Title - Railways facing severe financial crunch: CAG

New Delhi: Railways is facing a severe financial crunch and their accumulated funds have eroded by 93 per cent, the Comptroller and Auditor General (CAG) has said in its latest report.

The CAG report for the year ending March 2011 tabled in Parliament on Tuesday observed that railways has not been able to meet their operational cost of passenger and other coaching services.

"There was heavy cross-subsidisation from freight services to passenger services. Percentage of freight earnings used to subsidize the losses on passenger and other coaching services ranged between 15.80 per cent and 34.32 per cent during 2007-08 to 2009-10," the report stated.

Though railways earned a surplus of Rs 1,404.89 cr during the financial year 2010-11, the accumulated fund balances were substantially depleted indicating a continued poor financial performances by railways and risk for future sustainability.

Capital fund and development fund showed negative balances of Rs 885.71 cr and Rs 1213.34 cr respectively. "This situation would ultimately affect long term sustainability of railway operations. Railways will be severely handicapped to finance any future developmental expenditure until these funds are recouped over and above the negative amount of Rs 2101 cr out of revenue surplus," the CAG noted.

Recommending the way forward, CAG has suggested railways to improve its finances and rationalise both freight and passenger tariffs and also the needs to explore alternate sources to finance its capital expenditure.

"It is essential that Railways increases its market share in bulk commodities where it has an inherent competitive advantage...Railways needs to review all cases of licencing and renting of its assets for timely raising of bills and rationalisation of dues including arrears," it said.

The report also found dependency of gross budgetary support has been increasing due to shrinkage of internal resources.

"It is important for the railways to review all capital works in progress and take expeditious decision with regard to closure of projects especially unremunerated lines, where there is road connectivity and where the progress with the projects is no longer as valid. There is a need to focus more on viable projects," the report said.