As rental obligations to IRFC for FY15 mounted to about R13,000 crore, railways minister Sadananda Gowda chose to reduce fresh borrowings in the year to R11,790 crore from R13,800 crore assumed in the interim budget presented by the UPA government in February.
This means that excluding the principal component of the rentals to be paid this year, estimated at R5,467 crore, only measly sums will be added to the railways key investment funds this fiscal, which have anyway been grossly under-provided by the cash-trapped transporter for several previous years.
The capital fund will get just around R200 crore (the R5,663 crore shown in Budget papers includes principal payments to IRFC, a top railway official confirmed) and the development fund, some R300 crore. Reckoning principal rentals to IRFC as capital spending is justified by the railways, saying that the borrowed funds are used to create rolling stock (wagons, coaches and locomotives), although analysts say these are by no means the capacity expansion that the capital fund is actually meant for.
Even the newly created debt service fund, to which a handsome R5,268 crore was appropriated last fiscal has been starved by Gowda with a paltry contribution of R101 crore. The fund was created to service emerging repayment obligations regarding the JICA and World Bank loans for the dedicated freight corridors and the burden of 7th Pay Commission.
Railway finance commissioner Rashmi Kapoor justified this, saying that these debt service obligations would become substantial only over the next few years (although interest liability has already started), and it was more important to reduce the IRFC burden, which is immediate.
Although Rail Budget FY14 envisaged appropriation of R5,434 crore to the capital fund, nothing was actually added to the fund in the fiscal, as per the revised estimate.
Considering that this year only a pittance would be added, it is evident that it would be starved for two years in a row. In FY14, about Rs 3,000 crore was withdrawn from the fund for capital works, although sources in the rail ministry said the amount was not actually used for capacity expansion projects.
Gowdas budget papers show the transporter will have an excess (of receipts over expenditure after payment of dividend to government or the interest on budget support) of Rs 6,064 crore whereas in his budget speech the minister put the surplus at Rs 602 crore. The surplus, after paying obligatory dividend (and lease charges (from net revenue of Rs 15,199 crore), was Rs 11,754 crore in 2007-08 and is estimated to be Rs 602 crore in the current financial year, he had said. The ministers speech, needless to say, was more realistic about the railways finances than the budget papers. (The dividend to the government or the interest paid on budgetary capital is pegged at Rs 9,135 crore and the lease charges (principal), as mentioned above, at Rs 5,467 crore).
Out of the railways total Plan outlay of Rs 4.47 lakh crore between 1996-97 and 2013-14, Rs 1.07 lakh crore or 24% was financed through market borrowings by IRFC.
IR relies on IRFC to fund acquisition of rolling stock. IRFC borrows from the market, keeps ownership of major chunk of IRs rolling stock assets in the 30-year lease period, in the first half of which it recovers the entire rental charges (principal and interest). After the 30-year period, the assets are transferred to railways virtually free.
We are repaying IRFC more than what we are borrowing because we dont want to increase our debt burden. Thats the reason we have cut the borrowing for this year, Railway Board chairman Arunendra Kumar told FE.
The share of rolling stock assets funded by IRFC as a percentage of the total rolling stock assets in operation has gone up from 36-37% in 1999-2000 to about 60% currently.