disagreement on opinion between FC and other Members
of the Board the FC has the right to refer the matter to
Finance Minister.
On zonal Railway level the overall administration of finance
is vested with Financial Advisor and Chief Accounts Officer
as Principal head of the Department with the duty of
implementing the instructions issued by FC on all the
administrative and accounting matters duly communicating
the same to General Manager. Divisional head of Accounts
Department is designated as Sr.Divl.Finance Manager
alongwith the team of Assisting Team of Dy.FA& CAOS,
SR.AFAs, AFAs and DFMs and ADFMs & Workshop
Account Officers respectively on headquarters as well as
on division along with the number of SR.SOs and SOs for
the smooth functioning of the administration.

3. Function of Accounts Department

The function of Accounts Department is mainly divided into
* ADFM/ IRICEN, Pune

Finance Branch and the General Administration .

The main function of Finance Branch under the control of
FA&CAO is to assist the Rly. administration in considering
all the proposals involving financial implications in
accordance with financial prudence and propriety. In
railways, there is hardly any activity or service which does
not involve consideration of finance in some form or other.
The finance branch plays an important role as functionary of
management accountant to assist management a) in
making rational plans and decisions) in controlling the
operations of Railways administration as a whole, and c) in
controlling the operations within responsibility areas of
administration. He is no more a friendly critic but a
complete management participant. The role of Finance
branch would depend on the spirit and the manner in which
its services are utilized by the Executive Department and
the relation in between them should be as
interdepartmental relations based on mutual confidence
and free and full consultation.
One of important function of Financial Advisor relates to
compilation of budgets and setting up of satisfactory system
of Budgetory Control. The initial preparation of budget is
the responsibility of the Departmental officer concerned
while the scrutiny and compilation of Railways budget as a
whole lies with FA&CAO.
The scope of financial scrutiny of proposals before
obtaining the sanction of the competent authority may
broadly be considered under the following two situations:
a)

where a proposal is within the powers delegated to the

GM and officers subordinate to him ; or

b)

where the proposal requires reference to the Railway

Board, being either beyond the powers of the GM or
involving an important matter of principle/policy.

In case the proposal requires the reference to Railway

Board having financial implications ,it is necessary to
furnish the technical as well as administrative aspects
alongwith the review of the same from finance angle based
IRICEN JOURNAL OF CIVIL ENGINEERING

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on available local information. A verbatim copy of opinion

expressed by FA&CAO is obligatory alongwith such
proposals.
For the speedy disposal of business. The central govt. have
delegated most of their powers in financial matter to
authorities subordinates to them subject to observance of
rules and accepted standard of financial propriety. The
objective behind strict scrutiny of proposals by finance
officer is to secure maximum efficiency in railway
operations at the minimum cost, without unduly sacrificing
one for other.
Items requiring consultation with finance: The main items in
which prior consultation with finance branch is necessary
may be broadly classified as
i) Establishment

ii) Works

iii) Estimates

iv) Tenders

v) Contracts
vi) Stores Indents & Purchase orders
vii) Delegation of powers

viii) Commercial matters

ix) Foreign exchange

x) Misc. matters

Refer Indian Railway Accounts Code Vol. I & II with Finance

code for details.
4. Sources and Application of Funds:
expenditure is generally financed through

The Railway

1.

Loans raised specifically for Railway purposes i.e.

Specific Debts

2.

by utilization of surplus revenues and other

resources ie.non- specific debt and

3.

by contribution from Indian States and District

boards.

Specific Debt consists of liabilities incurred by Government

on purchase of Railways which are not discharged by either
cash payments or the issue of appropriation of stock.
Non-specific debt represents the expenditure on railways
not covered by the above or by capital contributed by
erstwhile Indian states and district board etc.
Sources of funds for Railways
1. CAPITAL
2. Depreciation Reserve Fund

On continuous decline in budgetary support and expensive

and uncertain market borrowing a new fund called Capital
Fund has been created in 1993 for financeing the capital
works which is being credited with the amount from out of
surplus after appropriation to the DF. No dividend is payable
to General Revenue from this fund.
5. Budget: it is a statement of estimated annual receipt
and expenditure whether on Capital or Revenue account of
Central Government is prepared by the Railway Board
based on individual Railways estimated receipts and
demands for expenditure and laid before the Parliament.
Under article 226 of Constitution of India, a Consolidated
Fund is defined as reservoir to which all the Government
earnings are credited and from which the expenditure of
Government when so authorized by the Parliament is
debited.
The expenditure is mainly divided into two classes which
are known as voted and charged . Voted expenditure is
that for which the provision of funds are subject to vote of
Parliament and Charged expenditure is such class of
expenditure for which the President accords the sanction.
E.g. interest, sinking fund charges , salary of CAG , court
decree etc.

