CHAPTER VII 

THE SEPARATION CONVENTION

701.  Pursuant to the recommendations of the Acworth Committee (1920-21), Railway Finances were separated  in   1924 for General   Finances  primarily to secure stability for civil estimates by providing for an assured contribution from Railway Revenues and also to introduce flexibility in the administration of Railway Finances.

702.  While submitting   on the17th September, 1924 to the late Legislative Assembly the resolution for separation   of Railway Finance from  General Finances, the   then   Commerce Member stated, in the following words the objects which the Government had in view-

" In the first place, as far as State Railways are concerned, we want to abolish altogether this system of programme revenue voted for a year. We want to establish a proper depreciation fund, a depreciation fund arranged in a scientific and intelligible manner. Secondly, we want to build up Railway reserves. We want to build them up in order that our finances may be more elastic, in order that we may have provision to equalize dividends. And generally, we want to introduce a system of finance which while maintaining unimpaired the central of this House and while ensuring to general revenues a fair return from their Railway property, will be more suited to the needs of a vast commercial undertaking. Finally, and most important of all, we want to establish  principle, it is right and proper that the tax-payer, the State, should get a fair and stable return from the money it has spent on its Railways; but if you go further if you take from the Railways more than that fair return, then you are indulging in a concealed way in one of the most vicious forms of taxation, namely a tax on transportation. One of the objects we have most at heart in putting these proposals before this House is to establish that principle ".

Government decided to introduce a resolution to achieve the above purpose instead of enacting a law, and the Reason why this course was preferred to a legal enactment is given below in the words of the then Commerce Member

"We considered the possibility of legislating in the matter, but we decided that it would be preferable to proceed in the manner suggested in the Resolution ; that is, we decided that it would be preferable to ask this House to agree to a convention. There are some advantages in a convention which can be adjusted to the ordered progress of the Constitution. It was always our intention, whatever the arrangements should be subject to periodical revision ; and the House will see that on the recommendation of the Committee we have definitely provided for this in the last clause often amended Resolution ".

This, in brief, is the genesis of the Convention, commonly known as the " Separation Convention ' which was adopted by a resolution of the House on the 20th September, 1924.

703.  The main features of the Separation Convention of 1924 were as follows-

(i) Annual Railway Contribution.-'The Railway finances were separated from the general finance of the country and the general revenues received a definite annual contribution from railways which was a first charge or the receipt of railways.

(ii) Amount of Railway Contribution to General Revenues.-The contribution was based on the capital-at-charge and the working results of commercial lines, and was a sum equal to one percent on the capital-at-charge of commercial lines (excluding capital contributed by Indian States and District Boards, etc.) at the end of the penultimate financial year plus one-fifth of any surplus profits remaining after payment of this fixed return, subject to the condition that if in any year Railway revenues were insufficient to provide one percent on the capital-at-charge, surplus profits in the next or subsequent years were not deemed to have accrued for purposes of division until such deficiency had been made good.

(iii) Loss due to Strategic Lines.-The interest on the capital-at-charge and the loss in working of strategic lines was borne by genera! revenues and was consequently deducted from the contribution so calculated in order to arrive at the net amount payable from railway to general revenues each year.

(iv) Railway Reserve Fund.-Any surplus, remaining after this payment to general revenues was transferred to a railway reserve provided that if the amount available for transfer to the railway reserve exceeded in any year three crores of rupees, only two-thirds of the excess over three crores was transferred to the railway reserve and the remaining one-third secured to general revenues.

(v) Objects of the Railway Reserve Fund.-The Railway Reserve Fund could be used to secure the payment of the annual contribution to general revenues ; to provide, if necessary, for arrears of depreciation and for writing down and writing off capital and to strengthen the financial position of railways in order that the services rendered to the public could be improved and rates reduced.

(vi) Temporary Borrowing.-The Railway Board were authorised, subject to such conditions as prescribed by the Government of India to borrow temporarily from capital or from the reserve for the purpose of meeting expenditure for which there was no provision or insufficient provision in the revenue budget, subject to the obligation to mike repayment of such borrowings out of the revenue budgets of subsequent years.

(vii) The Railway Standing Finance Committee of the Legislature.-A Standing Finance Committee for Railways, consisting of one nominated official member of the Legislative Assembly who was the chairman and eleven members elected by the Legislative Assembly from their body, examine the estimates of railway expenditure which the Railway Board had to place before it on some date prior to the date for the discussion of the demand: for grants for Railways in the Assembly.

(viii) Railway Depreciation Fund.-The expenditure chargeable till 31st March, 1924 to" programme revenue" was shown from 1st April 1924, under a Depreciation Fund created to meet the cost of replacements and renewals.

(ix) Demands for Grants.-The Railway Budget was presented to the Legislative Assembly in advance of the General Budget, separate bays being allotted for its discussion, the Member in-charge of Transport and Railways making a general statement on railway accounts and working. The expenditure proposed in the Railway Budget, including expenditure from the Depreciation Fund and the railway reserve was placed before the Legislative Assembly in the form of " Demands for Grants ".

(x) Form of Budget.-The form of the budget, the detail it gave and the number of demands for grants into which the total vote was divided, were considered by the Railway Board in consultation with the Standing Finance Committee for Railways.

704.  Revision of Convention.-The separation  Convention  of 1924  had  provided  for a  review of the arrangements detailed in the preceding paragraphs after the first period of three years. A  committee  of the Legislature was accordingly appointed in Pursuance of the motion of the Legislative assembly   Adopted on the 21st September, 1928, to review the convention, but it could not pursue the enquiry in view of the constitutional changes then impending.    Due to economic depression which set in form 1929-30, the Railway Reserve Was reduced to an exiguous amount with the result that effect from 1931-32, the payment of contribution  to general revenues ceased, and amounts had to be withdrawn from the Depreciation Reserve-Fund to meet the interest charges.    A moratorium Was declared in 1937 (which Was extended in 1939} that railway revenues were net liable to repay to the Depreciation Reserve Fund, the balance outstanding on the 1st April, 1937 of loans taken from the fund to meet railway deficits or to pay to general revenues any contributor of efficiency in contribution due in respect of the period beginning on the 1st April, 1931 and ending en the 31st March, 1939.    The undercharged liabilities of railways 1;c genera! revenues and the loans taken from the Depreciation Reserve Fund were, however, cleared by the end of 1942- 1943 from out of the War time surpluses.    By a resolution passed by the Legislative Assembly on the 2nd March, 1943, the basis of contribution to the general r venues laid down in the resolution of 1924, Was abandoned With effect from  1st April, 1943 and it Was provided   hat for the year   1943-1944,  the surplus on commercial lines after repaying any outstanding loan from tie "depreciation Reserve Fund, was for be distributed between the Railway reserve and genera! revenues in the. proportion of 1:3, the loss, if any, on strategic lines being recovered from the general revenues and for the future, until a new convention was adopted, the allocation of the Railway surplus was to be decided each year on a consideration of the needs of the railway and genera! revenues.

705.  A Committee of Legislature was appointed in pursuance of the motion of the   Legislative  Assembly on 23rd March, 1943 to consider the revision of the convention, but it too found it impossible to foresee ( he conditions which would prevail after the war and suggested postponement of the permanent revision  of the  convention.   Another Committee was appointed in 1947 in deference to the interest evinced by the  Legislature,  but it became functions officio due to the partition.   Thus a review of the original arrangements, though   contemplated had, for one reason or another, been postponed till a new Convention of 1949 was adopted with effect from the 1st April,   1950.

706.  Convention of S949-The   first   comprehensive   review  of the   'Railway   Convention'   in  the   post-lndependenceera was conducted by the   1949 Convention Committee whose  recommendations on some  of the basis financial  arrangements  and   rules   of allocation  of railway expenditure have survived to this day.   The 'Convention resolution' adopted by the Constituent Assembly of India (Legislative)   on  21st  December,   1949, on the  basis of the  recommendations of the 1949 Convention Committee,  recorded  inter alia the following important decisions to be effective from 1st April, 1950:-

(a)  On the Capita! invested out of general revenues in the railway undertaking, the general revenues would receive a fixed dividend at 4 par cent per annum for a period of five years from 1950-51   except that. on the Capital invested in unremunerative strategic lines no dividend would be payable;

(b)  The Railway Reserve Fund should be renamed  as  the   Revenue   Reserve Fund and utlised  primarily for the purpose of 'dividend equalisation', i. e., for maintaining the agreed  payments to general  revenues  and for making up any deficit in the working of the railways;

(c)  A Development Fund should be constituted for financing  expenditure   on  (i)   passenger amenities, (ii) labour welfare, and   (iii) essential but unremunerative railway projects including new lines;

(d)  The Depreciation Reserve Fund should receive a minimum annual   contribution,   over  the  Next five years, of Rs. 15 crores chargeable to the working expenses of the undertaking;

(e)  The railway  surplus (i. e., after   providing for the liability  for payment of dividend to   the   genera! revenues)  should   be  available  for distribution  amongst the Revenue  Reserve   Fund  and  the  Depreciation Reserve Fund to the extent the last named may strengthening over and above the minimum annual contribution

(f)  A Standing  Finance  Committee   for Railways  would be constituted (as contemplated in   an   earlier resolution of the Legislature)  which will scrutinize the  annual estimates of railway expenditure   prior to the date for the discussion of the Railway Budget (Demand for Grants) in the Assembly, and finally;

(g)  The railway budget would be presented to the House, if possible, in advance of the   general   budget, separate days being allotted for its discussion.

One of the important recommendations of the 1949 Convention Committee related to modification of the rules of allocation of expenditure between Revenue and Capital, and the separation of the Loan Account from the Block Account, the former to represent the Capital-at-'charge and the assets created there from while the latter to represent all the physical assets of the- undertaking whether financed from Loan Capital or from Revenue.

707. As a result of the decision of Government taken in 1952, the practice of constituting Standing Committees of Parliament (including the Standing Finance Committee for Railways) was abandoned. Consequently the annual estimates of railway expenditure and the form of Budget which used to placed before the Standing Finance Committee for Railways for their approval are submitted for the prior approval of the Minister for Railways through the Financial Commissioner for Railways before presentation to Parliament, in such manner as is prescribed in this behalf.

708. Convention of 1954._As contemplated in the Convention of 1949, a Railway Convention Committee, 1954, was constituted in pursuance of a resolution adopted by the Lok Sabha on the 12th May 1954 and concurred in by the Rajya Sabha on the 14th May, 1954 to review the rate of dividend payable by the Railway Undertaking to General Revenues as well as other ancillary matters which have a bearing on the needs of the Railways and are essential for maintaining the operational efficiency and earning potential of the Railway Undertaking so as to enable it to continue to pay the dividend. The Committee submitted its report on the 30th November, 1954. The recommendations of the Committee were fully accepted by Government and a Resolution was moved in both the Lok Sabha and the Rajya Sabha for their approval to the recommendations made by the Committee. The Resolution was adopted on the 16th December, 1954 by the Lok Sabha and on the 21st December, 1954 by the Rajya Sabha.

709. The principal recommendations of the Committee as approved by Parliament, to be effective for a period of five years commencing from 1st April, 1955 are given in Para 710 below. This Convention did not introduce any important modification to the basis principles underlying the Convention of 1949, However, its recommendations were intended to arrest further over-capitalisation and to encourage expansion of railway undertaking to meet the growing needs of the country.

710. Recommendations of the 1954 Convention Committee.-The principal recommendations of the Committee, which were to be effective for a period of five years commencing from 1st April, 1955 are detailed below

(i) Annual Railway Dividend.--The rate of dividend should be expressed in terms of a percentage ©n the Capital-at-charge, the percentage so fixed being inclusive of the element of interest.

