The recommendations of the Fifth Pay Commission will cost the railways an additional Rs 1,530 crore in pensionary dues alone, which has now touched Rs 3,830 crore. This is being met to the extent of Rs 1,313 crore from the Railway Fund balances. In the Railways, wages and pension account for almost 58 per cent of the total working expenses, and 47 percent of the total costs. The Pension fund it self account for 12 percent of total expenses and the wage bill for 35 percent.

The high outgo on pension has highlighted the problem of overmanning in the Railways. Currently an employer of 15 lakh persons, with a 2.5 per cent attrition each year, the railways is looking at options tobecome leaner. According to a World Bank report, IR can easily cut 4 lakh people from its staff.

The Indian Railway have managed to keep other costs under control. For instance, working expenses have been reduced by Rs 11 crore to Rs 28,400. However, considering the fact that the railways carried less freight, experts feel this figure should have been even lower. Ordinary working expenses are marginally higher.

Attempting to meet the shortfall in earnings, Rs 345 crore has been cut from non-plan expenditure. Despite the economic survey recommending that the railway's cut its market borrowings, these have been increased by Rs 180 crore taking total market borrowing, entirely channelised through the IRFC to the tune of Rs 3,080. Higher borrowings from the IRFC will only increase the lease rental payable by the Indian Railways, which have already crossed Rs 2,000 crore.

Dividend payments to the government (the 7 per cent return that is paid in perpetuity for the budgetary support - essentially capitalexpenditure) were marginally lower.Against expected payment of Rs 1,777.26 crore, the outgo was Rs 1,751.70 crore. Officials at the Ministry of railways admit that railway financing will have to be restructured in two areas - wage costs and debt financing burden, the two largest items on the cost side of the budget. They are also the most difficult to restructure.