Debt bomb of Indian Railways!


A debt bomb is ticking against the Indian Railways, which if not taken care of on a war footing, has the potential to drown this behemoth under a never-ending debt trap. According to a RTI reply to journalist Shashikant Sushant, the Ministry of Railways has said that as on December 31, 2015, the debt burden from domestic market borrowings through its financial arms, Indian Railways Finance Corporation (IRFC) was Rs. 82,961 crore, Rs.37, 309 crore tied up from multilateral sources like World Bank, Asian Development Bank and Japan International Cooperation Agency (JICA), and Rs. 150,000 crore from Life Insurance Corporation of India (LIC). This viewed together with Rs.100, 000 crore tied up with Japan for building 500 kilometer long Mumbai-Ahmedabad high speed bullet train over the next six years, comes to a total gargantuan sum of Rs.370, 270 crore. This considered in the light of a massive investment of Rs.8.5 lakh crore proposed by the NDA Government under the stewardship of Railway Minister, Suresh Prabhu over the next five years, is indeed a debt trap for Indian Railways.
In the current scenario, Indian Railways is losing both passenger and freight traffic consecutively for the last five years. At the same time cost of rail services has gone up by over 15 per cent. This along with the implementation of the 7th Pay Commission awards from January this year (2016) will make a bonfire of railways finances. Unless the General Exchequer intervenes, Indian Railways is doomed as its entire plan may go haywire. Added to this, in the absence of internal surplus due to the Seventh Pay Commission implementation, the borrowed component of five-year outlay of Rs.8.5 lakh crore will come to Rs.4 lakh crore, as analysed by economic observers. Accordingly, future interest payment on such a huge borrowings, as calculated by experts, will go up to Rs.35, 000 crore. Any surplus so generated through internal mechanism and economic recovery will be eaten up by annual debt servicing burden.
According to sources in the Ministry of Railways, until 2010-11, when the over all Indian economy was still growing at 9 per cent annually, railways finances worked at a predictable pattern: 48 per cent from the General Exchequer as the budgetary support, 28 per cent from the internal resources and remaining 24 per cent from market borrowings. This broad mix of funding railways projects was sustainable, said the sources. Now in the current scenario of economic downturn, that broad mix of financing railways has dramatically and dangerously altered. Internal surplus has almost disappeared following slowing of economy, resulting in low freight traffic growth. With the 7th Pay Commission implementation, future funding is most likely: 50 per cent from the Government of India budgetary support and 50 per cent from market borrowings, since hardly any surplus will be left. This points to potential debt crisis staring at the Chartered Accountant Railway Minister Suresh Prabhu in the current NDA Government. To him the buzzword is ‘investment’, ‘investment’ and ‘investment’ only.
In the current scenario when the private investment in the railways is not forthcoming as it is not profitable to it, dependence on borrowings (debts) from market and other sources will lead the Indian Railways to a heavy debt trap, from which it may not be easy to come out. Although the Ministry of Railways has not given complete information regarding total debt and annual debt servicing in the current spree of dilution of the people’s sovereign right to information under the RTI Act, 2005 during the first two years of the present regime, one can easily surmise the likely debt burden of Indian Railways, which is frightening and a potential debt trap for railways, and a burden on the future generation.
If the ticking debt bomb is not taken care of right now, it may drown the railways altogether under a debt trap, resulting in increased rail service costs to the nation, a road map for its ultimate privatisation, notwithstanding disclaimer by the NDA Government. Railways efficiency is all time low, given the fact that the NDA Government has not passed the benefits of low cost diesel to the users despite a professed Fuel Adjustment Costs policy in vogue. There is already warning from a well considered report headed by A.C. Paulos, a former Financial Commissioner of Railways, earlier in 1993-94, which spoke at length of debt trap of Indian Railways, if certain do’s and don’ts, as considered by then financial wizards of railways, were not followed!

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