(ii) Amount of Railway Dividend to General Revenues.-The present rate of dividend (namely, 4 per cant) shall remain unaltered for another period of five years. However, in the matter of calculation of the Capital at-charge and arriving at the total of the dividend payable, some minor adjustments, as indicated below, shell be made :-

(a)  On the element of over-capitalisation in the loan capital, which should be precisely  assessed, the Railways shall pay the  dividend at   the   rate   equivalent to  the   average    borrowing  rate   charged   by   the Government of India to   Commercial Departments from year to year.

(b)  The dividend on the capital-at-charge of new lines shall be   computed at   a   lesser rate,   namely, the average borrowing rate  charged  to  Commercial  Departments  and a   moratorium  shall be  granted in respect of the dividend payable on the capital invested on the new lines during the period of construction and up to the end of the fifth year of their opening for traffic, the deferred amount being  repaid from the sixth year onwards in addition to the current dividend   out of the net income of the new lines, if the net income of these new lines leaves a surplus after the payment of the current dividend.

(iii) Depreciation Reserve Fund.-The annual contribution to the Depreciation Reserve Fund, which had been maintained at a level of Rs. 30 crores during the five year period ending 31st, I March, 1955 shall be raised to Rs. 35 crores during the next quinquennium. The replacement of assets created out of the Development Fund shall also be met out of the Depreciation Reserve Fund.

(iv) Development Fund.-(a) The scope of the Development Fund shall be extended so as to include amentres for all " Users of Railway Transport" and the present practice of ear-marking a minimum of Rs. 3 crores per annum on this account shall be continued.

(b)  The  Development  Fund shall bear the entire expenditure on unremunerative operating improvement works costing more than Rs. 3 lakhs each, as well as the cost of construction of quarters for Class III and Class IV staff.

(c)  In the event of the Development   Fund not being in a position to meet the programme of expenditure chargeable to that Fund from its own resources, money shall be advanced from Central Revenues to the Railways for utilization on those projects or works which are of a developmental nature.   Such  advances shall be treated as temporary loans to the Railways and shall not be added to the Capital-at-charge on which dividend at 4 per cent is payable annually .   The Railways shall  pay interest on   his loan to   General   Revenues at   the average borrowing rate chargeable to Commercial Departments.   It shall, however, be  open to the   Railways to repay this loan in installments, if necessary, from accretions in   the Development Fund  in   more prosperous years and thus   liquidate the debt and the interest liability thereon

(v) New Lines.-The cost of construction of all new lines, when decided to be constructed, shall be debited to  Capital from the very  beginning.

(vi) Test of remunerative ness   of a Project.-The criterion for classifying a project as remunerative shall be 5 par cent.

(vii) Amortisation Fund.-The question of creation of an Amortisation Fund for writing down   the Capital- of the Railways shall be taken up at the time of next revision of the Convention.

711. The period of the Convention of 1954 was extended by one year with Parliament's approval upto 31st March, 1961 to facilitate a more accurate appraisal of the railway's financial position, obligations and surplus resources in the context of the Five Year Plan and future Conventions synchronizing with each Plan Period.

712.  Review of working of the Convention of 1954.-In the six year period (1955-1961) during which the J954 Convention was current, the Railways fulfilled their obligation to the General Revenues by paying dividend at the approved  rate of 4 per cent per annum on the Capital-at-charge.

The contribution to the Depreciation Fund which was fixed at Rs. 35 crores per annum by the Convention Committee, 1954 was, however, raised to Rs.45 crores per annum with the specific approval of Parliament whi voting the Budget for 1956-57. The basic reason for doing so, was, as explained at that time, because the expenditure on replacements and renewals of assets were originally fixed at Rs.250 crores during the 2nd Five Year Plan, was later raised to 293 crores on a more realistic appreciation of the requirements at the time of framing the Second Plan outlay. This additional requirement together with the need for leaving a balance of about Rs. 50 cores in the Fundre(viz., roughly one year's expenditure), necessitated the increased contribution to the Depciation Fund. 

The net surpluses realised and appropriated to the Development Fund proved insufficient for financing the expenditure on the various schemes debitable to this Fund in spite of two upward adjustments in the freight rates Consequently, it became necessary to take advantage of the permissive recommendation of the Convention Committee 1954, for going in for temporary loans from the General Revenues as and when required; and a loan aggregating to Rs. 29 crores was obtained from the General Revenues during the three years 1958-61 (This loan was fully repaid in one installment in the year 1961-62, the first year of the Third five year Plan).

713.  The Railway Convention Committee, I960 was constituted in pursuance of a resolution adopted  by Lok Sabha on 22nd April, I960 and concurred in by the   Rajya Sabha on 28th April,1960 for review the rate of dividend payable by the railways to  the   General Revenues,  as well as other ancillary matters in connection with the Railway Finance vis-ΰ-vis the General Finance and make recommendations thereon.  The  Committee submitted its report on 30th November ,1960.   The recommendations of the committee were fully accepted by the Government and a resolution was moved in the  Lok Sabha as well as the  Rajya Sabha for their approval to the recommendations made by the committee. The resolution was adopted on 6th December, 1960 by the Lok Sabha and on 12th December, I960 by the Rajya Sabha.

714.  Recommendations of the  I960 Convention Committee.-The  principal  recommendations of Committee to be effective for a period of five years commencing from 1st April ,1961 were as follows :

(i) Annual Railway Dividend.-Annual dividend at a fixed rate expressed   in terms of a percentage on the Capital-at-charge inclusive of the element of interest should continue during the next five years.

(ii) Amount of Railway Dividend to General Revenues.-The annual dividend should be 4.25 per  cent of the Capital-at-charge as computed annually, subject to :

(a) The annual loss in the working of strategic lines should be borne by the General Revenues.

(b) The capital-at-charge of the Northeast Frontier Railway, other than the clearly strategic portion thereof, should be regarded as unproductive till the line becomes productive or the next Convention committee reviews the position, whichever is earlier, and the rate of dividend payable in it computed at average borrowing rata of the Government of India charged to Commercial Departments from year to year

(c) The dividend or the Capital-at-charge of new lines should continue to be computed at a lesser rate, namely, the average borrowing rate charged to Commercial Departments and a moratorium should be granted in respect of dividend payable on the Capital invested on the new lines during the period of construction and up to the end of the fifth year of their opening for traffic, the deferred dividend being re-paid from the sixth year onwards only if the net income of the new lines leaves a surplus after the payment of the current dividend.

(iii) Depreciation Reserve Fund.-The total contribution to the Depreciation Reserve Fund should be Rs. 330 crores during the next quinquennium at the average rate of Rs. 70 crores per year.

(iv) Development Fund.-(a) The facility of temporary loans from General Revenues to finance the Development Fund, in the event of the latter not being in a position to meet the programme of expenditure chargeable to that Fund from its own resources, should continue.

(b) The outstanding liability of the Development Fund to the General Finance as on 31st March, 1961 should be liquidated by an ad-hoc adjustment made from the Development Fund to Capital of the cost of all new fines under construction on 1st April, 1955, hitherto charged to the Development Fund, any liability still remaining being repaid from out of the balance in the Revenue Reserve Fund.

(v) Merger of Passenger Fare Tax in Railways Fares.-'The passenger fare tax, the proceeds of which are distributed to the State Governments through General Revenues, should be merged with the passenger fares from 1st April, 1961 a fixed payment of Rs. 12.50 crores per year being made to the General Revenues, over and above the dividend payable by the Railways during the next five years, 1961-66.

715.  Modification to the Convention Resolution of 1960 made with the approval of the Parliament.-The rate of dividend payable to the General Revenues by the Railways as recommended by the  Convention Committee, I960 viz., 4.25 per cent was revised to 4.50 per cent from 1963-64 and to 5.75  per cent on the fresh capital provided to the Railways from 1964-65 onwards keeping in view the prevailing higher rate of interest on Government borrowing or, in other words, the increased cost of raising capital for the Railways and the still higher rate of interest on certain foreign loans made available to Railways. Both  these   changes were specifically approved by the Parliament when voting the Budgets for 1963-64 and 1964-65  respectively.

716.  The annual contribution to the Depreciation Reserve  Fund  was  enhanced   by   Rs. 10 crores     per annum from 1963-64 for the last three   years   of the   quinquennium   1961-66,   This   was   approved by the Parliament when voting the Budget for 1963-64.

717.  Recommendations of the 1965 Convention Committee.-The  Railway Convention  Committee of 1965 was constituted in pursuance of a resolution adopted by the  Lok Sabha on the   11th  May,  1965 and concurred in by the Rajya Sabha on 13th May, 1965 to review " the rate of dividend which is at present payable by the Railway Undertaking to General Revenues   as well as other ancillary matters  in connection with   the Railway Finance via-a-vis the General Finance and make recommendations thereon ".   The   Committee submitted its report on 24th November,   1965.   The recommendations of the Committee were accepted in full by the Government and a resolution was moved in the Lok Sabha as well as the Rajya  Sabha for their approval to the  recommendations  made   by the Committee.   The  resolution  was adopted by the Lok Sabha on 9th December, 1965 and by the Rajya Sabha on 10th December, 1965.

718.  The principal recommendations of the Committee effective  for a period  of   five years   commencing from 1st April, 1966 are 1st  detailed below :-

(i) Mode of contribution.-In view of the distinct advantage in assuring to General Revenues, a definite, regular and predictable contribution from the railways, year after year and leaving the railways a degree of flexibility in the administration of their finances, the present mode of contribution (rate of dividend) being expressed in terms of a percentage on capital-at-charge does not call for a change in the next five years-

(ii) Amount of dividend to General Revenues.-The annual dividend shall be a sum calculated in the following manner ;-.

(a)  On the element of dividend-paying-capital upto 31st March,   1964 at 5.5 per cent (against the existing rate of 4.5 per cent).

(b)  On the element of dividend-paying-capital added from 1st April, 1964 at 6 per cent  (against the existing rate of 5.75 per cent).

(The increase of I per cent in (a) above is to cover an annual payment of Rs. 16.25 crores in lieu of the lump sum of Rs. 12.50 crores paid to General Revenues for transfer to States during the Third Plan period consequent on the abolition of the tax on passenger fares and the balance utilised to assist the States to provide their portion of the resources required for financing safety works such as manned level crossings, over-bridges and under-bridges).

(c) The calculation of the dividend is to be made after allowing concessions :-

(1)  The extant arrangement in regard to adjustment of loss in the working of strategic lines shall continue  with a complementary provision that if the working of these strategic lines shall  continue with a complimentary provision that if the  working of these  strategic lines   leaves  a surplus, the same   will   be transferred to the General Revenues (up to the level of the normal dividend).

(2)  The   existing arrangement in regard to dividend being paid at the average   borrowing rate of Government on the Capital-at-charge of the   Commercial section of the Northeast Frontier  Railway and on other special   elements of the   Capital  (over-capitalisation in  the   Railway Undertaking)   will  continue as at present.

(3)  The dividend on the Capital-at-charge of new lines shall be computed at a lesser  rate, namely, the average harrowing rate charged to Commercial Departments and a moratorium shall be granted in  respect of the dividend payable on the capital invested on the new lines during the period of construction and up to the end of 5th year of opening for traffic, the   deferred dividend being repaid  from the   6th  year  onwards only if the net income of the new line leaves a surplus after the payment of the current  dividend, provided that the account of deferred  dividend on  new lines  will   be closed after a period of 20 years from the  date of their opening, extinguishing any liability for deferred dividend not liquidated within that period.

(iii) Depreciation Reserve Fund.-'The appropriation to the Depreciation Reserve Fund may be increased to an average of Rs. 310 crores per year for the quinquennium 1966-71 or as close thereto as possible taking account of the financial position.

