Railway finances on a shaky track
A sharp cut in budgetary support for a third year raises serious doubts about the national transporter’s ability to meet its modernisation and expansion plans
“Indian Railways can run even without budgetary support,” Railway minister Piyush Goyal said. Predictably, the statement raised many eyebrows. Evidently, Finance Minister Arun Jaitley agreed with him. Soon after, the Union Budget slashed its gross budgetary support (GBS) for the current financial year (201718) by ~150 billion and allocated just ~531 billion for 2018-19 against a Budget Estimate of ~550 billion in the last Budget. This is the third year in a row that the government has lowered the GBS for the railways.
The bottom line: the railways will have to depend on its own resources — earnings and borrowings — to finance its massive ~8.56 trillion capital expenditure plans (to be spent between 2015 and 2019). The Budget is expected to fall short by at least ~2 trillion. In fact, if the finance ministry is to make good on its overall GBS target of ~2.6 trillion for 2015-19, it will have to allocate ~800 billion in next year’s Budget. “Out of the target, only ~1.75 trillion came from GBS in the last four years. The massive cut has also led to a shortfall in physical target for the fiscal 2017-18,” said R Elangovan, vice-president of the Dakshin Railway Employees Union, affiliated to the Centre of Indian Trade Unions.
The casualty of this sharp cutback, he added, has been critical projects such as track renewal, doubling (or laying two-way tracks) and gauge conversion, targets for which were cut by about 45 per cent from 3,500 km to around 1,920 km. In doubling alone, the railways is likely to fall short of its target of 1,800 km by 47.5 per cent; for new line construction, the shortfall will be nearly 50 per cent (from 800 km to 402 km); and for gauge conversion 36 per cent (from 900 km to 574 km).
So how does the national transporter plan to make up the fund shortfall to meet its targets? Borrowing is the most obvious strategy, and this mode will account for 37 per cent, or ~549 billion, of the ~1.48 trillion capex for 2018-19. “We are planning to raise, through Indian Railway Finance Corporation (IRFC), ~285 billion, and ~264 billion from Life Insurance Corporation. Another ~270 billion is expected from public private partnership projects,” said a senior Railway Board official on condition of anonymity. But raising even this amount may be challenging. The 2015-19 capex plans accounted for borrowings of ~2.5 trillion, of which IRFC alone was supposed to raise at least ~1 trillion for leading rolling stock (wagons and pallets). So far, however, it has managed to raise only ~688 billion. And it is unlikely to be in a position to make up the shortfall in the last year of the capex plan. As a former railway official explains, “For the financial year 2017-18, the target for raising extra-budgetary resources through IRFC bonds were increased from ~216.8 billion to ~247.8 billion. It is highly unlikely that IRFC will mobilise it considering that interest rates have gone up.”
On the other hand, the railways is of the view that though the GBS has been reduced, capex will remain largely unaffected. Goyal himself had said that there will be no shortage of funds for safety-related projects and availability of funds will not be a constraint for the railways, though he did not explain how.
Another major component of the government’s five-year road map for railways was an investment to the tune of ~1.3 trillion through public private partnership, which included around ~1 trillion through station redevelopment. Even though 400 stations were earmarked for redevelopment by Suresh Prabhu in his Budget and 600 by Arun Jaitley in his recent Budget, work on only Habibgunj (~2-5 billion) and Gandhinagar (around ~40 billion) has taken off so far.
“Joint ventures with states and public sector undertakings were to have contributed ~1.2 trillion to the plan. That has also not taken off as expected with most states in bad financial situations. Similarly, there is no substantial improvement in internal generation too,” said an industry source. Now, it appears the railways is banking on improving internal generation — it expects to carry 1,216 million tonne of goods during 2018-19, a 51 million tonne increase over the revised loading target of 1,165 million tonne. “Internal generation is the ideal situation. But with a high burden of expenses and pension, it will be a huge burden considering the massive modernisation that the government has taken up,” said R Sivadasan, former financial commissioner of Indian Railways .
In Rail Bhavan, however, officials choose to focus on the scale of allocations as a sign of big thinking rather than the transporter’s ability to meet its performance target. “From 2009-14, the average capital expenditure amount was ~45.8 billion only and that has zoomed to ~1.46 trillion now. That initiative itself is the biggest achievement of this government as far as the railways is concerned,” said a ministry official. Moreover, he added, an investment road map of ~35.3 trillion till 2032 was also conceptualised by the ministry recently. But as Sivadasan points out, “With passenger and freight revenue almost static, a life without GBS is highly unlikely to achieve the dream of 2032.”
The railways will have to depend on its own resources — earnings and borrowings — to finance its massive ~8.56 trillion capital expenditure plans