6. Demands for grants:

The proposals of Railways in respect of amount
required to meet the expenditure of the year is submitted in
the form of Demands to the Parliament and on receipt of
vote of Parliament known as the Grant.
The budget presented to Parliament contains the following
demands
1. Railway Board
2. Research audit and Misc.Estb.
3. Genl.Supritendance & services (Abstract 'A' )
4. Repairs and Maint.of Way and Works(Abstract 'B' )
5. Repairs and Maint.of motive powers(Abstract 'C' )
6. Repairs and Maint.of Carriage and Wagons. (Abstract
'D')
7. Repairs and Maint.of Plants and Equipment.
(Abstract 'E' )

3. Development fund

8. Optg. Expenses Rolling Stock and Equipment (Abstract

'F' )

4. Open Line Works Revenue

9. Optg. Expenses Traffic (Abstract 'G' )

5. Special Rly. Safety fund

10. Optg. Expenses Fuel (Abstract 'H' )

The Railway's plan expenditure was being financed from

out of the budgetary support received from the General
Exchequer, internally generated resources and market
borrowings through IRFC.

11. Staff Welfare & Amenities, Medical staff payments

(Abst. 'J' )

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12. Misc. working expenses, RPF payments (Abstract 'K' )

13. PF PENSION & other retirement benefits. (Abstract 'L')

revenue or Capital.

14. Appropriation to Funds (Abstract 'M' )

The control over expenditure incurred over these heads

involves two aspects

15. Dividend to Genl. Revenue, repayment to loans

16. Asseet Acquisition and Replacement

A)

Control with reference to Sanctions ie.

Delegation of powers to
GM and others &
Canons of financial propriety.

B)

Control over actual expenditure incurred/

booked in the books of Railways against
Budgetary allotments as well as against the
estimated cost reflected in Works programme.

Stages of Budget:
Stage-1 original grant

Stage -2
Stage -3
Stage -4
Stage -5
Stage -6
Stage -7

at the time of Revised

Estimate of Previous year
the budget estimate For the
next year is prepared i.e. In
November of 2008 for 200910.
August Review
in the month of August 2008
Revised Estimate in the month of November
2008
Ist Modification
in the month of January 2009
Final Modification in the month of February
2009
Telegraphically
By 20th March 2009 the major
Changes to be intimated.
Appropriation accounts.

7. CANONS/STANDARDS OF FINANCIAL PROPRIETY

(Para 116 F-I)
In the exercise of their financial powers the sanctioning
authorities must pay due regards to the following principles:
1.

The expenditure should not prima facie be more than

the occasion demands, and that every Government
servant should exercise the same vigilance in respect
of expenditure incurred from public moneys as a
person of ordinary prudence would exercise in respect
of the expenditure of his own money.

2.

No authority should exercise its powers of sanctioning

expenditure to pass an order which will directly or
indirectly be to its own advantage.

3.

Public moneys should not be utilized for the benefit of a

particular person or section of the community unless :
i)

the amount of expenditure involved is insignificant;

or

ii) a claim fo the amount could be enforced in a court

of law; or
iii) the expenditure is in pursuance of a recognized
policy or custom.
4.

The amount of allowances, such as traveling

allowances, granted to meet expenditure of a
particular type, should be so regulated that the
allowance are not on the whole become the source of
profit to the recipients.

In order to keep watch on the expenditure incurred on

revenue heads is monitored through maintenance of
Revenue allocation Register duly recording the
transactions for each abstract(A to M) so as to inform the
spending authorities the progress of expenditure against
the allotments.
As far as Works expenditure is concerned , the control
over expenditure under Grant 16 is exercised through the
Works Registers where the running comparison between
the actual expenditure and Budgetary allotments and
between actual expenditure and estimated cost of work as
shown in Pink book is monitored.
Control over stores transactions are managed through
Fund Register and Expenditure register. Apart from above
the FA&CAO also reviews the progress of expenditure in
respect of Working Expenses ,Capital , DRF, DF, SRSF
through monthly reviews and the same is apprised to GM in
the shape of financial review for the whole Railway.
Annual Review of Expenditure: the total expenditure for
the year, as actually booked in the accounts of each railway ,
against the various Grants and Appropriations, is reviewed
through the 'Appropriation' accounts.
After close of financial year's account, the statements
prepared by the Railway administrations for each grant to
be submitted to Public Accounts Committee through
Railway Board, comparing
the figures
of actual
expenditure with that of Grants voted by the Parliament and
appropriations sanctioned by the President and also
comparison of actual expenditure with that of Final Grants,
explaining the variations of Excess/ savings beyond the
permissible limits, are known as Appropriation Accounts.
These accounts are prepared with a view to satisfy:
l

How the expenditure sanctioned has been spent?