(iv) Amortization of Capital.-Amortization of unproductive capital may be commenced with the interest earned on the balance in the Revenue Reserve Fund being taken in reduction of the element of over-capitalisation supplemented by such appropriation from Railway Revenues, from year to year as may be possible on the financial results of each year.

(v) Development Fund.-(a) The existing provision for temporary loans from General Revenues to the Railway Development Fund whenever the available balance in the latter is not sufficient to meet the cost of works chargeable to that fund, may continue in the next quinquennium.

(b) The provision for users' amenities from   Development  Fund is  raised from Rs. 3  crores to Rs. 4 crores per annum during the next five year period.

(vi) The existing rules of allocation of Railway expenditure between Capital, Revenue, Depreciation Reserve Fund and Development Fund may be maintained without alteration.

719.  Modification to the Convention Resolution of 1965, made with the approval of the Parliament.-The Railway Convention Committee   1965 had agreed   with a suggestion made by the Railway Board (reproduced in Para 30 of the report of the Committee) that the appropriation to the Depreciation Reserve Fund from Railway Revenues may be increased to an average of Rs. 130 crores per year during the quinquennium  1866-67 or as close thereto as possible taking into account the financial position.   According to the suggestion   made by the Railway Board referred  to,  the  annual   contribution   during   1966067 was expected to be of the order of Rs. 100 crores, that during  1967068 Rs. 115 crores and that during  1968-69 Rs. 130 crores.     Against this a contribution of Rs. 100 crores was made to the Depreciation Reserve Fund in   1967-68 During 1967-68 and   1968-69 the contribution had to be restricted to Rs. 95  crores each year with the  approval of the  Parliament, as the revenue position of the Railways did not admit of full contribution  at the scales suggested by the Convention Committee, 1965.

720.  Review of working of the Convention of 1965.-The recommendations of the Railway Convention Committee, 1965, were applicable to the then anticipated Fourth Plan period 1966071.    But in view of the Plan holiday for three years, the Fourth Plan was to cover the period 1969074.    Further  ,the main premises on which the 1965 convention was based had been materially altered by later developments.    In December, 1968 Parliament, therefore, set up a convention committee to review the 1965 Convention.    As in the case of previous such Committees, the Railway Convention Committee, 1968 was asked to review the " rate of dividend which is at present payable by the Railway undertaking to General Revenues as well as other ancillary matters in connection with the Railway Finance vis-a-vis the General Finance and make  recommendations thereon ". However,, before this Committee could give its report, the Fourth Lok Sabha was dissolved in  December, 1970.

721.  The Railway Convention Committee, 1971 was constituted under a resolution adopted in the Lok Sabha on 2nd August, 1971, and in the  Rajya Sabha on 9th August, 1971 to review the rate of dividend which was then payable by the railway undertaking to the general revenues as well as other ancillary matters in connection with the separation of railway finance from general finance and make recommendations thereon.   The Committee tee presented an Interim Report to Parliament in December, 1971.    The recommendations with regard to the rate of dividend and   certain  other ancillary  matters made in the Report  converted the  period 1971072 and 1972073 only.    The Committee desired to examine in detail some major areas of Railway operation  having a vital bearing on the finance al position of the Railways and took up the following subjects for examination.-

(ii) Suburbia Services ; 

(iii) Commercial and Allied Matters ; and 

(iv) Requirements and Availability of wagons.

722.  The First Report of the Committee on " Accounting Matters " was presented to  Parliament on the 15th   December,   1972.   The   Report dealt  with the rate, of Dividend  and  other  ancillary   matters for the year 1973-74 ; Railway Funds and Badge and  Accounts   including improvements   in budgetary   procedures modernisation of the Report was moved on behalf of the Government and adopted by both the Houses on the 20th December, 1972.

723.  The Second Report of the Committee on " Suburban Services " was presented to Parliament on the d   February   1973.   The  Report dealt with the growth of suburban traffic and development of suburban services in the metropolitan cities of Bombay, Calcutta and Madras, the classes of accommodation and overcrowding in suburban trains, suburban fares, earnings and losses, ticket less travel on the Suburban Services and Mass Rapid Transit System including Metropolitan Transport Project Organisation.

724.  In their Third   and Fourth Reports on " Commercial and Allied Matters presented to Parliament on 23rd February and 25th April, 1973 respectively, the Committee have dealt with nine subjects namely-Ticket-less Travel ; Thefts and Pilferages ; Railway Protection Force ; Compensation  Claims ; Over, crowding Classes of Travel ; Free Pass facilities to Railway staff; Railway Users' Amenities and Catering Services.

725.  The Fifth Report of the Committee on " Requirements and Availability of wagons " dealt with the requirements and production of wagons ; their allotment to Zonal Railways ; supply to trade and industry ; procedure of booking of goods and utilization of wagons including efficiency indices ; turn-round empty haulage: speeds of goods trains ; detentions in Marshalling Yards, Transshipment points, Steel Plants and Ports; Wagons under repair and General Matters.   The Report was presented to Parliament on the 27th April, 1973.

726.  The Sixth Report was the final Report of the Committee.   It dealt with the rate of dividend for the first two years of the Fourth Plan, i.e., 1969-70 and 1970-71. The Report also continued their recommendations on certain other ancillary matters.   The Resolution  concerning this   Report was   moved and  adopted in the Lok Sabha on 7th May, 1973 and in the Rajya Sabha on 9th May, 1973.   The  principal recommendations of the Committee, which were to be effective for a period of five years  commencing from 1st  April, 1969, are detailed below :-

(i) No change is called for in the present mode of contribution to the General Revenues,

(ii) Railways should pay dividend to the General Revenues at the rate of 4-1/2 per cent of the Capital Invested upto 1963-64 with an addition of I per cent in lieu of passenger fare tax and at 6 per cent of the Capital Invested after 31st March, 1964.

(iii) The extant arrangements for the purpose of dividend in regard to strategic lines, Kiriburu-Bimal-garh and Sambalpur-Titlagarh ore lines and the Kathua-Jammu line and the Tirunelveli-Trivandrum- Kanniyakumari line may continue.

(iv) The Capital-at-charge of the non-strategic portion of the North-east Frontier Railway and the un-remunerative branch lines to be assessed precisely in accordance with the recommendations contained in the Report of the Uneconomic Branch Lines Committee as also the element of over-capitalisation may be exempted from payment of dividend.

(v) The existing arrangements  of (a)   deferring  the   payment  of dividend on the Capital-at-charge of new lines chargeable at the average borrowing rate of interest during the period of their construction as well as for the first five years after their opening ; and (b) closing the account of deferred dividend on New Lines after a period of 20 years from the date of their opening, extinguishing any liability for deferred dividend not liquidated within that period,  may be continued.

(vi) Having regard to the long period of construction/gestation of railway investment in general and the time taken by such investments to reach full earnings potential, 25 per cent of outlay In a year on works-in-progress (which could otherwise the liable to payment of dividend) may be exempted from payment of dividend for a period of 3 months.

(vii) Consistent with the commercial practice of utilising reserves as internal resources, the Railways should be given the benefit of interest at the current dividend rate on the fund balances by being permitted to take credit for the difference between the dividend rate and the average borrowing rate at which interest accrues at present to the Funds as a. set-off in the dividend payable from the Railways to the Central Revenues.

(viii) The appropriations to Depreciation Reserve Fund from Railway Revenues may be placed at Rs. 95 crores during 1969-70 and Rs. 700 crores during 1970-71, the total contribution during the quinquennium 1969-74 being of the order of Rs. 525 cores or as close thereto as possible.

(ix) The existing provision for temporary loans from General Revenues being advanced to the Railway Development Fund when the balance in the Development Fund is inadequate to meet its obligations and payment of interest on such loans at the average borrowing rate, may be continued.

(x) Further, the Railways may be permitted to take temporary loans, as at present, from the General Revenues to meet the dividend liability in case the Railway's net revenue is not adequate to pay in full the dividend to the General Revenues and the Revenue Reserve Fund has no or insufficient balance to make good the shortfall. The interest on such loans from General Revenues (including further loans for repayment of the original loans or paying interest charges on the loans) should be paid by the Railways at the current borrowing  rate.

The Committee further recommended that-

(xi) The existing rules of allocations of Railway expenditure between Capital, Revenue and Depreciation Reserve Fund and Development Fund maybe continued without any alteration till the results of the comprehensive review of the form and content of the Railway Budget as recommended by the Committee in Para 7.9 of their First Report, become available and Parliament's approval is obtained to the changes that may be necessary.

(xii) The present scheme of amortisation of the capital-at-charge by utilising the interest on the Revenue Reserve Fund, supplemented by appropriation from Railway Revenues may continue till the matter is examined in all its aspects by the Expert Group suggested in Para 5.17 of the First Report and its recommendations are gone into by the next Convention Committee.

(xiii) The arrears of relief's referred to above, pertaining to the years 1969-70 and 1970-71 (accounts for which have already been closed) may be suitably adjusted in the current year's accounts.

727.  Principles   underlying  the   Convention   of   1971.-'The   Convention   introduced   the  following important modifications to the principles, underlying the earlier Conventions is that-

(i) 25 per cent of outlay in a year on works-in-progress was exempted from payment of dividend for a period of three years ; and

(ii) the Railways were given the benefit of interest at the current dividend rate on the fund balances by being permitted to take credit for the difference between the dividend rate and the average borrowing rate as a set-off in the dividend payable by the Railways to the General Revenues.

728.  Review of the working of Convention of 1971.-The recommendations of the Railway Convention Committee, 1971 ware applicable to the period 1969-74 representing the  Fourth Plan  period. While the interim Report presented in December, 1971 covered two years,  namely, 1971-72, 1972-73, the  First Report presented in December 1971 extended the recommendations to the year 1973-74.   The Sixth Report presented in April 1973  provided for the application of the recommendations to the first two years of the Fourth  Plan, namely, 1969-70 and 1970-71.  The dividend payments in the years 1971-72, 1972-73 and 1973-74 incorporated the relief's recommended in the interim and First Reports.   The arrear relief's for 1969-71 and  1970-71  were set-off by the Ministry of Railways, in consultation with the Ministry of Finance, against the loans obtained from the General Revenues to finance expenditure chargeable to the Revenue Reserve Fund and the  Development Fund.

729.  The Railway Convention Committee, 1973 was constituted in May, 1973.   The Committee presented an Interim Report in Parliament in December, 1973.   The recommendations in the Report covered the dividend payable during 1974-75 and certain ancillary matters.   The interim report of the Committee on the  dividend payable during 1974-75 was adopted by Parliament on 17th December 1973.

730.  The First Report of the Committee was on the action taken   by the Government on the  recommendations contained in the interim Report.   Their Second, Third, Fourth and Fifth   Reports presented in 1974 dealt with the action taken by Government on the recommendations contained in the first four reports of the Railway Convention Committee, 1971 on Accounting Matters, Suburban Services and Commercial and Allied Matters.                                                                                                                   

731.  The Sixth Report of the Committee presented in December, 1974 covered  the   dividend   payable for  1975-76  and  other   ancillary  matters.   This   report of the Committee was adopted by Parliament on 17th December,   1974 and 21st December,   1974.

732.  The Seventh Report presented in May, 1975 was on the   action  taken by the Government  on  the recommendations contained in the report of the 1971 Committee on "Requirements and Availability of Wagons".

733. In addition to consideration of the rate of dividend payable to General Revenues for the remaining three years of the fifth Five Year Plan and certain ancillary matters, the Committee took up for detailed examination the following four subjects :-

(1)  Appraisal of Railways' Fourth Five Year Plan ;

(ii) Financial implications of Railways' Fifth Five Year Plan :

(iii) Social Burdens on Railways ; and

(iv) Organisational set-up and functions of the Railway Board.

