For the first time in around two decades, Indian Railways would be taking a loan from the Union government. The ministry of finance approved one of Rs 3,000 crore last week.
The railways ministry actually wanted a higher loan; it was also seeking a waiver of the requirement to pay a dividend (of about Rs 1,200 crore). Senior officials told Business Standard the interest rate would be 8.5 per cent and the loan was expected to be repaid in two to three years. There is a stipulation that the money would be spent prudently for zones with earning potential and be used strictly for activities enhancing throughput of the railways, said a senior official.
“The ministry of railways had demanded Rs 10,000 crore from the finance ministry,” he added.
A retired Railway Board member said it was a role reversal from the 1950s, when they’d once extended a loan to the government. “This is the first time in at least two decades or so that the finance ministry will be giving a loan to the ministry of railways,” he said.
Railway finances have been strained this year, due to an increase in expenditure on account of Pay Commission arrears and fuel prices. Ordinary working (non-Plan) expenses, such as those on operations and maintenance, are expected to rise by Rs 5,138 crore during 2011-12. Internal resource generation would be Rs 1,298 crore less than budgeted, leading to a reduction in the Plan expenditure. Plan outlay has been scaled down by around Rs 9,000 crore, to Rs 48,000 crore this financial year.
The railways had resorted to dividend deferment once before, in 2001-02 during Nitish Kumar’s stewardship at the ministry, when the finances were stressed. At the time, the government had set up a non-lapsable Rs 17,000-crore Special Railway Safety Fund (SRSF) to wipe out the arrears on replacement of vital safety equipment by 2006-07. While Rs 11,965 crore for the SRSF had to come through dividend-free financial aid from the general revenue, the remaining Rs 5,035 crore were to be generated by the railways through levy of a safety surcharge on passenger fares. The railways levied he surcharge from 2001-02 till 2006-07, after which the component was merged with passenger fares. The ministry of railways had paid the deferred dividend to the government in four to five instalments. The rate is normally seven per cent.
In deciding to extend a loan, said officials, the decision was influenced by the fact that as compared to an increase in gross budgetary support, the former would guarantee a return on the principal as well as a higher interest rate.
Criticising the government approach, the former member said, “Passenger services are in operational losses all across the world but there is huge subsidisation from governments of all countries. India is the only country where the ministry of railways has to give a dividend to the government of India. For strategic lines there is 100 per cent financing from the government but the operational costs of running on those lines are only borne by the railways.”
The ministry of finance pays an amount, worked out annually, for operational losses on strategic lines for which there is less passenger traffic.The amount is about Rs 2,000 crore at present. Besides, in 2011-12, the government has extended Rs 20,000 crore as gross budgetary support for the railway plan, besides Rs 1,041 crore from fuel cess.
