Account Gimmicks, Hoaxes and Frauds of ‘Lalu-The Management Guru’

via Dr. S.Kalyanaraman published on March 11, 2008

Recent extraordinary spectacles of students from prestigious
management schools of USA lining up to listen to the self-proclaimed
‘management guru’, Lalu may be recalled. I learn from reliable sources
that the cost of these trips from USA were fully funded by the Indian
Railways.

 

The management school worthies were not able to see through the game Lalu played with Railway accounts.He did NOT achieve a miracle turn-around of the Railways from a
loss-making to a profit-making enterprise, within one year of his
assuming charge as Railway Minister.

 

What happened was simply this. An accounting gimmickto exclude
from the Railway the ‘contribution to the General Revenues (i.e.,
Consolidated Fund of India)’ mandated under the Railways Act of 1868,
after the Railways accounts were separated from the General budget (so
as not to cause ebbs and tides in the central exchequer with heavy
outflows needed for capital investments and depreciation provisions).

 

I want to make two points.

 

Point 1: Accounting Gimmick

 

Railway’s capital requirements are treated as loan taken from the
Central exchequer (also called General Revenues). So, the Indian
Railways are obligated to repay the loan and also to pay interest on
the borrowed funds. Unfortunately, this does not happen. Only
‘contribution to General Revenues’ is made every year at an arbitrary
rate fixed by a non-descript group of bureaucrats who write the
periodical reports called ‘Reports of Railway Convention Committee’.
Simply put, the Railway enterprise does not have the capacity to
generate enough funds to meet its capital investment needs or even make
provision for depreciation of its assets. It is simply a leech on the
Central Exchequer. By an accounting gimmick, these contributions were
excluded from the computation of ‘profit/loss’ in its Balance Sheet;
voila, suddenly, the Indian Railways was shown as a profit-making
public sector enterprise.

 

Point 2: ‘Rationalisation of Railway freight charges’

 

If at all, the turn around in increased Railway revenues occurred
— over 4 to 5 years – because of the initiatives of the earlier
Railway Minister, a professional, Shri Nitish Kumar who is now CM of
Bihar state. He introduced a ‘rationalised’ freight structure which
simply meant that the freight rates were increased drastically and many
PSU’s of the steel and coal and other bulk-goods freight generators
were asked to pay more for the freight carried on Indian Railways. 
This was simply a book transfer from one PSU (such as Coal India or
Steel Authority of India and its subsidiaries) to another Govt. Dept.,
in this case, the Indian Railways. This is the move which resulted in
increased ‘revenues’ for the Indian Railways during Lalu regime.

 

See the article by Smt. Vijayalakshmi V, former FC of the Indian Railways: http://www.thehindubusinessline.com/2007/05/24/stories/2007052400570900.htm

 

See VA Padmanabham, IRAS article at: http://www.irastimes.org/Towards_better_presentation_of_railway_accounts.htm

 

See Code for the Accounts department of Indian Railways at: http://www.indianrailways.gov.in/financecode/AccCode1/preface.htm

 

If capital expenditures are met from borrowings from the financial
market and if such borrowings are serviced through current interest
rate payments and principal repayments, Indian Railways will be seen as
a white elephant by any commercial standards of book-keeping and
financial accounting.

 

One can fool some for some time as has happened with the
management school worthies from USA wharton school etc. But it is time
to prick the bubble, to change the metaphor, call a spade a spade, call
Lalu a magician juggling with numbers (aha, money that he does not own
as a shareholder).

 

If the maintenance of Railway Accounts are outsourced to, say, the
Chartered Accountants Institute of India, the balance sheet will show a
dismal picture of an inefficient system with too many cooks spoiling
the broth. Sure, as a social enterprise, it does provide employment for
over 1.7 million workers (excluding contractors’ staff), but if such a
large number of people are needed is quite another story for enquiry by
real management gurus.

 

The latest gimmick is reservation 3 months’ in advance (against
the present practice of 1 month in advance). Railways will earn
interest on these deposits. This means simply interest-free revenues
from aam admi to satisfy Lalu’s ego.

Also Read Lalu fudges figures for Railways’ shine from Organiser