734.  The Eighth Report: of the Committee presented in January, 1976 on "Railways' Fourth and Fifth Five Year Plans and other Ancillary Matters" covered the methodology of planning, Plan outlay and targets,  fore-cists of both passenger and goods traffic and their materialisation, new lines, conversion schemes, Railway electrification, track renewals, acquisition of rolling stock, line capacity works, utilisation of wagons and Marketing and Sales Organisation.

735.  The Ninth Report of the Committee presented in January, 1976 on 'Social Burdens on Indian Railways' dealt with the concept of Social Burdens, viz. Losses on Coaching Services, Losses on Low Rated Freight Traffic, Uneconomic Branch Lines, New Lines, Restoration and Conversion Schemes and other Social Overheads.

736.  The Tenth Report of the Committee presented in August, 1975 was on the action taken by Government on the recommendation contained in the Committee's Sixth Report on Dividend for 1975-76.

737.  The Eleventh Report of the Committee presented in January,   1976 related to  Dividend payable for the year 1976 and other ancillary matters which was adopted by Parliament on I5th January I976and   20th January 1976.

738.  Before the Committee could present their Report on Dividend payable for 1977-78 and 1978-79 and other ancillary matters, the Fifth Lok Sabha dissolved in January, 1977.

739.  The principal recommendations of the Committee given their Interim reports, which were effective for the period 1974-77, viz., the first there years of the Fifth Plan period, are-

(1) The present mode of payment of a fixed dividend on the capital invested in the Railways as computed annually in lieu of the interest charges plus a small element of contribution to General Revenues, may continue in the interest of financial discipline.

(2)  The present manner of fixing the payment of dividend to General  Revenues, viz., at fixed   percentage of the Capital-at-charge of the  Railways excluding the capital of strategic lines and making special provision for certain ore lines, Jammu-Kathua section  and Tirunelveli-Kanniyakumari-Trivandrum line etc. may continue.

(3)  The present arrangement of adopting differential rates of dividend on Capital invested in the Railways upto 31st March, 1964 and that invested thereafter, may continue during  1976-77.The existing rates of dividend at 4.5 per cent of the Capital invested on the Railways upto 31st March, 1964 with an addition of I per cent in lieu of the tax on passenger fares and to assist the State Governments in financing the Railway Safety Works and 6 per cent on capital invested on   Railways after 31st March, 1964 may also be retained with the following ancillary provisions, including equitable concessions to the Railways, as below-

(i) Out of the amount of additional I per cent dividend on the capital invested in the Railways upto 31st March, 1964 a sum of Rs. 16.25 crores may be passed on to the States as payment in lieu of passenger fare tax and the balance utilised to assist the States in providing their portion of the resources required for financing safety works as at present.

(ii) The present arrangement of deducting losses in the working of strategic lines from  the payment to General Revenues may also continue with the complimentary arrangements that the earnings of such  lines if any, after meeting working expenses, depreciation and other charges may be paid to the  General Revenue to the level of normal dividend.

(iii) The present arrangement of exempting the capital-at-charge of the non-strategic portions of the Northeast Frontier Railway, unremunerative branch lines and the element of over-capitalisation from the payment of dividend may continue.

(iv) The present arrangement of permitting the Railways to take credit for the difference between the dividend fate of 6 percent and the average borrowing rate at which interest would actually accrue, in respect of their various Fund balances banked with the General Revenue may also be continued.

(v) The present arrangement of -(a) Deferring the payment of dividend on the Capital-at-charge of New lines chargeable at the average rate of interest during the period of their construction as well as for the first five years after their opening ; and

(b) closing the account of deferred dividend on New Lines after a period of 20 years from the date of their opening extinguishing any liability for deferred dividend not liquidated at within that period, may be continued.

(4)  Having regard to the difficult financial position of the  Railways and  also taking into consideration the long period of construction/gestation of Railway investment in general, the Committee recommended that 50 per cent of the outlay on capital works-in-progress other than those pertaining to strategic lines, Northeast Frontier Railway (Commercial), overcapitalization, ore lines, Jammu-Kathua  and Tirunelveli-Kanniyakumari-Trivandrum lines, new lines and P. & T. line wires, may continue to remain exempted from payment of dividend for a period of three years in each case, during the entire period of the Fifth Plan. i. e., 1974-979.

(5)  The Committee have no objection to the contribution to the Depreciation Reserve Fund being raised at Rs. 135 crores in 1976-77 as against Rs. 115 crores during each of the first two years of the  Fifth Plan.

(6)  Having regard to the unsatisfactory state of Railway Finances, the Committee further recommended that the existing provision of temporary loans from General Revenues being advanced to the  Railway Development Fund, whenever the available balance in the Development Fund insufficient to meet the cost of works chargeable to that Fund and payment of interest thereon at the average borrowing rate, may be continued.

(7)  The Committee further recommended that the Railways may be permitted to take temporary loan as at present from the General Revenues to meet the full dividend liability when the Railways' net revenue is not adequate to pay the dividend to the General Revenues and the Revenue Reserve Fund has no or insufficient balance to make good the shortfall. The interest on such loans may be paid by the Railways at the current borrowing rate.

(8)  So far as the question of financing the construction of staff quarters is concerned. the Committee agree with the Railways suggestions, concurred in by the Ministry of Finance, that the cost of construction of staff quarters may be charged, to capital during to Fifth Plan period, dividend on such capital being payable only if the Railways have surplus after discharging other dividend obligations.

740.  Principles underlying the Convention of 1973.-The Convention did not introduce any important modifications to the basic principles underlying the Convention of 1971 except that-

(a)  50 per cent of the outlay on works-in-progress (instead of 25 per cent here to fore) may be exempted from payment of dividend for a period of three years ; and

(b)  the cost of staff quarters may be charged to Capital (instead of Development Fund), dividend on such Capital being payable only if the Railways have a surplus after discharging other dividend obligations.

741.  Review of the working of Convention of 1973.-The recommendations of the Railway Convention Committee, 1973 were to be applicable to the Fifth Plan period viz. 1974-79 .The Interim Report presented in December 1973, covered the first year, 1974-75 ; the Sixth Report presented in  December, 1974 related to 1975-76 and the Eleventh Report presented in January 1976 was applicable to 1976-77. The dividend payments in the first three years of the Fifth Plan period incorporate the relief's recommended by the Committee in their interim, Sixth and Eleventh Reports.   The Committee could not give their recommendations for the remaining two years, viz. 1977-78 and 1978-79, as the Lok Sabha was dissolved in January, 1977.

742.  The Railway Convention Committee, 1977 was constituted in August, 1977 for making recommendations for 1977-78 as wall as for the  period   1978-79 pertaining to the Sixth Fiver Years Plan.   The Committee presented five Reports in all.   The First Report presented to Parliament in November, 1977 covered the rate of dividend for 1977-78 and 1978-79 and other ancillary matters.   This report was adopted by Parliament on 6th December 1977 and 22nd December 1977.

743.  The second and Third Reports of the Committee dealt with the action taken by the Government on the recommendations contained in the Eighth and Ninth Reports of the Railway Convention  Committee, 1973, on Railway's Fourth and Fifth Plans and Social Burdens on Indian Railways.

744.  The Fourth Report of the Committee presented in December,  1978 dealt with the Delegation of powers to General Managers, Organisation of Zonal Railways and Organisation of Railway Board's Office.

745.  The Fifth Report of the Committee presented in February, 1979  covered the Dividend payable for 1978-79and 1979-80 and other ancillary matters.This report of the Committee was adopted by the  Parliament an 19th March 1979 and 27th March 1979.

746.  In addition to consideration of the rate dividend payable to General Revenues for the  years 1977-78 to 1979-80, and other ancillary matters, the Committee took up for detailed examination the following four subjects :-

(i) Corruption and malpractices in Indian Railways.  

(ii) Personnel Policy and its Administration on Indian Railways, 

(iii) Role of Railways in Indian Economy-Perspective for the future. 

(iv) Passengers Booking and Reservations.

747.  Before the Committee could present any reports on these subjects, as also on   Rate of dividend and other ancillary matters for the remaining three years, viz. 1980 to 1983, the Sixth Lok Sabha was  dissolved in August, I§79.

748.The Principal recommendations given in their First and Fifth Reports  relating  to  the dividend to General Revenues and other ancillary matters which effective for the period   1797-76 to  1979-80, are as follows:-

(1) Speedy action on the recommendation of the Railway Convention Committee 1971 regarding formulation of specific proposals on the pending recommendations of Expert Group on Capital Structure.

(2) The present mode of payment of a fixed dividend on the capital invested in the Railways as computed annual in lieu of the interest charges plus a small element of contribution to General Revenue may continue in the interest of financial discipline. ;

(3)  The write-off of the amount of over-capitalisation as assessed by the Expert Group on  Capital Structure viz. Rs. 122.54 cores without financial adjustment.

(4)  The continuance of the existing  rate of dividend  during 1978-79 and 1979-80  in the  absence of detailed  proposal   applicable to Sixth Plan period.

(5) A detailed examination of the question of adequacy of grants paid to States in lieu of tax on passenger fares in the light of the observations of the Seventh Finance Commission.

(6) The continuance of the arrangement, for the years 1978-79 and 1979-80, exempting the capital charge of the non-strategic portions of N.F. Railway and unremunerative branch lines, from payment of dividend.  regard to the unremunerative branch lines, the capital cost thereof to be exempted from dividend should be based on annual reviews, the unremunerativeness of a particular branch line being determined by adopting the   marginal   cost  principle.

(7)  An early and precise evaluation of the working result of the Jammu-Kathua line for the information of the Parliament and the public.

(8)  The capital cost of new lines which have been taken up on or after 1-4-1955 on   other than   financial considerations might be exempted from dividend, provided that, if any such line become remunerative. Adopting the   marginal cost principle, during the year 1978-79 and 1979-80 dividend on the capital cost of such lines shall be paid to the General.

(9)  The capital cost of ferries  (Rs. 5.05  cores)  may be exempted from payment  of dividend  during 1978-79 and 1979-80.

(10)  Considering the nature of buildings such as hospitals, dispensaries, health units, clubs,   institutes, schools and colleges, hostels and other welfare center, the capital cost of these buildings might  be  exempted from dividend liability during the years  1978-79 and  1979-80.

(11) Payment of dividend at 3.5 per cent on the capital cost of residential buildings for the year 1978-79 and 1979-80. The charging of the capital cost of construction of staff quarter to " Capital " may also continue.

(12) The continuance of the following provisions with regard to payment of dividend etc. during 1979-80 was also recommended-

(a)  The present manner of fixing the payment of dividend to General Revenues   viz. at fixed percentage of the  capital-at-charge of the Railways excluding the capital of strategic lines and making special provisions for certain   more   lines-,  Jammu-'Kathua  section   and   Tirunelveli-Kanniyakumari-Trivandrum line, etc. may continue.

(b)  The present arrangement of adopting differential rates of dividend on capital invested in the  Railways upto 31st March, 1964 and that invested thereafter,  may continue. The  existing  rates of dividend at 4.5 percent of the capita! invested in the Railways upto 31st March, 1964 with an addition of 1 percent in lieu of the Tax on passenger fares and to assist the State Governments in financing the Railway Safety Works and 6percent on capital invested in Railways after   31st  March, 1964  may also  be  retained  with the  following  ancillary provisions, including equitable concessions to the Railways, as below:

(i) The present arrangement of deducting losses in working of strategic lines from the payment to General Revenues may also continue with the complementary arrangements that the earnings of such lines if any, after meeting working expenses, depreciation and other charges may be paid to General Revenues to the level of normal dividend.

