Indian Railways to Set up $5 billion Fund for Developments

Indian Railways has circulated a draft cabinet note for setting up a dedicated $5 billion Railways of India Development Fund (RIDF).

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The fund will to be anchored by the World Bank and will serve as an institutional mechanism for the national transporter to arrange fund from the market for its investments. According to a top railway official, the fund will be managed independently by a non-government entity.

[quote font_size=”16″ arrow=”yes”]”It will support commercially viable investment in railway sector in India over the period of next seven years,”[/quote] the official said, requesting anonymity. Railways expects to construct high traction projects such as various freight corridors, warehouses, last mile connectivity for ports and electrification of various routes using this fund.

Several rounds of consultations have already been held with various international pension funds including some big Canadian names to gauge market response.

“Market sounding exercise has been carried out and has received positive response from both domestic and international investors,” the official added. As per the details of the draft note, the railways would raise 20% of $5 billion on its own. It will work on the commercial principles of project-based funding rather than sovereign based borrowing being undertaken for Indian Railways.

[quote font_size=”16″ arrow=”yes”]”Projects which can give early returns such as freight lines and electrification projects would be funded by the RIDF. Currently, because of the burden of high wages and pension bills, cost overruns of incomplete projects and increasing operational cost due to losses in passenger segment, there are hardly any funds left to undertake new projects which are profitable on standalone basis,”[/quote] the official said.

For the current financial year, railways expects to have a high operating ratio of 94%. Operating ratio shows how much of revenue goes into meeting expense. Lower the ratio better it is for the railways.

The national transporter hopes to set up this fund by the end of the first quarter of the next financial year.