Reliance on borrowings puts rlys at risk

The organisation now aims to raise Rs 218,775 crore through extra-budgetary sources to fund the 12th Plan expenditure of Rs 735,422 crore

The growing share of extra budgetary sources in the financial plan outlays of Indian Railways could become a cause of concern for the national transporter. Despite the prevailing financial crunch, the railways was able to maintain lease payments at a fairly constant range of six-seven per cent of its gross traffic receipts and nine-10 per cent of the ordinary working expenses.

The railways’ dependence on extra budgetary sources (EBS) for financing the Plan expenditure has increased, with its share rising from 18.5 per cent at the beginning of the Plan in 2007-08 to 25.2 per cent in 2011-12. It is now targeting to raise Rs 218,775 crore through EBS to fund the 12th Plan expenditure of Rs 735,422 crore. "It is too ambitious a target," a railway official said.

The railways could raise only 60 per cent of the budgeted Plan funding from EBS in the 11th Plan. A total of 95 per cent of the EBS was raised by Indian Railway Finance Corporation (IRFC), while the remaining five per cent was accounted for by wagon investment schemes and public-private partnerships. The net impact, therefore, was the railways overshot its budgeted target of IRFC borrowings by around 14 per cent.

The committed expenditure of the railways is expected to be 82 per cent of the ordinary working expenses, the major expenditure heads being staff costs (46.57 per cent), fuel costs (25 per cent) and lease payments (11 per cent).

In 2012-13, IRFC is funding 80 per cent of the Rs 18,493 crore budgeted for rolling stock. About 65 per cent of the rolling stock of the railways, worth Rs 70,000 crore, has been financed by IRFC.

IRFC had forayed into project financing in 2011-12. A business model of project financing is under finalisation. A former IRFC managing director said, "In the long run, if project financing continues, there would be an impact on the cost of borrowing and on IRFC’s balance sheet." For the first time, IRFC had been assigned the additional task of project financing works worth Rs 8,654 crore, though it has invested only Rs 2,100 crore so far.

IRFC is a dedicated market borrowing arm of the Ministry of Railways, and has been responsible for providing EBS for funding the acquisition of rolling stock by railways. The lease is for 30 years, and the entire principal, together with interest, is recovered in the first 15 years, followed by 15 years of a secondary lease period. The assets are then sold to the ministry at a nominal price.