Budget 2018: Budgetary support for Indian Railways to be cut by 27% in FY18

The Union government has cut budgetary support to the Indian Railways by Rs 150 billion for the financial year 2017-18.

Hence, the national transporter is set to rely on borrowings, asset monetisation, and internal generation so that it does not fall short of the capital expenditure (capex) target of Rs 1.31 trillion for the fiscal year.

Union Finance Minister Arun Jaitley had earmarked gross budgetary support (GBS) of Rs 550 billion for the railways but, faced with a revenue squeeze, various departments have been told that government support will have to be reduced for the current financial year. 

However, the revised support for 2017-18 will be 13 per cent less than the Revised Estimates (RE) of Rs 463.5 billion in 2016-17.

“The railways will now get Rs 400 billion during the RE stage,” said a person close to the development.

The railways has been focusing on safety and renovation and officials are of the view that work related to safety and the overall capex target will largely be unaffected by the cut.

“Adequate funds are available for safety-related projects. GBS is one source of funding. The shortfall will be met through extra-budgetary resources,” the official said.

The railways is now planning to resort to all options, including “asset monetisation, market borrowing, and institutional financing” to meet the shortfall. For a Plan outlay of Rs 1.46 trillion that the railways has proposed for 2018-19, about Rs 600 billion is expected to come from GBS. 

Addressing a press conference recently, Union Railways Minister Piyush Goyal said the national transporter was ready to operate even with “zero GBS”.

Sources say that Goyal’s aim was to reduce the over-dependence of the railways on budgetary support. Hence, sources indicate a further cut on the allotted amount could not be ruled out. 

In the last three financial years, GBS was to the tune of Rs 316 billion in 2014-15, Rs 416 billion in 2015-16, and about Rs 450 billion in 2016-17. For five years starting from 2014-15, the railways has lined up a mega investment plan of Rs 8.56 trillion. Of this, close to Rs 4 trillion has been invested. “While the average capital investment during 2009-14 was a mere Rs 459 billion, we have increased it to Rs 1.31 trillion in 2017-18,” said another official.

With safety being the prime focus, the government is likely to announce an investment plan to overhaul the age-old signalling process at an estimated cost of Rs 600 billion, which is likely to be announced in the Budget. In the next couple of years, the railways will be replacing at least 8,000 km of old tracks, putting in Rs 100 billion. Thirty per cent of the Rs 8.56 trillion capex for five years is expected to come from budgetary aid only, 28 per cent from debt, and about 15 per cent through internal generation. A majority of this is to go for network decongestion, including freight corridor and electrification (Rs 1.99 trillion), network expansion like electrification (Rs 1.93 trillion), and safety (Rs 1.27 trillion).