Institutional financing is where Railway Minister Suresh Prabhu expects to raise the most funds from, as he announced doubling of the Railways’ capital spending plan to ₹1.21 lakh crore in 2016-17.

“We have introduced a new way of funding our projects through institutional financing…We are also looking forward to setting up a Fund with multilateral assistance for financing railway projects,” said Prabhu

The Railway Ministry not only plans to significantly raise market borrowings targets but also scout for alternative funding options such as rupee bonds, partnerships with States and a multi-lateral assistance fund.

“This magnitude of investment calls for abandoning the business-as-usual approach and innovating to find new ways of sourcing funds and executing projects. Be it by forming joint ventures with States, developing new frameworks for PPP, scouting international markets for rupee bonds or engaging with multilateral and bilateral agencies…,” said Prabhu on Thursday.

The Railways has targeted ₹20,000 crore of market borrowings next fiscal, which is 13.2 per cent higher than the budgeted ₹17,655 crore in 2015-16. Of this, ₹19,760 crore will be raised through the Indian Railway Finance Corporation Ltd and ₹240 crore by Rail Vikas Nigam Ltd.

Masala bonds

S Mookerjee, Financial Commissioner, Railway Board, on Thursday said the Railways will raise ₹2,000 crore through masala bonds next fiscal. He added that IRFC has also received permission to issue ₹3,500 crore of tax-free bonds this fiscal year. However, the total borrowings mark a sharp 68 per cent rise from the Revised Estimate of ₹11,847.56 crore.

Similarly, the Railways also plans to raise ₹20,985 crore through institutional finance, a 22 per cent jump from its Budget estimate of ₹17,136 crore this fiscal year.

While Life Insurance Corporation had in March last year committed to invest ₹1.5 lakh crore in Indian Railways over the next five years, the revised estimate for institutional financing in 2015-16 was nearly halved to ₹9,583.77 crore.

In the coming fiscal year, Railways plans to cut down its dependence on public private partnerships. It has outlined investments worth ₹18,340 crore through partnerships in 2016-17, as against ₹5,781 crore budgeted this fiscal. But it is a 33 per cent drop against the Revised Estimate of ₹27,268 crore. With there is a gross budgetary support of ₹45,000 crore for the next fiscal year as well, analysts said the Railways has had to look at other options for funding capex plans.

“A lot of these ideas are welcome and there are a lot of funds in international markets that can be invested in railway projects. But the Railways will need a more cohesive action point and translate them on the ground,” said Sunil Sinha, Principal Economist, India Ratings.

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