(ii) The present arrangement of permitting the Railways to take credit for the difference between the dividend rate of 6 per cent and the average borrowing rate at which interest would actually accrue, in respect of their various Fund balances banked with the General Revenues may also be continued.

(iii) On new lines other than those taken up on or after 1st Apr.! 1955 on other than financial considerations, the existing arrangement of-

(a)  deferring the payment of dividend on the capital-at-charge of New Lines chargeable at the over aged pate of interest during the period of their construction as well as for the first five years after their opening; and

(b)  closing the account of Deferred Dividend on New Lines after a period of 20 years from the date of their opening, extinguishing any liability for deferred dividend not liquidated within that period;

(iv) 50 per cent of the outlay on capital works-in-progress other than those pertaining to strategic lines, Northeast Frontier Railway (Commercial), more lines, Jammu-Kathua and Tirunelveli-Kanniyakumari Trivandrum  lines, New Lines, P&T Wires, ferric-sand welfare buildings, may continue to remain exempted from payment of dividend for a period of three years in each case during the period  1979-80,

(13) The suggestion of the Finance Ministry that relief's in dividend liability should be shown in the civil estimate as specific subsidy from General Revenues, was approved.

(14)  A contribution of Rs.200 crores during 1979-80 to the Depreciation Reserve Fund may be made.

(15)  The Committee also recommended : (a) The existing arrangement of the Railways taking temporary loans from the General Revenues to meet shortfalls in dividend payment may be discontinued with effect from 1st April 1978.   In years in which the Net Revenue of the Railways is not adequate to meet the current dividend liability, the shortfall in the payment of the current dividend liability shell be treated as a deferred   liability on which no interest shall be charged.   The deferred dividend liability shall be paid from out of the surplus available with the Railways after meeting the following ;--

(i) Interest due on the outstanding Development Fund Loan.

(ii) The expenditure on works chargeable to Development Fund.

(b) Subject to verification by Audit, out of the sum of Rs.216.14 crores outstanding as loans due from Railway Revenues to the General Revenues in respect of the Revenue Reserve Fund, a sum of Rs. 93.95 crores should be written off and the balance amount of Rs. 122.19 crores transferred to the Deferred Dividend Liability Account mentioned in the previous sub-Para.

(16)  The Committee recommended that the present provision for temporary  borrowing from General Revenues when the balance in the Development Fund is inadequate to meet the expenditure chargeable to that Fund, may be continued, the interest on such loans taken on or after 1st April 1979 as also the loan   outstanding as on that dice being charged at the rate applicable to loans given to State Governments (currently 5.5 per cent with a rebate of 0.25 per cent for prompt repayment).

Principles underlying the Convention of 1977

749.  The Convention while not making any important modification in the basic principles  underlying the earlier Convention of 1973, agreed to the following important recommendations of the  Expert Group on the capital structure of the Railways :-

(i) The element of over capitalisation may be written off the Railways' blocks without financial adjustment.

(ii) While the Capital costs of ferries and staff welfare buildings were exempted from payment of dividend, on cha capital cost of residential buildings dividend is payable at 3.5 per cent.

(iii) No dividend is payable on the cost of new lines taken up on or after 1st April 1955 on other than financial considerations, but if any such lines becomes remunerative on the marginal cost principle, dividend on such capital becomes payable.

(iv) The arrangement by which Railways were taken temporary loans from General Revenues to meet shortfalls in dividend payable was discontinued from 1st April 1978. Further, the accumulated interest of the outstanding loan due to General Revenues on this account was also written off and the balance (about Rs. 122 crores transferred to a deferred dividend liability account. In years when the Net Revenue of the Railways is not adequate to meet the current dividend liability, the shortfall in such payment is treated as deferred dividend) liability on which no interest is charged. The deferred dividend liability is paid out of future surpluses after meeting the interest due on outstanding Development Fund Loans and expenditure on works chargeable to that Fund.

Review of the Working of Convention of 1977

750.  The recommendations of the Railway Convention Committee 1977 were to be applicable for 1977-78 as well as for the earlier proposed duration of the Sixth Plan period,  viz. 1978-83.   The  Fifth Plan was terminated an year earlier i.e. at the end of 1977-78.   The concept of Five Year Plan was also given upto that time and development expenditure during the years 1978-79 and 1979-80 was according to what came to be known as a "Roiling Plan".   Further, the Railway Convention   Committee   1977 also  became  functus office  with  the dissolution of the Lok Sabha in August, 1979.   The Committee submitted five Reports of which the First and the Fifth Reports covered the rates of dividend payable to General Revenues for the years   1977-78 to 1979-80 and other ancillary matters. The First Report was Interim Report enabling the Ministry of Railways to prepare revised estimates for the year l977-.78andthe budget estimates for the financial year 1978-79.   The Fifth Report contained recommendations regarding the rate of dividend payable to General Revenues   and  other ancillary matters for the years 1978-79 and 1979-80, only pending formulation of the detailed proposals applicable to the Sixth Plan period as a whole. The Committee took  up for detailed examination of four more subjects but could not present any reports on them.

751.  The Railway Convention Committee, 1980 was constituted in October,  1980 for making recommendations for the Sixth Five Year Plan period, viz. 1980-85. The Committee selected the following subjects for examination and report in a phased manner :-

(1) Review of the working and financial results of the Railways during the Fifth Plan period (1974-78) and during 1978-80.

(2)  Tentative forecasts of the financial prospects of the Railways during the Sixth  Plan period (1980-85).

(3)  Review of rate of Dividend payable by the Railways to General Revenues; and also annual payment to the States in lieu of the repealed Passenger Fare Tax Act and the basis of determining the amount and its distribution during the Sixth Plan period.

(4)  Cost of borrowing by the Railways.

(5)  Cost of Operation of the Railways.

(6)  Need for utilising the surplus revenue of the Railways for expansion of Railways.

(7)  Rate of contribution to Depreciation Reserve Fund (D. R. F.) and Pension Fund and recommendations of the Railway Reforms Committee thereon.

(8)  Accrual to and expenditure from the Development Fund (D. F.) and recommendations of the Railway Reforms Committee thereon.

(9)  Accrual to and expenditure from the Accident Compensation, Safety and   Passenger Amenities Fund (A. C. S. P. F.).

(10)  Review of the existing rules of allocation of Railway expenditure to Capital and Revenue Account, O. R. F., D. F., and Accident Compensation, Safety and Passenger Amenities Fund.

(11)  Targets and achievements with regard to the freight and passenger traffic.  

(12.) Tariff structure of the Railways.

(13) Track Expansion Programme. 

(14) Fuel consumption by Railways.

(15)  Rolling Stock Programme.

(16)  Inventory Management in the Railways.

752.  The Committee presented 12 Reports in all, of which the First, Fourth, Seventh and Tenth only pertain to review of the rate of dividend payable by the Railways to General Revenues and other ancillary matters   in connection with Railway Finance vis-a-vis the General Finance.

753.  The First Report presented to Parliament in February, 1981 covered the rate of dividend for 1980-81 and 1931-32 and other ancillary matters.   This Report was adopted by Parliament on 17th March 1981 and 24th March 1981.

754.  The Fourth Report of the Committee presented in February, 1982 covered the  dividend payable for 1932-83 and other ancillary matters.   This Report of the Committee was adopted by the  Parliament on   17th  March 1982 and 23rd and 24th March 1982.

755.  The Seventh Report of the Committee presented in November, 1982 covered the dividend  payable for 1331-31 to !983-84and other ancillary matters with certain modifications on earlier recommendations made in "'is First and Fourth Reports.   This report was adopted by the   Parliament on 21stMarch 1983 and 23rd March  1983.

756.  The Tenth Report of the Committee presented in February, 1984 covered the dividend for 1984-85 and other ancillary matters. This Report was adopted by the Parliament on 15th March   1984 and 20th March 1984.

757.  The recommendations contained in all the above mentioned Reports are of an   interim   nature, and cover the entire Sixth Five Year Plan period (1980-85).   However, the Committee could not present any report giving their final recommendation on the rate of Dividend and other ancillary matters for the entire  Sixth Plan period 1980-85, as the Committee ceased to exist, due to dissolution of the Seventh Lok Sabhaon December 31, 1984.

758. The Committee also took up other subjects for detailed  examination  and  presented  the  following Reports:-

Report Number Subject Date of Presentation
1 2 3
Second Action taken by Government on the recommendation contained in the Fourth Report of 1977 Committee on delegation of Powers to General Manager, Organization of Zonal Railways and Re-organization of Railway Board's Office. 7/5/1981
Third Review of the existing rules of allocation of Railway Expenditure to Capital and Revenue Accounts, DRF, DF and ACSPA Fund. 18-9-1981
Fifth Review of the working of financial results of railway during V Plan period (1974-7£) and during I97S-80 and targets and achievements with regard to Freight and Passenger Traffic during V Plan period (1974-78) and during 1978-80. 13-7-1982
Sixth Action taken by Government on the recommendations contained in the Third Report, mentioned above. 11/8/1982
Eighth Action taken by Government on the recommendations contained in the Fifth Report, mentioned above. 9/5/1983
Ninth Cost of Operation of Railways (Staff Fuel cost) 26-8-1933
Eleventh Cost of operation of Railways (Cost of Materials) 17-4-1984
Twelfth Track Expansion Programme of Railways 28-8-1984

759. The principal recommendations of the Railway Convention Committee, 1980, relating to the payment of Dividend to General Revenues and other ancillary matters, effective for the Sixth Plan period 1980-85, are reproduced below-

(1)  The present mode of payment of affixed dividend on the capita! invested in the  Railways as computed annually in lieu of the interest charges plus a small element of contribution to General Revenues  may continue in the interest of financial discipline.

(2)  The differential rates of dividend fixed as 5.5 per cent for pre-1964 capital (inclusive of I   per cent for payments to States in lieu of Passenger Fare Tax, etc.) and 6 per cent for capital invested thereafter,   may continue upto 1979-80.

(3)  A rate of 6 per cent be adopted for payment of dividend on capital invested upto 31st March   1980 (inclusive of 1.5 per cent on   capital invested upto 31st March   1964 for payment to States in  lieu of passenger fare tax, etc.).

(4)  A mean percentage of 6.5 per cent may be adopted for payment of dividend on the capital invested in the Railways after 31st March 1980.

(5) The amounts to cover payments to States in lieu of passenger fare tax etc. may be found  by computing dividend at 1.5 percent of the capital upto 31st March 1964 less subsidy element out of which Rs. 23.12crores may be passed on to the States in lieu of passenger fare tax and the balance utilised to assist the States in providing their portion of the resources required for financing safety works  as  at present. Further  increase could   be considered on the basis of the recommendations of the Eighth Finance Commission.

(6)  The shortfall in payment of dividend to the extent of the interest at the average borrowing rate on the entire capital plus a token contribution may be shown as an additional subsidy in the estimates  presented   to Parliament. This could be a grant for renewal and replacement of assets of Railways for the present, pending final recommendation on the rates of dividend and the quantum of subsidy.

(7)  In order to ensure a reasonable return on their Capital-at-charge the Railways  should substantially augment their earning capacity by subjecting their commercial investment proposals to stricter test of remunerativeness commensurate with the constantly rising cost of capital.

(8)  Tentatively appropriation to the Depreciation Reserve Fund during the Sixth Plan (l980-85) may be increased steadily, keeping in view the assessment of the Railway Reforms Committee and the Railways' capacity to raise additional resources pending   their final recommendations. Accordingly, appropriation  to this Fund totaling Rs. 2,826 crores has been made during   the   Sixth    Plan    period    as compared     to   only Rs. 650 crores during the quinquennium 1974-79.

