Indian Railways plan for World Bank-backed Railway Fund

With Seed Capital from the Multilateral Body, the Fund will address Repayment Concerns of Investors

Indian Railways (IR) has initiated talks with the World Bank to create a fund that would help pool in long-term debt from other foreign investors like insurance and pension funds, expected to play a critical role in meeting the transporter’s massive capital investment plans announced in the last rail Budget.

worldbank rlysAccording to the plan, the multilateral body would provide the seed capital for the proposed fund and the railways would contribute periodically to it drawing from its own or budgetary resources. A senior railway ministry official told FE that the rationale behind the proposal is to provide a level of comfort to potential foreign investors, especially foreign pension and insurance funds to invest in IR’s projects, including in capacity expansion and complementary services. In parallel, the projects where these investments will be made would be made more attractive by devising them with clear revenue-generating potential.

A number of foreign pension funds have evinced interest in investing in the IR and deliberations will take place with some Canadian funds in October. If the World Bank-supported fund takes shape quickly, the sources said, it will certainly address the concerns of these institutional investors with regard to IR’s repayment facility.

The official said that the ministry of finance has already taken up a feasibility study with the World Bank for setting up this fund. The study would be completed in three months and a final call will be taken by the government base on its outcome. Sources said that other institutions like ADB and International Finance Corporation have also shown interest in getting associated with the fund.

In the rail Budget for FY16, the government envisaged a huge Rs 8.5-lakh-crore capital investment for the country’s rail network and complementary facilities over five years. Of this, Rs 2.56 lakh crore has to come from gross budgetary support, Rs 1 lakh crore from internal resource generation, Rs 1.2 lakh crore from the state joint ventures, Rs 1.3 lakh crore from the PPP mode, Rs 2.5 lakh crore from borrowing, another Rs 1 lakh crore from rolling stock lease and rest Rs 1.5 lakh crore from institutional financing.

As a big boost to this exercise, LIC has already committed Rs 1.5 lakh crore over five years and the IR has planned to draw Rs 17,000 crore from this in the current financial year, which, the officials say, can be increased if there is a need. The talks are also on with the Employees’ Provident Fund Organisation (EPFO) but the problem in getting funds from the EPFO is that it will come at a higher interest rate than that from LIC, which is at around 8%, said an official, and added that the discussions are going on to find a working mechanism.