“Nothing is as Invisible as Obvious” -Richard Farson
The obvious thing about Indian railways is that it operates trains across the length and breadth of the country and for that it collects money from its customers and spends money on its operations. So, general perception is that there is nothing great about accounting system of railways as it has to be there like it is there for any other organization. However, the journey of a penny in railway financial system is as interesting as it could be . It changes multiple hands before it reaches consolidated fund of India and then starts again towards the infrastructure maintenance and passenger amenities. Since railway is expanding and leverage is important, so some money also comes in the form of debt apart from certain limited support from ministry of finance.
Railways earns around 1.8 lac crore rupees every year through various sources and spends a total of around 2.8 lac crore rupees every year on its maintenance and expansion needs. As a measure of comparison, the budget of Madhya Pradesh , a sizeable state is only 1.8 lac crore which is much lesser than railways. What makes Railway accounts more interesting is that apart from certain powers of taxation which states have to fund revenue, all other activities to generate revenues are also taken up by railways. From selling water to construction of bridges, from hospitals to running schools, the nature and scope of railway activities are as varied as one can imagine. Integrating all these items is the accounting backbone of railways which connects every dot so as to give a wholesome picture to the management.
Warren Buffet has rightly said accounting is the language of business. Ultimately, the strength of an organization lies in creating useful information which can be used to improve the financial and operating performance of the organization. This is exactly where railway accounts stands apart from others. Its ability to determine the nature of expenditure is so robust and accurate that management can get any information at any level of granularity it wants to. For example, if some one wants to know how much money has been spent on a remote station’s cleanliness, it can be quickly determined from the backend without getting in touch with the person stationed at that station. Similarly, which revenue is coming from which commodity and from which station can be traced in no time. The use of strong numeric allocations with precise connotations have really empowered to locate the expenditure very easily and comfortably. This is more fascinating because 11 different departments work within railways with each working with a common goal of providing safe and efficient transportation. Yet, rarely there is any confusion over who is doing which activity and even if there is any confusion, it gets clarified seeing their allocation.
Another fascinating point about railways is the embedding of business logic into classification. This has been done through activity wise classification of expenditure. Railways, even after being accused of departmentalism, is more aligned to activity wise budgeting with different activities owned by different departments. So, it is the activity which decides its department and not the department which determines the activity. This is very near to today’s buzzword of outcome budgeting which focuses on activity wise expenditure and not on the department wise expenditure given earlier. Even the most intelligent accounting systems like Tally do not provide inbuilt feature of doing such a detailed accounting. Of course, one may argue that Tally is only an accounting and not budgeting system but still any budgeting system is as good as how it is able to account for its targeted expenditure. Accounting in isolation does not add any value to the organization.
The automation of railway accounts has created one of the finest accounting systems which is now evolving into full fledged management information system. In fact, if any government organization has the potential to quickly move towards advanced accounting concepts of performance costing, unit costing or cost-center expenditure control, it is the railways because of the strong footing it has in its foundation. The indulgence of accounts in railway working is so intricate that every penny can be traced. However, to leverage full potential of such an accounting system, it is important to introduce high-end technological reconciliation systems and integrated front-end dashboard to display critical financial parameters. Thus, for people who follow finance , accounts and technology, railway accounts will always remain a classic accounting system gradually evolving into an intelligent and smart information system. It is a tool which any management would vie for.
Very nice article. The credit goes to revised accounting clarification of 1979 year. Still there is a scope for improvement to implement the outcome budget in fullest and to align with Accrual accounting system, if top management decides. Thanks sir
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Very well written. Keep it up!!!
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