New Delhi: The future growth of Indian Railways is to be increasingly subjected to the discipline of the capital market, including those overseas, even as Friday’s railway budget promised a dividend of Rs4,104.50 crore this fiscal, partly by cutting back money on maintaining tracks and rolling stock.
The budget kept passenger fares constant for the eighth year in a row and did not touch freight rates either, making it look towards the debt market to raise money for infrastructure.
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“Railways is in robust health,” Vivek Sahai, chairman of the Railway Board, said at press conference after railway minister Mamata Banerjee read the budget speech in Parliament.
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The dividend proposed in the current fiscal is 26% lower than the Rs6,608.46 crore proposed in Banerjee’s 2010 budget.
The budget documents showed the railways had lowered the money transferred to its depreciation reserve fund by Rs1,900 crore for 2011-12 as compared with Banerjee’s projection last year. The fund is used to maintain and replace its assets.
Policy realignment: Mamata Banerjee at Rail Bhavan before presenting the budget on Friday. Pradeep Gaur/Mint
Other than a lower transfer to the depreciation fund, Sahai said revamping the product mix during the fiscal to capitalize on the increasing magnitude of coal imports into India protected its receipts.
Typically, two-thirds of receipts come from freight, primarily coal.
Despite Sahai’s optimism that the railways would be able to fulfil all of Banerjee’s promises by the end of the current fiscal, the numbers on its long-term asset creation posed questions.
This year’s capital spending is to be financed partly through some of the railways’ reserve funds, which have seen a significant fall in net accretions in the recent past.
In 2009-10, the last year for which final numbers are available, the aggregate closing balance of all funds fell by more than two-thirds in a single year to Rs5,032.06 crore.
“While the announcements made by Mamata Banerjee in this budget are more than welcomed by all, there is ample scope to speculate on the outcome of her ambitious plans,” said Vishwas Udgirkar, senior director (transport) at Deloitte India. “More importantly, because the budget is silent on the real progress of large projects announced earlier, such as the dedicated freight corridor, and has not put in place any concrete proposal to finance and implement these projects.”
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Questions are likely to come from the capital market as market borrowings will have to finance around 35-40% of Plan outlay, as compared with the 22% forecast for the current fiscal.
In the budget estimates for 2011-12, the Plan outlay of Rs57,630 crore is to be met from Rs20,454 crore of market borrowings, including Rs10,000 crore of tax-free bonds.
For probably the first time, market borrowings are projected to finance a larger part of the Plan outlay than budgetary support from the Union government.
The gross budgetary support for 2011-12 was pegged at Rs20,000 crore.
According to Sahai, the railways can no longer fund its infrastructure creation through internal accruals.
The alternative is go to the capital market, although the finance ministry has attached conditions for sweeteners such as the tax-free status of bonds.
“We will use this money for bankable projects,” Sahai said of the proposed end-use of the borrowing proceeds.
According to the railways’ financial commissioner Samar Jha, the “borrowing will pay for itself”. In March, the railways is scheduled to hold roadshows with overseas investors for an external commercial borrowing.
The market borrowings will be routed through the Indian Railway Finance Corp. Ltd and will carry an “unwritten” sovereign guarantee, Jha said.
Among the other highlights of Banerjee’s speech were the introduction of 68 long-distance trains. She also announced a number of projects to be located across the country.
A bridge factory was proposed to be set up in Jammu and Kashmir, a Metro coach factory in Singur, West Bengal, a diesel locomotive centre in Manipur and a centre of excellence for software in Darjeeling, West Bengal.
The total receipts of the railways in 2011-12 are projected at Rs1.09 trillion, the first time it is expected to cross the trillion mark. The dividend proposed is Rs6,734.72 crore and the operating ratio (ratio of working expenses to gross earnings) is projected to improve marginally to 91.1%.
The budget documents showed the railways expects to increase the contribution to the depreciation reserve fund by 23% as compared with this fiscal’s revised estimates to Rs7,000 crore.
Graphics by Yogesh Kumar/Mint