New Delhi, Sept. 21: The Narendra Modi government today broke with a 92-year-old tradition and decided to merge the railway budget with the general budget that is likely to be advanced by a month so that parliamentary approval is in place before the start of the financial year on April 1.

"We have decided to merge the budgets," finance minister Arun Jaitley told reporters after a cabinet meeting.

The general budget is usually presented on the last working day of February and the railway budget a couple of days before that.

In June last year, a committee led by Bibek Debroy had suggested that there was no need to have a separate budget for the railways whose expenditure limits were dwarfed by other ministries like defence.

The railway budget amounts to merely 6 per cent of India's overall budget of Rs 19.78 lakh crore. In a note titled "Dispensing with the Rail Budget", the Debroy committee said it should be turned into an annexure of the general budget.

Back in 1921, the Acworth committee had suggested that there ought to be a separate budget for the railways to preserve its commercial character. Then, the dividends the railways paid amounted to one-seventh of the government's revenues. The first railway budget was presented in 1924.

The Debroy report said the original rationale no longer existed as the net dividend payout by the railways to the government had since shrunk to Rs 4,100 crore.

Although the Modi government is touting the merger of the budgets as a radical reform, it falls woefully short of what several policy mavens have been suggesting: the need to bring railways, shipping and surface transport under one umbrella ministry.

The move to advance the date for the presentation of the general budget has two broad objectives: it will enable the government to funnel funds to states and central schemes as soon as the year begins instead of pushing back the expenditure process beyond the monsoon.

It will also enable the government to levy all new taxes from the start of the financial year.

"We should move away from the current practice when (certain indirect tax) proposals come into effect from June 1," Jaitley said.

The other big change is that the government will no longer classify expenditure as plan and non-plan - a distinction that has no meaning after the Modi government decided to scrap the Planning Commission two years ago.

This suggestion had been first made by C. Rangarajan, economic advisor to former Prime Minister Manmohan Singh, in July 2011 but never adopted. From now on, all spending entries will be classified as revenue or capital expenditure.

Railway minister Suresh Prabhu said the merger would not impact the railways' functional or financial independence, contending that it would "facilitate an integrated and seamless approach towards transportation strategy in the country".

One possible advantage flowing from the decision to scrap a separate railway budget is that the government will be able to fob off political pressure to dole out subsidies on passenger fares and fork out funds for railway projects in specific states.

The railways will continue to decide on passenger fares until an independent regulatory authority is established. The government suffers a loss of Rs 33,000 crore in running passenger trains.

"It should give flexibility to the railways ministry to frame its own pricing policy without waiting for parliament approval," said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy.

After the merger of the budgets, the railways will stop paying a gross dividend of about Rs 10,000 crore to the government. Though it will be expected to pay its way as any commercial organisation, the cost of its expansion to satisfy political or defence imperatives such as extending railway lines to Kathmandu, Sikkim, or through Manipur into Myanmar, will have to be paid by the Union government.

"We expect the capital budget of the railways to be ramped up by the Union government whenever they ask to fulfil a political, strategic or diplomatic need... till now these were directives and, if we fell short of funds, we had to go with a begging bowl to North Block even though the projects had been cleared being on grounds other than commercial viability," said a railway board member.

Economic affairs secretary Shaktikanta Das said the Central Statistical Organisation (CSO) would provide provisional advance estimates of national income, or gross domestic product (GDP), by January 7 so that the data could be used to prepare the general budget.

The provisional advance estimates, he hoped, would be in line with the one normally released by February 7.

The exact date for the presentation of the general budget will depend on the time table for elections to state Assemblies of Uttar Pradesh, Goa and Punjab.

Under a time-hallowed format, the legislature passes a vote on account to enable the government to continue functioning till the budget is debated and eventually passed by the middle of May.

"This effectively meant that expenditure on big-ticket infrastructure projects such as ports, highways, defence installations could start only in June. With the monsoon bringing a halt to works during June-September, the actual window for implementing a budgeted project was the period between October and March.... The change in budget time schedule means there will be more time to work," said R.K. Roy Choudhury, a former finance ministry official.

Agreed D.K Srivastava, chief policy advisor at EY India: "The advancement of the budget will enable the government to release capital expenditure before monsoons and help improve the quality of revised budget estimates. At present, infrastructure spending is usually delayed."