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Business News/ Politics / Policy/  LIC signs agreement to commit Rs1.5 trillion for Indian Railways
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LIC signs agreement to commit Rs1.5 trillion for Indian Railways

Railway minister Suresh Prabhu secures some of the money he needs to invest in railway infra over next five years

A file photo of railway minister Suresh Prabhu. Photo: PTI (PTI)Premium
A file photo of railway minister Suresh Prabhu. Photo: PTI
(PTI)

New Delhi: Railway minister Suresh Prabhu has secured some of the money he needs to invest in railway infrastructure over the next five years by tapping the country’s insurance behemoth, the state-owned Life Insurance Corporation of India (LIC).

Indian Railways has signed an agreement with LIC for a commitment to invest 1.5 trillion in railways over the next five years.

“We signed an agreement with the Life Insurance Corporation which will give to railways $25 billion minimum in the next five years, at a very attractive rate of interest," said Prabhu.

Mint reported on 2 March that railways was in talks with LIC to sign such a deal.

In his Railway Budget presented last month, Prabhu proposed investments of 8.5 trillion over five years in capacity expansion and modernisation of railway infrastructure. Over five years ending 31 March 2019, railways has planned investments in a dedicated freight corridor, high-speed rail and elevated corridor (Mumbai), wagon production, station development and logistics parks.

In December, LIC said in an email that it planned to invest 3 trillion in the year ending 31 March, half of which will be in government bonds. It added that the infrastructure and real estate sectors would be its primary focus. LIC, India’s largest money manager, has total assets worth at least 20 trillion.

Tapping alternative sources of funding is critical to Indian Railways’ ability to replace ageing infrastructure and building capacities. Indian Railways’ low efficiency and resistance to raise passenger fares in the past have stressed its finances. Indian Railways is estimated to generate a surplus of 7,278.46 crore in the year to 31 March and expects to nearly double that to 14,265.71 crore the following year. A white paper released by the railway ministry on 26 February estimated that pending projects alone require 2 trillion to complete.

Prabhu told reporters that railways will float bonds with a 30-year tenure with interest rates linked to government security rates that the insurer can buy to make this investment.

Prabhu further said that such initiatives would help railways augment its resources for speedier execution of projects.

Speaking at an event organised by industry lobby Assocham, Prabhu added that the ministry was also in talks with multilateral agencies such as the World Bank, International Finance Corp. and the Asian Development Bank, too, for an understanding for investment in railways.

He added that the ministry is also speaking to “other sources" he didn’t “want to mention".

“Railways’ capacity needs to keep pace with industrial growth in the absence of which the industry’s growth will get stunted. Railways’ 24 high-density networks and feeder routes are already saturated. Hence, railways needs investment and this is the step in the right direction. LIC funds will provide the much-needed long-term investment without any foreign exchange risk," said Abhaya Agarwal, a partner at EY Llp who oversees the infrastructure practice at the consultancy.

The National Democratic Alliance government has allocated 70,000 crore more to the infrastructure sector in 2015-16 over this year in its Union Budget. It doubled the plan size for railways by earmarking 1 trillion for 2015-16. Out of its own coffers, the government will provide 40,000 crore as budgetary support, 10,050 crore higher than that this year.

Vangmayi Parakala contributed to this story.

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Published: 12 Mar 2015, 12:41 AM IST
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