IRFC to remain post rail budget merger

Indian Railway Finance Corporation is a dedicated financing arm that helps raise money from the market to partly finance the plan outlay of Indian Railways

When the Union government decides to merge the Railway Budget with the General Budget, it will have to take a call on borrowings by Indian Railway Finance Corporation Ltd (IRFC). Officials said issues related to letters of payment assurance that Indian Railways at present offers to IRFC are yet to be resolved.

IRFC is a dedicated financing arm of the ministry of railways. It helps raise money from the market to part finance the plan outlay of Indian Railways and is used for acquisition of rolling stock assets and for meeting other developmental needs of the Indian Railways. Rolling Stock assets funded by IRFC are leased to the ministry of railways, which pays lease rentals to the company every half year.  In turn, the railways offers letters of assurance to the financing body on meeting lease rentals payments due to them and also to account for these rentals in the railway Budget. A senior railways  officer added these letters at present, serve as an undertaking for IRFC’s external commercial borrowings.  

According to IRFC’s website, the railway ministry has so far made repayments in respect of assets valued at Rs 21,065.68 crore and around 50 per cent of the revenue-earning rolling stock assets operating on the Indian Rail network are funded by IRFC.

“An arrangement exists for IRFC’s debt payments being committed by the Ministry of Railways in case of difficulties experienced by the company. Not only does the annual borrowing target of IRFC carry approval of the Parliament of India but also Ministry of Railways debt servicing obligation is committed by the Parliament each year,” according to a presentation put up on the IRFC website. Whether this can continue, is an issue that remains to be resolved.

Whether the Railway ministry can continue to offer such assurances or other options like the finance ministry extending similar letters is yet to be decided.

A Niti Aayog proposal to disband the age-old practice of separate budget by merging it with the general budget is being discussed in the government. Being a commercial organisation railway funds it's own expenses. The government funds it partially for projects through budgetary support.

Railway market borrowings are only through IRFC. Besides, it last year reached an understanding with LIC for Rs 1.5 lakh crore debt over five years. 

The railways are also planning to float a fund along with the World Bank for projects.