National Conference on Accounting Reforms in Indian Railways

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The National Conference on “Accounting Reforms in Indian Railways – A Strategic Mission for Sustainable Growth” was held today i.e. 20th December 2016 at Vigyan Bhawan, New Delhi. The Conference was organized by Ministry of Railways in partnership with Confederation of Indian Industry (CII). Union Minister of Finance & Corporate Affairs Shri Arun Jaitley was the Chief Guest at the conference. Minister of Railways Shri Suresh Prabhakar Prabhu was the Guest of Honour and delivered the keynote address at the conference.

Financial Commissioner Railways, Shri Shahzad Shah, other Railway Board Members, Adviser (Accounting Reforms) & Mission Director (“Mission Beyond Bookkeeping”) Shri Naresh Salecha and other senior Government Officials were present in the conference. The conference was also attended by a wide range of stakeholders of Indian Railways including the members of Railway Board, representatives from the office of the Comptroller and Auditor General of India, Government Accounting Standards Advisory Board, Controller General of Accounts, Confederation of Indian Industry (CII), Institute of Chartered Accountants of India (ICAI), leaders from industry, financial institutions and profession. The Conference aimed at giving voice to the expectations and perspectives of various stakeholders viz. lenders, investors, financial institutions and profession on the Accounting Reforms project of Indian Railways.

Speaking on the occasion, Minister of Railways Shri Suresh Prabhakar Prabhu said that Accounting system is like a health card of an organization which reflects its financial health. Thats was the reason of announcing the mission “Beyond Bookkeeping” as one of the mission of the Railways in the 1st Rail Budget of this Government. Accounting Reforms is a massive project and is not just confined to accounting conversion from cash to accrual accounting but it is an integrated project on management accounting, cost accounting and management information systems. The system should aim at linking the outlays to outputs and outcomes and should lead to ‘accounting for accountability’. Right Accounting would lead to right costing, right pricing and thus right outcomes. Indian Railways should adopt a cost centre and profit centre approach to ensure correct allocation and utilization of resources.

He also said that Outcome Budgeting doesn’t make sense if the outcome is not included in the Budget ab initio.

In his message to the souvenir “Enhancing Transparency and Accountability in Indian Railways – Mission Beyond Bookkeeping” published on the occasion of the conference, Shri Prabhu expressed that most of the Government Departments follow cash based accounting system. Shift from Cash based accounting to accrual based accounting system will shift the focus from short term goals to long term goals of the organization. He also said that a lot of countries like US, New Zealand, Australia, France, Russia, etc. have already transitioned to Accrual based accounting system. With this improved accounting system it would be possible to track outcome with the outlays. He also said that this souvenir showcases the global experiences of accounting developments in the Government sector, vision of ‘Accounting Reforms’ of Indian Railways and the strategy of Indian Railways to achieve the same.

Speaking on the occasion, Minister of Finance & Corporate Affairs, Shri Arun Jaitley said that Railways though operated by the Government is living in a competitive environment. It is facing heavy competition from other modes of transports especially roadways and airlines. He emphasized to take steps to face these challenges and make system commercially sustainable. He also said that focus on core competencies by Railways is quite desirable and Railways may consider outsourcing the non core activities. He also said that Accounting system should be revealing and not concealing. He mentioned that world over the financial model followed by the transport sector is based on customers paying for the services they receive. With this Government taking over, we have shifted Railways towards performance and resisted the temptation to search for populism. Shri Jaitley also said that, there is not much difference between the functions of Railway Station and Airports. In the past decade our Airports have become world class. Similarly with Railway Station redevelopment our Railway Stations will also be developed into a world class Railway Station.

In his message to the souvenir published on the occasion of the conference, Shri Jaitley stated that Accounting reforms in Indian Railways would ignite the need for improved financial reporting, performance driven costing and budgeting based on outcomes to ensure efficient utilization of public funds. Accounting Reforms in Indian Railways will enhance the quality of decision making and public accountability. Accounting Reforms can be a useful tool for better financial management in Government.