(9)  The present arrangement of obtaining loan from General Revenues to meet expenditure chargeable to Development Fund in case of inadequate or no surplus, may continue. The interest on such  loans  may  be charged at the race applicable to loans given to State Government as recommended by the  Railway Convention Committee (1977).

(10) The contribution to the Pension Fund to increase gradually keeping in view the increasing withdrawals from the Fund from year to year, pending finalization of actual evaluation.

(11) The Committee further recommended that the existing dividend relief's and other equitable concessions given for calculation of dividend payable by the Railways to the General Revenues might continue. In addition, the Committee had agreed that the entire capital on the Ore line (Sambalpur-Titlagarh) instead of 50 percent thereof may be exempted from the payment of dividend subject to the usual conditions and the balances in the various Railway Reserve Funds (except the Development Fund) might carry the same rate of interest which dividend was actually paid.

769. The dividend relief and other concessions agreed to are as follows :-

I. The following elements of Capital are fully exempted from payment of dividend :

(a)  Strategic lines.

(b)  28 New Lines taken up  on or  after   1-4-1955  on other than financial  considerations;  dividend becomes payable if any line becomes remunerative adopting the marginal cost principle.   The   arrangement is to hi applied also to the two National Investments viz. Jammu-Kathua and Tirunelveli-Kanyakumari-Trivandrum line as recommended on Para 59 of the Committee's 3rd Report (September, 1981).

(c)  Northeast Frontier Railway (non-strategic portion).

(d)  Unremunerative Branch Line-the exemption  of a particular  unremunerative  branch  line from payment of dividend on capital being based on annual review of the unremunerativeness of the line, and the unremunerativeness determined adopting the marginal cost principle.

(e)  One lines (full  capital outlay  on Bomalgarh - Kiriburu  line  and 50 per cent  of capital outlay on Sambalpur-Titlagarh line).

(f)  Ferries and Welfare buildings.

(g)  50 par cant of capital on works-in-progress other than those pertaining to strategic lines, Northeast Froniter   Railway  (Commercial), Ore Lines, Jammu-Kathua and Tirunelveli-Kanniyakumari-Trivandrum lines, new lines, P & T wire, ferries, welfare buildings, for a period of 5 years.

II.  A concessional dividend of 3.5 per cent is payable on the capita! cost of residential buildings.

III.  New lines other than those mentioned at I (b) above :   Dividend payable on capital of such  lines at the average borrowing rats of interest is deferred during the period of construction and the first 5 years after opening of the line for traffic. The deferred liability is to be paid out of the future surpluses of the line after payment of current  dividend.  The account of unliquidated deferred dividend liability on new lines is to be closed after a period of 20 years from the date of their opening extinguishing any liability not liquidated within that period.

IV.  Losses in the working of strategic lines are borne by the General Revenues, Earnings of such lines, if any, after meeting working expanses, depreciation and other charges are paid to General  Revenues to the level of normal dividend.

V.  Shortfall, if any, in the  payment of dividend on account of inadequacy of  net revenue are treated as deferred liability on which no interest is charged.                                       

The latest method of calculating dividend payable to Genera! Revenues as per recommendations contained in Seventh Report of 1930 Railway Convention Committee has been shown as Annexure 'B'.                                                                     

Principles underlying the Convention of 1980

761. The Committee could not submit its final   Report and even in its interim Reports did  not make any important modification in the basic principles underlying the earlier Convention of 1977, except the following:-

(i) a rate of 6 per cent may be adopted for payment of dividend on capita] invested upto 31st March 1989 (inclusive of 1.5 per cent on capital interest upto 31st March 1964 for payment to States in lieu of passengers fare tax, etc.);

(ii) a mean percentage of 6.5 per cent may be adopted for payment of dividend on the capital invested in the Railways after 31st March 1980.

(iii) the amounts to cover payments to States in lieu of passenger fare tax, etc. may be found by computing dividend at 1.5 per cent instead of the existing I per cent of the capital upto 31st March 1964 less subsidy element out of which Rs. 23.12 crores may be passed on to the States in lieu of passenger fare tax and the balance utilised to assist the States in providing their portion of the resources required for financing safety works as at present.

(iv) The contribution to the D. R. F. may be tentatively stepped up during the Sixth Plan period (1980-85) keeping in view  the   recommendations   of the   Railway   Reforms  Committee and the   Railways  capacity to generate additional internal resources ;

(v) The contribution to the Pension Fund may be stepped up keeping in view the increasing levels  of disbursements from the Fund, pending finalisation of actual evaluation.

(vi) The arrangement in respect of 28 new lines taken up on or after 1st April 1955 for exemption of payment of dividend may also be applied to the two lines known as National Investment viz- Jammu-Kathua Tirunelveli-Kanyakumari-Trivandrum.

(vii) The entire capital on the Ore Line (Sambalpur-Titlagarh) instead of 50 par cent thereof may be exempted from the payment of dividend subject to the usual condition.

(viii) The balance in the various Railways Funds (except Development Fund) may carry the same rate of interest at which dividend was actually paid. The interest on Development Fund loans is chargeable at the rate applicable to loam given to Stae Governments as recommended by Railway Convention Committee,  1977.

Review of the working of the Convention Committee (!980)

761-A. The recommendations of the Railway Convention Committee, 1980 were to be made applicable for the entire Sixth Plan period (1980-85) the first Report presented to Parliament in February, 1981, covered the rate of dividend payable for the years 1980-81 and 1981-82. The Fourth Report presented by the Committee in February , 1982, covered the rate of Dividend for the year 1982-83. The Seventh Report presented by the Committee in November, 1982, covered the rate of Dividend for the four year period, namely, 1980-81 to 1983-84, whereas the Tenth Report presented by the Committee in February, 1984, covered the rate of Dividend for the year 1984-85. The recommendations contained in all these Reports were of the interim nature, although these were applicable to the whole Sixth Plan period (1980-85). However, as the Committee ceased to exist due to dissolution of the Seventh Lok Sabha on 31st December, 1984, it could not present any Report giving their final recommendations on the Rate of Dividend etc. for the entire Sixth Plan period (1980-85).

762.  The Railway Convention Committee (1985) was constituted on 21st May, 1985 as a result of the Resolution adopted by Lok Sabha on 20th March, 1985 and concurred in by Rajya Sabha on 28th March, 1985; the terms of reference to the Committee being "to review the rate of Dividend which is at present payable by the Railway Undertaking to the General Revenues as well as other Ancillary Matters in connection with  Railway Finance of reference to the Committee being "to review the rate of Dividend which is at present payable by the Railway Undertaking to the General   Revenues as. well as other Ancillary Matters in connection with Railway Finance vis-a-vis the General Finance and make recommendations thereon".

763.  The   Railway Convention  Committee (1985) selected   the   following   sixteen   subjects for their consideration :-

(1)  On-going projects including doublings/conversions.

(2)  Electrification of Railways.

(3)  Review of the rolling-stock position of the Railways vis-a-vis increase in  passenger and goods Traffic on the Indian Railways.

(4)  Review of passenger amenities including catering services and punctuality of trains as also the allocations to the Development Fund of the Railways.

(5)  Surveys of new lines conducted during the last fifteen years but not taken up.

(6)  Study of various modes of traction on the Railways and the fuel cost.

(7)  Employment of casual labour and their conditions of service including de-casualisation and recruitment

(8)  Review of accidents and the progress in implementation of the recommendations made by Kunzru Committee and Sikri Committee.

(9)  Generation of resources for meeting the needs of the Railways including policy of freights and rates.

(10) Payment of compensation claims on Railways.

(II) Review of Hours of Employment Regulations Act on the Railways.

(12)  Seventh plan prospects-Tentative forecasts of the financial prospects of the Indian Railways during the Seventh Five Year Plan period (1985-86) and 1989-89 on the basis of the present freight   rates and fares, price level and the anticipated traffic.

(13)  Dividend.-'A review of the reasonableness of the present rates of dividend payable to General Revenues, taking into account relief's granted by earlier Convention Committees on certain special elements of capital and the cost of Government borrowing, and also keeping in mind the recommendations of the Railway Reforms Committee and the views of the earlier Convention Committees in the matter.

(14) Review of the Annual payment to the States in lieu of the repealed Passenger Fare Tax and the basis of determining the amount and its distribution during the Seventh  Five Year Plan period, taking into account the recommendations made by the Eight Finance Commission on the subject.

(15)  Railway Funds.-The rate at which contribution should be made to the Depreciation Reserve  Fund during the Seventh Five Year Plan period to meet the cost of renewal/replacement of Railway assets. Keeping in view the recommendations of the Railway Reforms Committee and the earlier Convention Committees.

(16)  Social Burdens.-Compensation to the Railways for carrying social burdens in the form of maintenance of uneconomic branch lines, strategic lines, suburban services, etc., keeping in view the  observations of  the earlier Convention Committees.

764.  Apart from these sixteen subjects, the Committee were requested to consider an  additional subject relating to "Resource Mobilization-Public Borrowing for Augmenting Railway Plan Finance" and give their recommendations thereon.

765.  Till May, 1988 the Railway Committee (1985) presented 10 Reports, including the one on  the additional subject of Resource Mobilization through Public Borrowings referred to.

The First Report presented by the Committee in August, 1985, related to the action taken by the Government on the recommendations contained in the Ninth Report of the Railway Convention Committee, 1980, on cost of operation of Railways (Staff and Fuel Cost).

The Second Report presented by the Committee in February, 1986, related to the action taken by the Government on the Recommendations contained in the Eleventh Report of the Railway Convention Committee 1980 on cost of Operations of Railways (Cost of Materials).

The Third Report presented by the Committee in February 1986 related to rate of Dividend for 1986-87 and other ancillary matters.

The Fourth Report presented by the Committee in April, 1986, related to the action taken by the Government on the Recommendations contained in the Twelfth Report of the Railway Convention Committee, 1986, «n Track Expansion Programme of Railways.

The Fifth Report presented by the Committee in May, 1986, related to Railway Electrification in Railways.

The Sixth Report presented by the Committee in December, 1986, related to Resource Mobilisation-Public Borrowing for augmenting Railway Plan Finance.

The Seventh Report presented by the Committee in February 1987, related to rate of Dividend for 1987-38 and other ancillary matters.

The Eight Report presented by the Committee in April 1987, related to the action taken by Government on the Recommendations contained in the Sixth Report of the Railway Convention Committee (1985) on "' Resource Mobilisation-Public Borrowing for augmenting Railway Plan Finance ".

The Ninth Report presented by the Committee in September, 1987, related to " On-Going Railway Line Projects ".

The Tenth Report presented by the Committee in February, 1988, related to Rate of Dividend for 1988-89 and other ancillary matters.

The Eleventh Report presented by the Committee in December, 1988, relates to the Action taken by the Government on the Recommendations contained in the Fifth Report of the R. C. C. - 1985 on" Railway Electrification ".

The Twelfth Report also presented by the Committee in December, 1988, relates to action taken by the Government on the Recommendations contained in the Ninth Report of the Committee on "On-Going Railway Line Projects".

766. In order to give a correct appraisal of the contribution made by the Railway Finances to the General Revenues since 1924-25 to 1984-85 a statement has been appended (Appendix).   This shows at a glance the Net Revenue and the contribution paid to the General Revenues during each year since 1924-25 to  1984-85   under the Conventions of 1924, 1943, 1949, 1954, I960, 1965, 1971, 1973, 1977 and 1980 respectively.

