The Comptroller and Auditor General of India has flagged the rising dependence of the Indian Railways on external funds for capital expenditure as a problem.
Key Issues Raised by CAG
- Worsening Capital Employed to Output Ratio (COR) with marginal recovery in FY18
- Increasing reliance on GBS and EBR funds for capital expenditure
- Declining share of internal funds for capital expenditure
- Funds borrowed from markets not being utilized fully
- Undesirable showing of surpluses by creation of new funds
- Only 1,100 crores allocated from internal funds for RRSK against required allocation of 5,000 crores.
- Unhealthy trend of repayment to IRFC from Gross Budgetary Support.
| Source | FY14 | FY15 | FY16 | FY17 | FY18 |
| Gross Budgetary Support (GBS) | 29055.38 | 32327.6 | 37608.47 | 45231.64 | 43417.55 |
| Internal resources | 9709 | 15347.24 | 16845.31 | 10479.84 | 3069.77 |
| EBR ( IRFC+RVNL+EBR-IF+PPP) | 15224.88 | 11044.1 | 39066.01 | 52578.66 | 55498.15 |
| Total | 53989.26 | 58718.94 | 93519.79 | 108290.14 | 101985.47 |
Worsening COR
The CAG notes that the Capital Output Ratio of IR worsened during the first four years and recovered marginally for the year ended on 31 March 2018. The COR numbers were as follows:
FY14: 280 paise
FY15: 317 paise
FY16: 374 paise
FY17: 431 paise
FY18: 418 paise.
Capital Output Ratio (COR) indicates the amount of capital employed to produce one unit of output. This shows a decline in the physical performance of the Indian Railways.
Increasing dependence on external funds for capex, share of internal funds declined
The share of internal resources in capital expenditure declined from 26.1 per cent in 2014-15 to just 3 per cent in 2017-18. The share of EBR (Extra-Budgetary Resources) and GBS (Gross Budgetary Support) has increased. With surplus levels depleting, Indian Railways has been forced to increase its reliance on market borrowings to fund capital expenditure works, observed the CAG report.
IR raised Rs. 55,638.2 crores through EBR in FY18.
LIC Deal
A deal was inked between the Ministry of Railways and Life Insurance Corporation (LIC) in 2015. The latter was to lend the Indian Railways Rs. 1.5 lakh crores over 5 years for capex. The money was to be released through the Indian Railways Finance Corporation (IRFC) against bonds issued to LIC. The IRFC bonds were to fetch LIC a return of 30 basis points above the 10-year benchmark yield.
Also, there was to be a moratorium on payments for the first five years, payment of only interest from the 6th to the 10th year, and the rest was to be repaid in equated installments for the remainder of the 30-year period.
How capital expenditure money was spent
| Plan Heads | FY14 | FY15 | FY16 | FY17 | FY18 |
| New Lines (Construction) | 6659.86 | 8401.45 | 15789.74 | 15969.89 | 9183.82 |
| Gauge Conversion | 2873.71 | 3520.12 | 3615.65 | 3769.92 | 2880.11 |
| Doubling | 3400.99 | 4132.32 | 10472.35 | 9093.23 | 11240.34 |
| Traffic facilities & yard remodelling | 655.50 | 780.74 | 983.00 | 910.67 | 1224.84 |
| Track renewal | 3665.33 | 3734.39 | 4367.59 | 5076.33 | 7727.71 |
| Bridge Works | 377.48 | 413.11 | 517.20 | 474.52 | 448.73 |
| Signalling &Telecommunications | 899.47 | 1002.49 | 892.89 | 951.56 | 1255.64 |
| Rolling Stock / Payment of Capital Component of lease charges | 22267.49 | 21723.98 | 24240.71 | 26610.98 | 28119.11 |
| Workshops/Production Units & Plant & Machinery | 2264.42 | 2129.02 | 1921.14 | 1965.00 | 1753.57 |
| Investment in Government Undertakings | 4289.58 | 4865.31 | 7349.71 | 7184.13 | 4887.99 |
| Others | 6635.43 | 8016.01 | 8288.81 | 9449.82 | 11147.61 |
| Total | 53989.26 | 58718.94 | 78438.79 | 81456.05 | 79869.47 |
Funds borrowed from markets not being utilized fully
However, Rs. 37,360 crores were raised through the LIC route. Only Rs. 35,927 crores out of this amount were spent, according to the CAG. The auditor also noted that it was unclear why IR did not borrow the entire funds available from LIC over the past three years.
The CAG observed that lack of an adequate number of projects that could generate enough returns to service the LIC debt could be a reason. It also recommended that external borrowings must be utilized fully.
Undesirable showing of surpluses by creation of new funds, Unhealthy trend of repayments of borrowings from GBS.
- Capital Fund, created n 1992-93 for financing capital expenditure, was allocated 5,948.3 crores in 2017-18. No appropriation was made. Also, the Railway Board decided to charge the capital component of IRFC fund repayments to Capital (GBS) if the CF was inadequate. Thus, Gross Budgetary Support from the government, otherwise used for capex, was essentially used to repay Indian Railways’ loans, observed the CAG.
- Debt Service Fund, created in 2013-14 for servicing of loans from JICA, World Bank and for future pay commission implementation, was to be financed from Indian Railways’ surpluses. However, no allocation was made in 2017-18.
- Railway Safety Fund, created in 2001 for financing works like construction of ROBs and conversion of level crossings, had its scope enlarged to financing works like New Lines, Gauge Conversion, Electrification and Safety Works, observed the CAG. RSF is funded by the Central Govt through Central Road Fund and any amounts from Indian Railways’ surplus.
In 2017-18, RSF received Rs 11,375 crores from the CRF, and 160 crores from revenue surplus. 10,000 crores were transferred to new fund RRSK and only Rs.1,547 crores spent on works under RSF, the report says. - Rashtriya Rail Sanraksha Kosh (RRSK) was created in 2017-18 for expenditure on critical safety works. The fund is to receive credits from GBS, RSF, DRF and Revenue Surplus, and is planned to create a corpus of Rs. 1 lakh crores over 5 years.
Out of the assured annual outlay of Rs. 20,000 crores per year, Rs. 15,000 crores was to come from GBS and the rest from IR’s internal resources. However, IR could only appropriate Rs. 1,100 crores out of internal resources against the Rs. 5,000 crores planned due to inadequate surplus, according to the CAG.