Minister of State (Independent Charge) for Communications and Minister of State for Railways Shri Manoj Sinha in his message to the souvenir published on the occasion said that Indian Railways would be one of the first few organizations in the Government that would be adopting accrual accounting.

Minister of State for Railways Shri Rajen Gohain in his message to the souvenir published on the occasion of the conference stated that it is essential for an organization to focus on the outcomes rather than the outlays. In this regard, Accounting Reforms is a notable initiative that would be useful in tracking outcomes to outlays.

Comptroller & Auditor General of India, Shri Shashi Kant Sharma  in his message to the souvenir published on the occasion of the conference, congratulated the Railways for deliberating and conceptualising the framework for adoption of Accrual Accounting, Performance Costing and Outcome Budgeting in the organization. He also expressed that these deliberations would help in highlighting the best practices and determine future direction.

Speaking on the occasion, Vice President, Confederation of Indian Industry Shri Rakesh Bharti Mittal said that this Government has taken many innovative initiatives which will help to transform Indian Railways. He also said that merging Rail Budget with the main budget is a historic step. He expressed that some of the accounting process in Indian Railways has been changed already. How soon & smoothly the Accounting Reform can be put in place in Indian Railways will determine the transformation of Railways.

Speaking on the occasion, President, Institute of Chartered Accountants of India Shri CA M Devaraja Reddy said that his institute is helping to make the citizens know of the amendments of the IT Act and help them pay tax and help the Government in earning more revenue. Similarly his institute will help Railways in transitioning to the new accounting system.

Chairman Railway Board Shri AK Mital in his message to the souvenir published on the occasion of the conference, said that as we attract more and more private investment, it is necessary that our accounting statements and the standards are based on the commonly accepted accounting principles and standards. It will also provide an important aid to managerial decision making.

Speaking on the occasion, Financial Commissioner, Railway Board Shri Shahzad Shah acknowledged that implementation of Accounting Reforms in Indian Railways is a herculean task considering the size of the organization. However he stated that Indian Railways is focused on the goal and would not be deterred by individual milestones. He also said that there is a need for systematic approach in developing an integrated IT- enabled accounting architecture with a clear focus on measurement of outputs and outcomes of operational activities while formulating the budget. He also said that Accrual accounting would result in improving the integrity and reliability of financial information of Railways. Performance costing would help in removing activities which are not adding to any value.

The Conference began with an Inaugural session and followed by three Technical Sessions. The Inaugural Session was addressed by Shri Shahzad Shah (Financial Commissioner, Railways) and President, Confederation of Indian Industry Shri Rakesh Bharti Mittal with the welcome remarks by Additional Member (Finance) Shri BN Mohapatra and keynote address by Shri Suresh Prabhakar Prabhu. In the Seminar a brief overview of Accounting Reforms in India focusing on the Vision of Accounting Reforms of Indian Railways was given by Adviser (Accounting Reforms) & Mission Director (“Mission Beyond Bookkeeping”) Shri Naresh Salecha. The Inaugural session concluded with Director (Accounting Reforms), Railway Board Smt Abhilasha Jha Mishra delivering the Vote of Thanks.

The Conference also witnessed the release of three publications, by Shri Arun Jaitley and Shri Suresh Prabhakar Prabhu, on ‘Accrual based Financial Statements of North Western Railway’, ‘Significant Accounting Policies’ and ‘Accrual Accounting Implementation Manual’. These publications are the outcomes of the pilot study undertaken by Indian Railways at North Western Railway.

The conference has been divided into three technical sessions viz.,

Technical session 1 on ‘Accounting Reforms in Railways- Investor’s perspective’ gave stakeholders’ perspective especially lenders and the industry at large while focusing on the strategy for sustainable growth. The session was led by leading veterans from industry and profession including Dr. Rajiv Lall (Founder Managing Director & CEO, IDFC Bank), Smt. Varsha Purandhare (MD, SBICAPS), Shri Bharat Salhotra (Managing Director, Alstom India Pvt. Ltd.) and Shri Pankaj Chadha (Partner, Indian Member Firm of EY Global).