 

APPENDIX

STATEMENT OF CONTRIBUTION TO GENERAL REVENUES

1.UNDER 1924 CONVENTION

(In lakhs of Rupees)

Year Net gain of loss One per cent of capital at charge of Commercial lines in penu!timite year One-fifth of surplus of commercial linos in penultimate year Total Dedust loss on strategic lines in penultimate year Net One-third of excess of surplus over three crores Total contribution to General Revenues undertha 1924* Convention Contribution paid to General Revenues (excuding repayment) of arrears Unpaid contrbution Repayment of contribution
1 2 3 4 5 6 7 8 9 10 II 12
1924-25 13,16 5,40 90 6,30 1,21 5,09 1,69 6,78 6,78   • •
1925-26 9,28 5,40 90 6,30 1,21 5,09 40 5,49 5,49   • •
I92S-27 7,50 5,81 1,79 7,60 1,59 6,01   6,01 6,01   • •
1927-28 10,85 6,00 95 6,95 1,46 5,49 79 6,28 6,28   .
1928-29 7,81 6,29 57 6,86 1,63 5,23   5,23 5,23   • •
1929-30 4,04 6,62 1,19 7,81 1,69 6,12   6,12 6,12   .
1930-31 5,19 6,94 52 7,46 1,72 5,74   5,74 5,74   .
1931-32 9,20 7,23   7,23 1,87 5,36   5,36   5,36 .
1932-33 10,23 7,36   7,36 2,13 5,23   5,23   5,23 •
1933-34 7,96 7,93   7,23 2,02 5,21 .... 5,21   5,21 •
1934-35 5,06 7,22   7,22 2,18 5,04   5,04   5,04 .
1935-36 4,00 7,21 ..     7,21 2,22 4,99   4,99   4,99 .
1936-37 1,21 7,21   7,21 2,30 4,91   4,91   4,91 .
1937-38 2,76 6,81 .. 6,81 2,47 4,34   4,34 2,76 1,58 .
1938-39 1,37 6,83 .. 6,83 2,37 4,46   4,46 1,37 3,09 .
1939-40 4,33 6,85 .. 6,85 2,22 4,63   4,63 4,33 30 .
1940-41 18,46 6,92 .. 6,92 2,29 4,63   4,63 4,63   7,53
1941-42 23,08 6,96 •• 6,96 2,16 4,80 •• 4,80 4,80 •• 15,37

IS. UNDER 1943 CONVENTION

                                                                                                                                                 

(In lakhs of Rupees)

Year Net Revenue Contribution paid on General Revenues
1942-43 45,07 20.I3
1943-44 50,84 37,64
1944-45 49,89 32,00
1945-46 38,20 32,00
1946-47 8,52 -----
1947-48 16,18 (Provisional) 5,40
1948-49 19,98 7,34
1949-50 14,59 7,00

Contribution paid for 1942-43 and onwards are in accordance with the Resolution of the Legislative Assembly, dated the 2nd March 1943.

III. UNDER 1949 CONVENTION

                                                                                                                                                                                           (In lakhs of Rupees)

Year Net Revenue Dividend to General Revenues
1950-51 47,56 32,51
1951-52 61,75 33,41
1952-53 47,18 33,89
1953-54 34,92 34,96
1954-55 44,06 34,96

IV.  UNDER 1954 CONVENTION  

                                                                                                                                                                                           (In lakhs of Rupees)

Year Net Revenue Dividend to General Revenues
1955-56 50,34 36,12
1956-57 58,38 38,16
1957-58 57,78 44,40
1958-59 59,32 50,39
1959-60 74,56 54,43
1961-62 87,87 55,86

V. UNDER 1969 CONVENTION  

                                                                                                                                                                                          (In lakhs of Rupees)

Year Net Revenue Dividend to General Revenues
1961-62 99,75 73,35
1962-43 123,22 81,26
1963-64 145,19 95,95
1964-65 118,11 104,93
1965-66 134,84 11,62

VI. UNDER 5965 CONVENTION 

                                                                                                                                                                                       (In lakhs of Rupees)

Year   Net Revenue   Dividend to General Revenues  
1966-67 114,12 132,39
1967-68 110,00  141,53
1968-69  142,81 150,67

Note.-The Net Revenue of the Railways during 1966-67, 1967-68 and 1963-69 being  less than their dividend liability to the General Revenues by the Rs. 18.27 crores and Rs. 3! .53 crores and Rs. 7.8S crores respectively, these amounts were. withdrawn during these years from the Railways Revenue reserve Fund to mate good the shortfall.

VII. UNDER 1971 CONVENTION    

                                                                                                                                        (In lakhs of Rupees)

Year Net  Revenue Dividend to General Revenues
1969-70  146,56 156,39
1970-7!   144,73  164,58
1971-73     169,08 151,24
1972-73    164,43 161,51
1973-74    55,41  170,91

Note.-During 1969-70 and 1970-71, the shortfall in Net Revenue of Rs. 9.83 crores and Rs. 19.85 crores respectively for meeting the dividend liability  in full, was met by loans from General Revenues. The arrear relief's amounting to Rs. 17.03 crores in !9&9-70and Rs. 19.25 crores in 1970-71, recommended by the Railway Convention Committee, 1971 were adjusted in consultation with the Ministry of finance, in   1972-73 against outstanding loan liability in the  Railway Revenue Reserve Fund (Rs. 19.5 crores) and Development Fund (Rs. 16,72 crores).

The net shortfall in 1973-74 was Rs. ! 15.50 crores. Due to the loan from General Revenues being available to the extent of Rs. 99.72 crores only, the dividend actually paid was Rs. 155.13 crores the unpaid amount of -dividend of Rs. 15.78 crores being carried forward to and adjusted in 1974-75.

VIII. UNDER I973 CONVENTION   

                                                                                                                                                       (In lakhs of Rupees)  

Year     Nat Revenue Dividend to General Revenue
1974-75  73,64  187,47
1975-76    137,03 198,14
1976-77     294,29 209,05

The dividend paid in 1974-75 was Rs. 203.25 crores inclusive of Rs. 15.78 crores representing the unpaid dividend for 1973-74.

During   1974-75 and   1975-76 the shortfall in Net Revenue of Rs.113.83 crores and  Rs. 61.11 crores rerpacdvely for meeting dividend liability In full, was met by loans from General Revenues.

IX. UNDER IS77 CONVENTION 

                                                                                                                                                      (in lakhs of Rupees)  

Year     Net Revenue Dividend to General Revenues
1977-78    352,79 226,56
1978-7    224,14 240,82  224,56
1979-80     227,29 293,53

**Dividend payment is limited to the available net revenue, the balance being transferred to 'Deferred Dividend Liability Account  per recommendations of the  R, C. G. (1977).

58 X. UNDER 1930 CONVENTION

(In lakhs of Rupees).

Year Net Revenue Dividend to General revenues
@1980-81 127,49 325,36
1981-82 403,06 356,47
£1932-83 554,30 435,98
@I983-84 378,95 423,78
@1984-85 270,11 270,11
1985-86 685,87 507,04
1986-87 680,84 578,85
1987-88 723,15 638,86
1988-89 (BE) 764,00 736,00

@ Dividend payment is limited to the available net revenue the balance being transferred to 'Deferred  Dividend  Liability Account as per recommendations of the R. G. C. (1977).

£ includes arrears for the years 1930-81 and 1932-33 on account of higher rats of dividend payable from 1st April 1980.

ANNEXURE 'B'

757. Method of Calculating Dividend Payable by the Railways.-The following table illustrates the method of working out the dividend payable by the Railways in terms of the recommendations contained in Seventh Report of 1980 Railway Convention Committee:-

                                                                             Computation of Dividend for the Year 1985-86

1.  Capital-at-charge on 31st March 1985 including MTPS 86,45,91,90,249
3,60,27,24,703
2.  For M. T. Ps. only 82,85,64,65,546
3.  Excluding M. T. Ps.  
4.  Transfers effected without financial adjustments Transfer of outlay from M. T. P. Delhi to Eastern Railway
5. Capital-at-charge on 1st April 1985 82,85,64,65,546
6.  Deduct  
(a) Capital contributed by companies             3,00,496
7.  Net Capital outlay on 1st April 1985 82,85,61,65,050
(a) Relating to the period prior to 1st April 1980 53,80,38,50,131
(i) Outlay on residential buildings 99,03,27,559
(ii) Outlay on new lines less those completing the period of moratorium 87,12,45,172
(iii) Relating to P. & T. line wires 2,43,08,096
(iv) Outlay other than that mentioned at (i) to (iii) above 51,91,76,68,803
(b) Relating to the period 1st April 1980 to 31st March 1985 29,05,26,15,418
(i) Outlay on residential buildings               .... 84,97,08,892
(ii) Outlay on new lines less those completing moratorium period       ,. 2,26,13,23,840
(iii) Outlay on purchase of P & T line wires 84,20,246
(iv) Outlay other than that mentioned at item (1) to (iii) above 25,93,31,62,440
8. Capital outlay during 1985-86 8,77,49,16,097
For  M.T.Ps. only                    85,06,70,314
Excluding M.T.Ps.                 7,92,42,45,783
(i) Outlay on residential buildings 22,99,42,447
(ii) Outlay on new lines less those completing moratorium period 49,09,69,579
(iii) Outlay on purchases of P & T line wires 48,00,000
9. Capital outlay other than that mentioned in items (8) (i.) to (iii) above 7,19,85,33,757
10,  Half of outlay in Col. 9    .. 3,37,92,44,878
11,  Net capital outlay in 1985-86 3,39,92,66,878
12, Capital outlay for the purpose of dividend  @6.0 per cent vide item 7(a) (iii) & (iv) + 7(b)'(ili) + half8(iii) 51,95,27,97,150
13.  Capital for the purpose of dividend @ 3.5 per cent vide item 7(b) (iv) and II..                29,53,24,29,317
14.  Capita! outlay for the purpose of dividend @ 3.5 per cent vide item 7(c) (i) +  7 (b) (s) + half of 8(i).               1,95,50,07,674
15.  Capital Outlay for the purpose of dividend @8.0wdeitem 7(a)(ii) + 7(b)(i) +  7 (b) (s) + half of 8(i). half of 8(ii).                 
16.  Dividend at the rate of 6.0 per cent (item 12) 3,11,71,67,829
at the rate of 6.5 percent (item 13) 1,91,98,38,972  
at the rate of 3.5 per cent (item 1.4)          6,87,I4,304
at the rate of 8.0 per cent (item 15)

27,12,44,394

17.  Deferred dividend   ..........................
18.  Arrear adjustment, if any  (-) 1,487,390
19.  Total dividend                             5,37,58,17,019
20.  Loss on strategic lines                  (-)30,54,57,375
21. Net dividend payable 1983-84       5,07,03,59,644
22.  Amount carried over to Deferred Dividend Liability Account pertaining to the period 1978-79 and onwards..............
23.  Dividend actually paid in I9t5-f6-
(i) Dividend......           482,37,01,580
(ii) Tax on Passengers Fare 1985-86   23,12,00,000
(iii) Safety works 1983-86       1,54,58,064

            

 *Note.-Dividend at 6 per cent on capital invested up to 31st March 1930 includes 1.5 per cent on the capital invested upto 31st March 1964 viz. Rs. 16,44,38,70,924 (less capital qualifying far subsidy viz. Rs. 266, 44, 79, 616) for Contribution for grants to States in lieu of Passengers Fare Tax @ Rs. 23,12,00,000 on ed hoc basis and the balance amount to be utilized for assisting the States for financing safety works.

768. Sources and Application of Capital Funds.-The money expended by the Government on railways has been financed-

(a) by loans raised specifically for railway purposes by Government (specific debt).

(b) by utilisation of revenue surpluses and other resources at the disposal of the disposal of the Government of India (non specifics debt) and

(c) by contributions from Indian States and District Boards, etc. (Indian State and District Board Capital).

