Mamuni Das
Harish Damodaran

New Delhi, Feb. 15

WITH hardly a fortnight to go for the Railway Budget, Railway Ministry officials say there is no basis to believe that the Railways is caught in a `debt trap' on account of borrowings contracted through the Indian Railway Financing Corporation (IRFC).

"There is no validity to this perception. On the contrary, the IRFC route has actually helped the Railways bring down its overall cost of funding rolling stock acquisition," a Ministry official said.

IRFC borrowings, as on March 31, 2004, helped finance acquisition of 2,813 locos, 18,021 coaches and 1,04,444 wagons. These constitute roughly half of the Railways' rolling stock infrastructure.

The value of assets leased out by IRFC to the Railways has gone up from Rs 770 crore in 1987-88 to Rs 3,874 crore in 1990-91, Rs 8,945 crore in 1995-96 and Rs 29,111 crore in 2003-04. On the other hand, the lease rentals paid by the Railways to IRFC have correspondingly gone up from Rs 60 crore to Rs 473 crore, Rs 1,339 crore and Rs 2,990 crore for these years.

"The increase in the asset value base has significantly outstripped the increase in lease costs, particularly since the mid-1990s. And since the assets acquired generate freight and passenger revenues for the Railways, where is the question of a debt trap?" the official asked.

Moreover, he pointed out that while the lease tenor payable to IRFC is for 15 years, the life of the underlying revenue-earning assets (rolling stock) is in the range of 30 years.

The situation has also been partially helped by the soft interest rate regime prevailing in recent years, with the IRFC passing out its lower borrowing costs to the Railways.

During 2003-04, the Railways had to fork out lease charges of only Rs 50.10 per thousand per half-year (PTPH) to the IRFC, compared with Rs 87.50 PTPH in 1996-97.

The reduction in the cumulative cost of servicing the IRFC for the Railways has been from almost 15 per cent in 1996-97 to 6.2 per cent in 2003-04.

(This article was published in the Business Line print edition dated February 16, 2005)
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