Technical Session 2 on ‘Accounting Reforms in Government- Practitioners’ needs and expectations’ included topics on governance through accounting, recent development initiatives in government accounting, etc. and was taken up by eminent speakers from different Regulators including Shri Amarjit Chopra (Chairman, National Advisory Committee on Accounting Standards), Shri M Devraja Reddy (President, Institute of Chartered Accountants of India), Shri Manas Kumar Thakur (President, Institute of Cost Accountants of India) and Shri M J Joseph (Controller General of Accounts).

Technical Session 3 on ‘Accounting Reforms in Indian Railways- Opportunities and Challenges’ largely focussed on accrual accounting, performance costing and outcome budgeting including discussion on the opportunities and challenges of Accounting Reforms and was taken up by Shri Vikamsey Nilesh Shivji, Shri Satyendra Kaushik (Chief Project Manager (AR), Northern Railways), Shri B Goyal (Advisor, Institute of Cost Accountants of India) and Shri A. Venkateshwar (Consultant (AR), Railway Board).

The conference saw deliberations on the benefits that would accrue to the Indian Railways on implementation of Accounting Reforms. Speakers from various fields agreed that Accrual Accounting would help in bringing about comprehensive and meaningful financial reporting on a timely basis and would thus aid informed decision making. Accrual Accounting coupled with variable marginal costing techniques would enable identification of money makers and money losers resulting into reduction in transportation costs which would benefit the industry and citizens. Segment wise business reporting would help in knowing the profitability of different lines of business/lines of service. Determination of true cost of services and online availability of costing data would enhance transparency and accountability.

Backgrounder:

Shri Suresh Prabhakar Prabhu, Hon’ble Union Minister of Railways, in his budget announcements for 2015-16 and 2016-17, highlighted the need for tracking of expenditure to desired outcome for optimal utilisation of public funds. For this purpose, he introduced one of the key strategies of Indian Railways on “Mission beyond bookkeeping” which is not just focused on the move to accrual accounting but also on implementing performance linked costing techniques and budgeting based on outcome. A remarkable step was taken to include ‘Accounting Reforms’ in the agenda of Indian Railways to improve the financial reporting by voluntarily opting for accrual based financial information (in addition to the financial information prepared using cash basis) and to ensure that it becomes self-sustainable in long-term. We, at Indian Railways, share the Vision of Shri Suresh Prabhakar Prabhu to transform Indian Railways into a world-class competitive mode of transportation.

Current Steps taken:

As part of Accounting Reforms project Indian Railways have:

●         prepared financial statements of NWR for 2014-15

●         completed the pilot implementation of accrual based financial statements in            NWR

●         finalised the publication on ‘NWR Financial Statement (Accrual Basis),      Implementation Manual & Accounting Policies’

Plan for future:

Actions have already been started for completion of pilot study at Rail Coach Factory, Kapurthala, preparation of consolidated balance sheet for 2015-16 and 2016-17, development of detailed design framework for performance costing and outcome budgeting, implementation of robust IT system. Soon we will be able to roll out accrual accounting across seventeen zonal railways and eight production units in addition to Central Organisation for Railway Electrification (CORE), Central Organisation for Modernisation of Workshops (COFMOW) and Railway Board. Consequently, in-long term, we have a plan to move to IGFRS which are in line with the global Standards (i.e., IPSAS).

Benefits to stakeholders

●       Accounting reforms focusing on right accounting, right costing and right    pricing would enable provision of improved services and availability of world-class transportation system to customers

●       Accrual accounting coupled with variable marginal costing technique under Accounting Reforms, Indian Railways would be able to identify money makers/ money losers resulting in reduction in transportation cost             which would benefit the industry and citizens

●       Accounting Reforms would support decision-making and strategic management for the leadership of Indian Railways

●       Segment wise business reporting would help in knowing profitability of different lines of business/ lines of services

●       Accounting Reforms would facilitate effective resource mobilisation considering availability of limited resources

●       Determination of true cost of services- online availability of costing data would     enhance transparency

●       Investors (including lenders) would be able to make better assessment of the financial health of the organisation- on account of availability of comprehensive, meaningful accrual based financial statements with adequate disclosures

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