Note.-As a result to federal financialinteg ration with effect from 1st April, 1950, the capital contributed by Indian States has been merged in the capital-at-charge of Indian Railways for calculating dividend payable to general revenues under the Convention of 1949.

769.  Specific Debt.--This consists of-(a) Liabilities Incurred by Government  on  purposes  of Railways and not discharged either by cash payment or the issue of appropriation of stock and which are either-

(i) in course of discharge by the operation of annuities and sinking funds ; or

(ii) remain to be liquidated at the option of Government or otherwise on dates to be determined by law or contract.                                                .

(b)  India stock, etc., specially created in discharge of liabilities incurred in connection  with the purchase of railways (a proportion of this stock is under redemption by sinking funds).

(c)  Rupee debt specifically incurred for railways.

770.  Non-Specific  Debt.-This   represents the expenditure on railways not covered by the above  or  by capital   contributed by erstwhile Indian States and District Boards, etc, [See Note under 769 (c)].

Note.-Consequent on the payment of a fixed dividend to the General Revenues with effect from 1st April, 1550, the distinction between the specific debt and non-specific debt is not important enough for the Railway finance, but interest charges on the specific and non-specific debts are still calculated, as usual, on pro forma basis and intimated to the Accountant General, Central Revenues for making necessary adjustments in Civil Accounts.

771.  Capital  contributed by District Boards for   Capital Outlay on Railways.-This   represents a small amount of capital contributed on the Southern (ex-South Indian) Railway by District Boards.   This capital is neither interest bearing not taken into account in calculating the capital-at-charge of railways for the purpose of determining the dividend payable to General Revenues.   The District Boards concerned,  however, receive a return on their capital according to specific arrangements.

772.  The Capital-at-charge of the Railways, otherwise also known as the Loan Account made up as stated in Paras 730 to 733, is represented by the fixed and floating assets of the railway undertaking other than financed out of tha revenue account and the railway funds (see Paras 739 to 747).

Revenue Receipts and Expenditure

773.  Revenue Receipts The  revenue of railways is  derived almost wholly from the  transport  of passengers, paresis, animals and merchandise,   The other sources of revenue  are telegraph  earnings, rents and tolls, catering, sale proceeds of unclaimed goods coal ashes (cinder), grass and trees on the line, advertisement fee's and interest and maintenance charges of saloons, level crossings, etc.

Revenue Expenditure

774.  The revenue expenditure of railways is divided Into the following main divisions :- 

(i) Working Expenses ;

{ii) Payments to worked lines ;                                                                                                           

(in) Miscellaneous railway expenditure ;

(iv) Open Line Works-Revenue. ;

(v) Land and subsidy to subsidized railway companies ; and 

(vi) Dividend payable to General Revenue.

All this expenditure is mat out of the revenue receipts of railways, hence the term " Revenue Expenditure" applied to It.                                                                              

775.  Working   Expenses.-The  working  expanses   of  railways   include   all expenditure incurred in connection with the administration, operation, maintenance and repairs of lines open for traffic. This also includes appropriation to Pension Fund and the contribution made to the Depreciation Reserve Fund to meet the cost of replacements and renewals.                                                              

776.  Open Line Works-Revenue.-This head Includes expenditure incurred on

(i) Works (other than chose (a) relating to amentias for passengers and other railway users ; and 

(b) allocable to Accident Compensation, Safety and Passenger Amenities Fund). Costing Individually within the« new minor works limit of Rs. 25,000 ; and

(iii) Works relating to unremunerative operating improvements costing not more than Rs. 3 lakhs each.                              

777. Railway Funds.-The Railways operate the Depreciation Reserve Fund, the Revenue Reserve Fund, the D2vab?m2nt Fund and the Railway Pension Fund. In addition, with effect from 1974-75, one more fund his been created under the name of Accident Compensation, Safety and Passenger Amenities Fund.

The Depreciation Reserve Fund

778. The Depreciation Reserve Fund was started wish effect from 1st April, 1924, to provide for the cost of renewals and replacements of assets as and when they become necessary. The scope of the fund as varied from time-to-time is explained, in paragraphs 779 to 781.

779.  Appropriations to the Fund.-Upto the end of March, 1935, the fund was credited with an annual contribution from revenue calculated on the "straight line method" as follows.   Wasting assets were classified and a normal life was fixed for each class.   The total expenditure to the end of the previous financial year on all the units of each class of asset, divided by the number of years assumed as the normal life of that class of asset, was taken as the annual contribution to the Fund, no credit being given on account of any unit after the period assumed for its normal life had expired,    in order to simplify the calculation involved, an amount equal to one-sixtieth the total capital-at-charge as shown in the Finance and Revenue Accounts of the Government of India at the end of the previous financial year, was set aside annually to cover depreciation with effect from 1935-36, this fraction calculated to give results approximately equal to the results of the complicated procedure followed previously. Under the Convention of 1949 introduced with effect from 1st April, 1950 and the subsequent Conventions of 1954, I960, 1965 and 1971, the annual contribution to the fund from the Railway Revenues  was fixed for the whole period covered by each Convention resolution to meet the expenditure expected to be incurred on replacement of assets chargeable to this Fund during the period.   The contribution so made would be subject to the Vote of Parliament through the "Demands for Grants".

780.  Appropriations from the Fund.-The rules of allocation of expenditure between Capital, Depreciation Reserve Fund and Revenue that were formulated for observance by Indian Railways at the time of creation of the Depreciation Reserve Fund were based on the genera! principle that the replacement cost to the extent of the "original cost" of an asset replaced, if it was a complete  unit of a wasting asset, should  be charged to the Depreciation Reserve Fund and that all the expenditure in excess of such original costs was chargeable to capital. Later with effect from 1936-37, it was decided that the original cost or the cost of replacement by a like asset, whichever was greater, should be met from the fund in the case of all classes of assets and that only the excess over such cost was dubitable to Capital or Betterment Fund (introduced from   1st April,   1946), provided the excess was more than the New Minor Works limit.   With effect from   1st April, 1943 and till the 31st March, 1946, the inflationary element as distinct from improvement in the cost of replacement of an asset was charged to Revenue (Ordinary Repairs and Maintenance).    Under the Convention of 1949 introduced with effect from 1st April, 1950, the full cost (including the improvement and inflationary elements) of replacement of an asset was charged to the fund provided the original   cost of such an asset was at the debit of capital. Under the Convention of 1954 coming into force from 1st April, 1955, the full cost of placement of an   asset whether created out of capital or Development Fund is chargeable to the Depreciation Reserve Fund.

781.  Interest on  Depreciation  Reserve  Fund Balances.-The   amount in  the   fund together with interest thereon which is also credited to the fund, remains in deposit with the Central Government.

The Revenue Reserve Fund

782.  A Railway Reserve Fund was started in pursuance of the " Separation Convention " with effect from 1st April, 1924.   The receipts in the fund consisted of the surplus which remained out of the net receipts of railways after the payment to general revenues of the contribution fixed under the Convention,  if the amount of such surplus exceeded in any year three crores of rupees, two-thirds only of the excess over three  crores was transferred to the fund and the remaining one-third accrued to the General Revenues.    Under the revised Convention with effect from 1st April, 1950, this fund has been renamed "the Revenue Reserve Fund" and is credited with such appropriations out. oft he surplus, as may be voted by the Parliament through the " Demands for Grants".

783.  A part of the amount standing at the credit of the fund has been invested in securities of and loans  to Branch Line Companies and the balance is held in deposit with the  Central  Government. Interest accruing the amount held with the Central Government or on loans and divided on the securities is credited to the fund itself.

The Development Fund

784.  This fund was instituted with effect from the 1st April, 1950, incorporating the existing Railway Betterment Fund which was started with effect from the 1st April, 1946.   The Railway Betterment Fund was originally designed to relieve capital of charges relating to works for the provision of amenities for passengers and   staff and of expenditures on operating improvements costing not more than rupees three lakhs each which were not likely to produce sufficient return to cover service charges and interest. To start With, a sum of rupees twelve crores was transferred to the fund from the Railway Reserve Fund (since renamed Revenue   Reserve  Fund)  and further credits to the fund consisted of annual appropriations from the surplus. With effect from 1st April, 1949, the scope of the Betterment Fund was restricted to meet only the expenditure en works connected with the provision of amanitas for passengers. The Development Fund as instituted from 1st April, 1950, under the Convention of 1949, was utilised for financing expenditure on-

(i) Passenger amenity works ;

(ii) Labour welfare works, including quarters for Class IV staff, costing individually above the new minor works Limit of Rs. 25,000;

(iii) the excess over Rs. 3 lakhs in the cost of each unremunerative project for improvement of operational efficiency ; and

(iv) construction of new lines (except strategic lines) which were necessary but unremunerative.

Under the Convention of 1954, with effect from 1st April, 1955, the scope of the fund was widened to finance expenditure on-

(i) amenities for all users of railway transport;

(ii) labour welfare works costing individually above the new minor works limit of Rs. 25,000;

(iii) expenditure on remunerative operating improvement works costing  more than Rs. 3 lakhs each ; and

(iv) Cost of construction of quarters for Class III Staff.

Under the Convention of 1954, the cost of unramunerativa new lines is charged to Capital. Further, under the same Convention, the entire cost of the unremunerative new lines which were under construction on 31st March, 19S5 was transferred from Development Fund to the Railway's Capital-at-charge.

Note.- In terms of the recommendation of the Railway Convention Committee 1973, the cost of staff quarters is now charged to Capital.

The fund shall be credited with such appropriations out of the surplus as may be fixed by the Railway Board and voted by the Parliament through the " Demands for Grants ". The amount- in the fund together with interest thereon which is also credited to the fund, remain in deposit with the Central Government.

785. Railway Pension Fund.-'This fund was created with effect from 1st April, 1964 to even out the charges and to provide not only for the current payments to staff but also to provide from Revenue/Capital, each year the accumulated liability for the pension benefits earned by each year of service in the same way as provision is made for Depreciation Reserve Fund. This corresponds to what is being done by the railways for the non-pensionable staff in regard to Government contribution (Bonus) made from Railway Revenues to the Provident Fund each year as and when the bonus accrues. The Pensionary charges which were hitherto met from currant Revenues will be mat directly from the fund from 1st April, 1964 and the Government contribution together with interest thereon in respect of each of those non-pensionable employees who elect the Pension Schema on the Railways will revert to the Pension Fund instead of to Railway Revenues.

786. Accident Compensations Safety and Passenger Amenities Fund.-Under the Indian Railway (Second Amendment) Act, 1973, the upper limit for payment of Compensation to Passenger involves in Railway accident was raised from Rs. 20,000 to Rs. 50,000 in cases of death or total disablement. The Act also introduced a system of uniform payment of compensation to all persons irrespective of the individual's income. The Accident Compensation, Safety and Passenger Amenities Fund was instituted with effect from 1st April, 1974, to cover the liability on account of Compensation payment so that the enhanced Compensation which become payable did not increase the working expenses of the Railways. The Fund is operated in three parts :-

(i) Part A-Deals with payments towards accident compensation.

(ii) Part B-Expenditure on specified items of safety works i.e., Track Circuiting or Axle Counters, Automatic warnings System, Vigilance Control Devices, Lifting Barriers at level crossings, Interlocking of level crossing gates with signals and such other safety works as may be added from time-to-time.

(iii) Part C-Expenditure on Specified items of passenger amenity works, i.e., provision of goods platforms and covers over goods platforms, foot-over bridges/sub-ways across Railway Yards, train indicator boards on important stations of suburban and non-suburban sections, rest shelters for licensed porters and such other passenger amenity works as may be included within the scope of the fund from time-to-time.

The Fund is financed from receipts from surcharge levied on passenger traffic with effect from 1st 1974 to cover the additional liability of the Railways.