In addition, the committee has asked the Centre to take care of 30 per cent of pension burden of the country's biggest employer besides granting excise tax exemption for a brief period following corporatisation.

Prime Minister Atal Behari Vajpayee had earlier this month announced that the government will go in for restructuring the Indian Railways on the basis of the report. According to sources, the Prime Minister's Office (PMO) has issued directions to the high-powered committee, headed by the advisor to the finance minister, Rakesh Mohan for finalising the recommendations soon. The report will be submitted before the Railway Budget.

The report has recommended a massive organisational and capital restructuring of the Indian Railways by making it into a corporate entity.

On the financial front, the committee will ask Railways' to break its capital into debt and equity in almost equal ratio after deducting the value of dead assets.

The committee has observed that at present the Railways are overcapitalised in the books with the result that they continue to pay 6-7 per cent interest in perpetuity to the government for budgetary support.

Giving details, sources said that as part of the corporatisation process, it has been suggested that the equity be split into preferential (to be held by the government) and ordinary in almost equal ratio with the objective of making the Railways a commercially viable organisation, with no debt or preferential capital in the next 15 to 20 years.

"Debt will be recommended to bear 6 per cent real rate of interest and preferential shares will bear 1 per cent real interest," a source said.

The committee will ask the Railways to aim at 7-8 per cent increase in revenue. However, as per the calculations done by the Railways, their capital expenditure will grow at 10 per cent and they will need around Rs 1,50,000 to 200,000 crore over the next 15-20 years.

For meeting the gap between internal revenue generation and capital expenditure during the period, the Railways should continue with traditional funding routes of budgetary support, market borrowings and multilateral lendings.

As reported in these columns in April last, on the organisational restructuring, the committee has favoured reorganising the Railways into autonomous corporation with tariff-fixation powers thereby giving a go-bye to the process of legislative approval for Railway Budget.

The committee will ask the Railways to revamp freight and passenger tariffs with the aim of increasing the market share and reducing cross subsidy so that they are able to generate funds needed for growth. However, the committee members are of the view that the Centre could subsidise socially relevant albeit loss-making projects.

The reorganisation should take place within the next three to five years which would prepare the ground for separation of infrastructure and service functions of the Railways as also more rigorous private partnership.