Govt Wants Rs 1.5 Lakh Crore From Indian Railways Asset Monetisation, But Caveats Apply

The Government of India hopes to bag over 1.5 lakh crore rupees through the monetisation of Indian Railways assets over the next four years. IR assets are a key part of the National Monetisation Pipeline (NMP) launched by the Union Government on 23rd August 2021.

GoI hopes to rake in Rs. 6 lakh crores from the initiative spanning four financial years starting with FY 21-22 and ending in FY 24-25. If things go as planned, the resources will fund 14 per cent of the Union government’s 43 lakh crore proposed outlay for the 111 lakh crore National Infrastructure Pipeline.

Indian Railways Assets and Monetisation Pipeline

If the full estimated value is realized, the Indian Railways asset monetisation plan will fetch the GoI Rs. 1.52 lakh crore rupees. This is approximately 26 per cent of the total that GoI hopes to gain from the exercise.

NHAI’s massive highway network is the largest component with a 27% share of the total NMP plan.

NITI Aayog has also drawn up a list of Indian Railways assets that could go on the block. This includes sprawling Indian Railways colonies and stadiums located on prime urban land and of high commercial value. Konkan Railway and parts of the Dedicated Freight Corridor are up for grabs.

GoI also plans to part with a very small percentage of Indian Railways’ own network.

As with other sectors, Indian Railways asset monetisation is also split over the four years of the NMP. GoI wants to hive off 40 stations, 2 hill railway networks and 3 railway owned stadiums in the current financial year.

For FY 2022-23, the government wants to monetise 1,400 km of rail routes that it has identified through an investment vehicle. However, the routes to be monetised have not been declared yet.

• 

• 

Another major component of the Indian Railways NMP is the operation of private trains on the IR network. The operator hopes to allocate some 30 trains each year from the next financial year for a total of 90 trains by FY25. NITI Aayog and the Government of India are expecting to rake in 21,642 crores as gains from monetising train slots.

Monetisation Vehicles and Methodology

NITI Aayog is banking on the InvIT (Infrastructure Investment Trust) and COT (Carry-Operate-Transfer) Concession models to monetize assets like Indian Railways and the Dedicated Freight Corridor routes. The National Highway Authority of India is working to launch an InvIT to monetise some of its tolled highways and raise resources for expansion. NHAI’s InvIT launch is now expected in September 2021 after multiple COVID-19 induced delays.

CRISIL had, in January 2021, said that InvITs could mop up as much as Rs 8 lakh crores in “capital for India’s infrastructure buildout over the next five fiscals.” NITI Aayog’s plan expects a more conservative sum through InvITs for the next four financial years.

For station redevelopment projects executed through the Indian Railways Stations Development Corporation (IRSDC), the RFQ and RFP process is already underway. Stations like CSMT Mumbai, New Delhi are currently up for grabs by private players.

Caveats

With the Government of India and so many other moving parts involved, there are always caveats to be aware of.

1. Optimistic Timelines.
   
   Under pressure to deliver, government departments have a habit of throwing up timelines that are unrealistic. This may be the case with at least Indian Railways part of the NMP.
   
   Finding suitors for two hill railway networks, often poorly managed and always lossmaking, is going to be an uphill climb, especially if it has to be done within the remaining six months of the financial year. The disinvestment record of the current administration has not been stellar and targets have been routinely missed by a wide margin.
   
2. Optimistic Valuations
   
   As with timelines, valuations look optimistic. To be fair, officials at the launch did clarify that the monetary values were indicative. But that has not stopped them from using the headline making numbers for marketing purposes. How much of the 1.52 lakh crore projected by NITI Aayog materializes will only be known over the next four years.
   
3. Lack of visibility on willing investors
   
   GoI has had a tough time trying to get rid of loss-making public sector ‘assets’ over the past several years. Onerous terms and the inherent risk in dealing with previously government owned entities has meant investors have kept their distance. Air India is a case in point.
   
   Attempts to get the private sector to invest in train operations have not yielded great results so far. As a result, the whole project is being revamped to make it more investor friendly. Political and legal delays have made things worse. On IRSDC’s station redevelopment projects, things seem to have slowed down. Execution of initiatives announced by Ministry of Railways with great fanfare over the past couple of years seems to have stalled.
   
   With a change of guard at the ministry, it remains to be seen if there is yet another policy shift in the works.
   
4. Regulatory Risks
   
   As players in other sectors with a high degree of government intervention have found, constantly shifting policy and regulatory moods adds significant business risk. Competing with Indiain Railways on its own infrastructure is fraught with risk too, as private container train operators know too well.
   
   If there is one thing that gets a bureaucrat’s goat, it is a profitable private sector business. And if it rides on government infrastructure, the day of recknoning is never far away.