NEW DELHI: The interim budget 2024-25 will likely allocate Rs 2.8-3 trillion for the Railways to keep its capex momentum intact, compared with Rs 2.4 trillion provided in the 2023-24 (Budget Estimate).
This would mean that the transporter which makes little operational surplus would not have to resort to market borrowings for the third year in a row. The likely increase of budget support by nearly a quarter in FY25, coming on the back of a 50% increase in FY24, also reflects the railways’ inability to generate enough resources from its own operations and the constraints faced by it in monetising its massive assets to fund new projects.
The railways, which accounts for a quarter of the Rs 6 trillion National Monetisation Pipeline (NMP) in four years through FY25, has done little so far to monetise brownfield assets. “Railways will likely get Rs 40,000-60,000 crore more outlay for FY25 over FY24 to ensure its huge pipeline of projects is not affected during a crucial phase,” an official said.
The Railways have been investing heavily in capacity improvement works such as dedicated freight corridors, doubling/quadrupling, electrification and introducing an array of high-speed trains.
The national transporter-cum-infrastructure builder reported an operating ratio (OR) of 98.1% in FY23 compared with 107.39% in FY22. OR is measure of the operational efficiency, the lower the ratio, the better. An OR of 90, for instance, means 90 paise is spent by the railways to earn a Re 1, so the ratio above 100 denotes loss.
Analysts point out that the railways which still heavily cross-subidise passenger segment with the revenue earned from freight, is actually incurring much higher operational losses than it reports. The ratio is being brought down artificially with inadequate allocation to key funds maintained by the railways like the pension and depreciation reserve funds. The Parliamentary Standing Committee on Railways had said that the railways’ operating ratio could have been 131.5% (instead of 97.45%) in FY21 had it appropriated the required amount of pension fund from its revenues.
Besides maintaining transparency and sustainability, the government’s direct borrowing would also be about 50 basis points lower cost than what it would have been if the transporter were to borrow from the market on its own.
The massive budget support for the fourth year in a row (chart) would spare the railways from annual borrowings of Rs 60,000-70,000 crore that it used to borrow annually before that.
The key infrastructure and strategic ministries such as road transport and highways, railways and defence led in driving the capital expenditure in FY24. According to fiscal policy, it magnifies the government’s thrust on infrastructure development through enhanced capital expenditure, which boosts economic activity and crowds in private investment.
The Centre front-loaded capital expenditure in H1FY24 which boded well for the medium-term growth prospects of the economy. In H1, key ministries such as the MoRTH, defence and railways accounted for more than 75% of the total capital expenditure.
Given its capex-led growth push post-pandemic, the Centre might enhance outlays for capex by 10-15% in FY25 over the revised estimate for FY24. The FY24BE for capex was set at Rs 10 trillion, which could turn out to be revised to around Rs 9.5 trillion as there could be savings on some heads including capex loans to the states and capital infusion in oil marketing companies.
Source: The Financial Express
