Railways finances warped, GST cess in consolidated fund, school toilets without handwash facility: CAG report

Indian Railways have window dressed the accounts:

In a report tabled in Parliament on Wednesday 23rd September, the Comptroller and Auditor General of India (CAG) has flagged the findings that the Indian Railways resorted to “window dressing” to show a surplus, instead of the loss incurred in the financial year 2018-19. The Indian Railways have accounted an advance freight amount of Rs 8,351 crore received from two PSUs (NTPC and CONCOR) as revenue. Any advance amount received from customers should be accounted as a liability in the balance sheet, instead of accounting it as revenue or income in the profit and loss account. The CAG also observed that the Indian Railways have under-provided for depreciation and pension liabilities.

In its report on railway finances, the CAG found, “If advance freight of Rs 8,351 crore from NTPC and CONCOR was not included in the earnings of 2018-19, the operating ratio would have been 101.77% instead of 97.29%. The net surplus in 2018-19 was Rs 3,773.86 crore. Indian Railways would have ended with a negative balance of Rs 7,334.85 crore but for receipt of advance freight and less appropriation to depreciation reserve fund and pension fund. The Ministry of Railways resorted to window dressing for presenting the working expenses and operating ratio in a better light.”

Operating ratio refers to the operating expenses as a percent of revenue. A higher ratio indicates poorer ability to generate surplus. The CAG report brings out the fact that the Indian Railways have actually incurred a loss of Rs 7,334.85 crore in the Financial Year 2018-19, in the pre-pandemic period itself.

GST Cess collected was partly retained in Consolidated Find of India, instead of paying the entire cess collected as compensation to the States/ UTs:

From the CAG report on cess collected, it appears that the Central Government has also resorted to window dressing of its finances, in order to show a lesser fiscal deficit.

As per the provisions of the GST Compensation Cess Act 2017, the entire cess collected during a year is required to be credited to a non-lapsable fund (GST compensation cess fund) account, and is meant to be used specifically to compensate states for loss of revenue. “Audit examination of information in Statements 8, 9 and 13 with regard to collection of the cess and its transfer to the GST Compensation Cess Fund, shows that there was short crediting to the Fund of the GST Compensation Cess collections totalling to Rs 47,272 crore during 2017-18 and 2018-19,” the CAG report has noted.

However, the Government of India, instead of transferring the entire GST cess amount to the GST compensation fund, retained it partly in the Consolidated Fund of India (CFI), and used it for other purposes. “Short crediting of cess collected during the year led to overstatement of revenue receipts and understatement of fiscal deficit for the year,” the report further said.

Apart from the GST compensation cess, the CAG report has also mentioned instances of non-transfer of entire amounts of other cesses to their respective Reserve Funds, including the Road and Infrastructure Cess, Cess on Crude Oil, Universal Service Levy, and National Mineral Trust Levy.

No technology transfer by Dassault Aviation:

MBDA is the consortium partner of Dassault Aviation, for making missiles to be carried by the Rafale fighter jets.

The CAG report, tabled in Parliament on Wednesday 23rd September, said that the French aerospace major Dassault Aviation and European missile maker MBDA have “till date” not confirmed transfer of technology to the Defence Research and Development Organisation (DRDO).

“The DRDO wanted technical assistance for the indigenous development of its engine (Kaveri) for the light combat aircraft. Till date, the vendor has not confirmed the transfer of this technology,” CAG report said, adding that the Defence Ministry's policy of offsets has “not yielded the desired result.”

India had signed an inter-governmental agreement with France in September 2016 to procure 36 Rafale jets at a cost of Rs 59,000 crore, and offset obligations were part of the contract.

Under India's offset policy, foreign defence entities are mandated to spend at least 30 per cent of the total contract value in India through procurement of components or setting up of research and development facilities. The offset norms are applicable to all capital purchases above Rs 300 crore made through imports. The offset obligations can be made through Foreign Direct Investment, free transfer of technology to Indian firms and purchase of products manufactured by Indian firms.

“In the offset contract relating to 36 Medium Multi Role Combat Aircraft (MMRCA), the vendors M/s Dassault Aviation and M/s MBDA initially proposed to discharge 30 per cent of their offset obligation by offering high technology to DRDO,” the CAG report said.

“Non fulfillment of offset obligations by the vendor especially when the contract period of the main procurement is over, is a direct benefit to the vendor,” it added.

School toilets without handwashing facilities in 15 states:

The CAG report mentions that the HRD ministry (now named the Education ministry) had under the Swachh Vidyalaya Abhiyan (SVA) sought help of CPSEs for construction of toilets in government schools. As many as 53 CPSEs participated and constructed 1,40,997 toilets.

As per a survey of over 2,000 schools conducted by the Comptroller and Auditor General (CAG), the federal auditor has found that over half of the government school toilets built by central public sector enterprises (CPSEs) do not have even the basic hand-washing facility. Lack of running water, poor maintenance and unavailability of separate toilets for girls too continue to affect school students, according to the CAG report tabled in Parliament on Wednesday.

( V Venkateswara Rao is a retired corporate professional and a freelance writer)