The Telegraph
Wednesday , July 9 , 2014
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Rail to try new cash route
Private funds, FDI key to revamp

New Delhi, July 8: The Modi government today initiated steps to open the rail gates to foreign direct investment and also put forward attractive terms for public-private partnerships to modernise and expand the cash-starved network.

“The growth of the railway sector depends heavily on availability of funds for investment in rail infrastructure. Internal revenue sources and government funding are insufficient to meet the requirement. Hence, the ministry of railways is seeking cabinet approval to allow FDI in the sector,” minister Sadananda Gowda said in his Rail Budget 2014-15.

However, he clarified that FDI would not be permitted in railway operations.

“Funds worth about Rs 5 lakh crore — around Rs 50,000 crore per year for the next 10 years — are required for ongoing projects alone. This leaves a huge gap between what is available as surplus and what is needed,” Gowda said.

“The challenges of tomorrow cannot be met by the tools of yesterday. We need to explore alternative sources of funding,” he said.

Gowda set a target of Rs 164,374 crore in total receipts and an expenditure of Rs 149,176 crore for fiscal 2014-15.

The railways have estimated a plan outlay of Rs 65,445 crore, of which Rs 47,650 crore is under budgetary sources. Last year, the plan outlay was at Rs 59,359 crore.

Gowda said the operating ratio for the current fiscal at 92.5 per cent was an improvement of 1 per cent over 2013-14.

Operating ratio is the amount of money spent for every rupee earned.

On FDI in the sector, rail board chairman Arunendra Kumar said, “We would like it (FDI) to be 100 per cent.”

The commerce and industry ministry has circulated a draft cabinet note for inter-ministerial consultations. It has proposed to permit FDI in high-speed train systems, suburban corridors and freight lines connecting ports, mines and power installations.

“How long can I depend only on hiking fare and freight rates and burden the public to realise these funds?” Gowda told the House. “This is unrealistic. Thus, I need to explore the alternative means of resource mobilisation.”

On the public-private partnership (PPP) route for raising resources, he said, “It is our target that the bulk of our projects will be financed through the PPP model, including high-speed rail.”

“Just opening up this sector to FDI and wishing for private sector participation may not be enough. I feel Indian Railways will need to review its accounting standards before it can expect private sector to come and invest in rail projects in a big way,” Hemant Kanoria, CMD of Srei Infrastructure Finance, said.

The ministry has also proposed a scheme to bring in investible surplus from public sector units to infrastructure projects of the railways.

The railways expect to mobilise Rs 6,005 crore through the PPP route during 2014-15, marginally higher than last fiscal. However, it will borrow less at Rs 11,790 crore from the market for capital expenditure during 2014-15. Gross traffic receipts for 2014-15 have been proposed at Rs 160,165 crore against Rs 140,499 crore in the revised estimates for 2013-14.

The budget estimates for 2014-15 assume a freight loading 1101 million tonnes, 51mt more than the previous year, growth in passenger traffic at 2 per cent and freight earnings at Rs 1,05,770 crore. Passenger earnings will be Rs 44,645 crore.