The fund for Indian Railways with seed capital from the World Bank will address security and repayment concerns of the investors.
In search of funds from the external sources to meet its huge investment requirements, the Indian Railways (IR) has initiated a process to set up a World Bank-supported fund to attract both domestic and foreign institutions to invest in its projects.
A senior ministry of railways official told The Financial Express that the basic idea behind the creation of this fund is to ensure security to the investment made by the investors, especially foreign pension funds and also others with the World Bank acting as the anchor investor. “According to the plan, the World Bank would be giving us the seed capital and Indian Railways will be putting in money, periodically,” said the official, adding that the fund-supported investments would obviously be tied up with the revenue-generating projects.
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The Indian Railways official said that the ministry of finance has already taken up the feasibility study with the World Bank for setting up this fund, which is expected to be complete in three months, after which a final call will be taken by the government. Sources said that other institutions like ADB and International Finance Corporation have also shown interest in getting associated with the fund.
The Indian Railways has projected an investment need of Rs 8.56 lakh crore over the next five years. Out of which, Rs 2.56 lakh crore has to come from the Gross Budgetary Support, Rs 1 lakh crore from internal resource generation, Rs 1.2 lakh crore from the state joint ventures, Rs 1.3 lakh crore from the PPP mode, Rs 2.5 lakh crore from borrowing, another Rs 1 lakh crore from rolling stock lease and rest Rs 1.5 lakh crore from institutional financing.
As a big boost to this exercise, LIC has already committed Rs 1.5 lakh crore over five years and the Indian Railways has planned to draw Rs 17,000 crore from this in the current financial year, which, the officials say, can be increased if there is a need. The talks are also on with the Employees’ Provident Fund Organisation (EPFO) but the problem in getting funds from the EPFO is that it will come at a higher interest rate than that from LIC which is at around 8%, said an official, and added that the discussions are going on to find a working mechanism.
A number of foreign pension funds have evinced interest in investing in the Indian Railways but one of the first concrete deliberations is expected to happen with the Canadian funds in October and if the World Bank-supported fund takes shape quickly, it will certainly address the concerns of the institutional investors with regard to the security and repayment facility. The exact shape and whether projects would also be financed through this window will be decided once there is a final decision on setting up the fund.