Whether any deviation have been made?

8. Control over Expenditure:

What irregularities have been made? And

The expenditure on Railways are either Capital or Revenue

in nature. The Capital Expenditure may be chargeable to
Capital Fund, Depreciation Reserve Fund, Development
Fund, Railway Safety Fund, SRSF, Open line works

What steps have been taken for non- recurrence of

such irregularities ?

The overall objective of all this exercise is to watch over

the progress of expenditure and earnings and to monitor

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Govt. ways & means with due deligence on Budgetory

support & pace of expenditure by observance of rules &
policy decisions taken for planning, implementation,
execution and management of Railway earnings and
expenditure at appropriate level maintaining the growth of
economy & development with limited means of public
money judiciously.
Civil Grant: The appropriation accounts for civil grants viz.
loans and advance bearing interest , advances interest
free and bearing interest , debt and remittance, with
detailed explainations are prepared by Railway
Administration and sent to Railway Board .
Classification of Expenditure: The revenue working
expenses of Railways are classified in to 13 abstract each
with separate minor heads. The minor heads are divided
into main heads, sub-heads and detailed heads. The
classification up to the detailed head represents the activity.
This structure also incorporates a two digits code to
represent object of expenditure incurred, such as salary,
wages and allowances.
The revised classification system envisage an alpha
numeric coding scheme comprising of the three
components indicating abstract of expenditure activity of
work, and object of the expenditure respectively as under
Abstract of Exp.
Alphabet

Activity of work
xxx (three
digit numeric)

Object of expd.
xx (two digit)

01 - Primary unit i.e. object of expenditure.

So far works are concerned the classification of assets will
be indicated by five digits and all the cases irrespective of
whether the expenditure or asset is chargeable to Capital,
DRF,DF, RSF, SRSF, OLWR, AND CAPITAL FUND. The
source of financing will be indicated in the beginning by the
following alphabets
P- CAPITAL,

Q- DRF,

R- OLWR,

S- DF

The classification is in the form of alpha numeric code

indicating source of financing, plan head, detailed head
classification of work and object of expenditure in the
following manner:
Source of financing

Planhead &
Object of Exp.
Sub detailed head

alpha

x-1,x-2,x-3,x-4

x-5,x-6

x-1,x-2 represents the minorhead indicating code for plan

heads
x-3,x-4 represents the sub and detailed heads showing
further break up of the activity corresponding to plan heads.
x-5,x-6 represents the digit of primary unit or object of
expenditure
eg. In a new line construction project, earth work formation
and payment to contract as a nature of payment is classified
as P-1131-03
where P represents Capital

Eg. 04-113-01 which represents

1100 represents planhead for new lines

04 - Dom. No. Abstract 'B'

100 - Establishment in office (minor head)

1130 represents sub head- structural engg. Work

formation

110 - Officers & office establishment (sub head)

1131 represent detailed head earthwork

113 - Bridge Engineer other than work (Detailed

head) &

03 is primary unit of expenditure i.e payment to

contractor.

Putting the brakes on squat growth

Squats are severe local plastic deformation of the running surface of the rail head and they are becoming a major
form of rail damage for railways around the world. They are usually found on straight track, large radius curves, and in
turnouts. Worryingly, they can grow from even small rail surface abnormalities into dangerous vertical cracks.
Squats originate from small geometrical surface abnormalities such as indentations, wheel burns, poor quality welds
and corrugations. A typical cause of indentation is a hard object embedded in a wheel tyre. When carried forward by
the wheel, this type of indentation is recognised by repetition at the same distance as the circumference of the wheel.
Welds are particularly vulnerable to squats, not only because of small abnormalities in the local geometry but also due
to differences in the rail composition in the weld and the area immediately around it. This often leads to differential
plastic deformation in these areas, a further increase in dynamic contact forces, and further deformation of the rail. In
such a fashion, squats are initiated and can grow.
Dr. Zili Li of Delft Technical University, Netherlands, identified several major causes : heavy axle loads or brisk
acceleration or deceleration. Local abnormalities such as welds (10-15% of the total) or corrugations (33%) or at
locations of local short-wave defects such as abrupt changes of stiffness, poor fastenings, and railpads.
Application have been proposed for optimal track design, for detection of squats and their root causes, and for
optimising treatment. For instance, rail grinding may be done sufficiently deep to remove not only the obvious
abnormalities but the underlying harder care.
By : Peter Bedcock, Ref. : IRJ, Aug. 08

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