Finance Ministry wants dividend restored to 7 per cent

Our Bureau

The Railways has been paying a dividend at the rate of 6.5 per cent for the past two years before which they used to pay a dividend at 7 per cent on the capital-at-charge.

New Delhi, Aug. 29

Despite the Indian Railways' turnaround, the Finance Ministry is unlikely to get a higher chunk of its revenues which it wanted in the form of higher dividend payout.

The Railway Convention Committee (RCC) of Parliament has recommended that the Railways pay dividend at the present level of 6.5 per cent in 2006-07 against the Finance Ministry's move to increase the dividend rate to 7 per cent.

The Finance Ministry also offered to increase the financial support to the Railways by Rs 300 crore if the dividend rate was raised to 7.5 per cent.

The Railways has been paying dividend at the rate of 6.5 per cent for the past two years 2004-05 and 2005-06 before which they used to pay dividend at 7 per cent on the capital-at-charge.

Capital-at-charge means contribution of general revenues to the Railways in the form of interest bearing loan capital, except some parts on which no dividend is payable based on relief extended by various RCCs.

However, the Railways called for continuation of 6.5 per cent rate since it has to keep investing for improving infrastructure. The Railway Ministry also pointed out that it extends support (in the form of loans) to Konkan Railway Corporation as well, which has not been able to service its interest and debt liabilities.

"As of March 31, 2005, the Railway Ministry had lent around Rs 2,200 crore on this account.

Though the need for financial restructuring has been admitted by the Ministry of Finance, no workable solution has emerged so far," it stated.

Moreover, it pointed out that the Finance Ministry had earlier agreed to lower the dividend rate on condition that the Railways clear its deferred dividend liability in eight years instead of nine.

Now, the Railways, on its own, has decided to further lower the time to five years by paying off Rs 663 crore per year instead of Rs 300 crore per year, it said.


The Finance Ministry argued that in line with the Government's commitment to eliminate revenue deficit by March 2009, the Railways should pay a dividend at 7 per cent, having already availed the benefit of lower dividend in the previous two years. "The reduced rate of 6.5 per cent ... was sought on the ground that the average cost of borrowing of the Government had decreased from 7 per cent in 2002-03 to 5.7 per cent in 2003-04," it said adding that the borrowing costs have gone up since then, with the average rate of borrowings, with respect to market loans during 2004-05 touching 6.51 per cent. The RCC determines the rate of dividend payable by the the Railways to the General Budget. It also recommends on issues regarding the Railway finance vis-a-vis general Government finance. The comparison is required since the Railway finances were separated from general finance since 1924.

(This article was published in the Business Line print edition dated August 30, 2006)
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