New Delhi: The Narendra Modi government’s push for transparency in the budget and finances of public sector undertakings (PSUs) has resulted in one of its PSUs, the Indian Railway Finance Corporation (IRFC), now looking for alternate revenue streams outside of its current business.
The IRFC is the sole market lender to the Indian Railways for its capital expenditure (capex) needs. However, with the government looking to limit such extra-budgetary resources and instead promoting reliance on money from the budget alone, the IRFC is now realising that the Indian Railways no longer seems to need its loans.
“From the financial year 2021-22, budgetary support for the Indian Railways has increased tremendously and, correspondingly, extra-budgetary resources have been scaled back,” IRFC CMD (additional charge) and CEO Uma Ranade said during an analysts’ call following the declaration of the company’s 2023-24 financial results.
So, the IRFC is now looking to diversify its revenue streams.
“We are actively looking at funding such projects in the railway ecosystem apart from funding the Indian Railways and exploring opportunities in collaboration with other infrastructure lenders,” Ranade said, adding that the company could also approach the Ministry of Railways to expand its charter of operations.
The Indian Railways’ capex has so far been funded primarily with budgetary and extra-budgetary resources (EBR), including funds raised through various financing sources, including funds raised through IRFC for capex.
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Looking beyond Indian Railways
For the IRFC, which is a listed company, assets under management (AUM) as of 31 March 2023 stood at Rs 4.64 lakh crore, with 98.94 percent of this going to the Indian Railways, showing the company’s heavy reliance on the Indian Railways for its business. This source of revenue is now drying up as the railways increasingly rely on budgetary sources to finance its expenditure.
“In the financial year 2024, there was no requirement for extra-budgetary resources to the railways due to the high budgetary support and, thus, there was no funding done by IRFC,” Ranade added.
While she pointed out that in the interim budget for FY25, there is no EBR requirement from IRFC, Ranade added that the final budget for this fiscal is yet to be placed in Parliament and passed. The Budget is expected to be put before the Parliament during the monsoon session in July, after the formation of the new government.
According to the IRFC’s mandate, apart from funding the Indian Railways, it can finance projects that have a backward and forward linkage with railways. These may include leasing rolling stock to private players or funding infrastructure such as dedicated freight corridors, among other measures.
Replying to a query on whether the company will take up discussions with the Ministry of Railways to expand its scope of funding, Ranade said it is one of the possibilities the company will be pursuing to expand its charter.
“But the point is that… we will be pursuing, but even without that, the forward and backward linkages with the railways itself throws up so much opportunity in the infrastructure sector. So, I don’t think there should be any really big issue on trying to even expand that further,” she said.
IRFC Director (Finance) Shelly Verma said that the company is “actively exploring” funding for projects within its existing mandate like leasing rolling stock to parties other than the Ministry of Railways, funding railway infrastructure currently under development through state joint ventures, upcoming dedicated freight lines, multi-modal logistics parks, and non-conventional sources of energy, including renewable energy, for railway networks.
“We are in discussion with various other infra financials for core funding opportunities,” Verma said.
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Finances still in good shape
Even though EBR is drying up, the IRFC is not worried because the significant amount of lending it has done previously will start giving returns now, ensuring good financials for at least the next two to three years, during which the company intends to firm up and implement a diversification plan.
In response to a query, Ranade said that the lending done in 2017-18 and later will start to bear fruits now as the moratorium period of five years ends.
“And therefore, when we see that the lending to the Indian Railways in the year FY23-24 had dried up, that effect will not be perceived immediately because we’ve already got a lot of our investments in the pipeline, which are now going to start yielding fruit,” she said.
“Prior to FY2021-22, we had extremely healthy lendings to the Indian Railways.”
“That is the reason why we have this time to plan and make sure that we strategically broaden our financing portfolio,” she added.
Ranade also said that the company’s inflow continues to be robust and will continue for at least the next two to three years.
“It is, therefore, imperative, and that is the aim of this company, that we use this period to build our own internal structures and mechanisms so that we can properly assess other business opportunities and go in for those business opportunities in a possible scenario where the lending to the Indian Railways may dry up,” she said.
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Government push for budget transparency
The Ministry of Finance, for some time now, has been trying to bring more transparency to the budget-making process. Finance Minister Nirmala Sitharaman earlier this week wrote a long X post recapping the steps her ministry has taken towards this goal.
“Our government has prioritised transparency in its budgeting practices and numbers,” Sitharaman said while taking jibes at the Congress party for its “repetitive practice” of hiding the true nature of its deficits and “routinely” changing fiscal practices to make budget numbers look favourable.
Countries with transparent budgets are often viewed more favourably by international bodies such as the IMF and World Bank, said Sitharaman, adding that the government’s moves could improve global trust in India.
“Budget allocations of key infra ministries such as M/o (Ministry of) Road Transport and Highways and M/o Railways have been significantly enhanced from FY 2022-23 and 2023-24, respectively, thereby reducing their dependence on market borrowings,” she added.
(Edited by Madhurita Goswami)
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