Innovative funding is what Railways need

Railway minister Suresh Prabhu’s proposals for funding railway infrastructure need to be taken seriously if the nation’s lifeline is to be made a vibrant engine of growth. While Mr Prabhu’s final proposal for innovative financing will be declared in the Rail Budget at the end of February, he has indicated that the new strategy for financing could involve pooling funds from the Member of Parliament Local Area Development Scheme, state governments and corporate social responsibility funds.

It would be interesting to see how this works out, whether a special purpose vehicle (SPV) would be created for this, and who would constitute the board, etc. Ideally, Mr Prabhu feels that pension and provident funds from the Employees Provident Fund Organisation should be allowed to be invested in rail projects, or even pension funds from abroad could be used for the purpose. He said there is a lot of money abroad, including sovereign wealth funds, that could be tapped.

Basically it would be a bold move to free the Railway Budget from infrastructure funding so that there would be more funds available to enhance passenger amenities. Today railway service is abysmal and railway safety has been terrible with accidents occurring because of badly maintained lines. The Rail Budget is inadequate for financing infrastructure and that is why growth of the rail network has suffered, apart from the fact that rail ministers funded projects in their own constituencies.

The minister suggested some out-of-the-box strategies in Karnataka recently, asking the state to form a SPV to channelise funds for completion of railway projects. The minister said that currently there are no institutions for funding rail projects. Indian Railways is in serious financial trouble. If there is to be a de-bottlenecking of the rail network investment running into thousands of crores will be required to construct the 30,000 km to 40,000 km of rail lines needed for this.

If Mr Prabhu succeeds in presenting an alternative channel for funding railway projects, it could change the face of the Indian Railways. Prime Minister Modi’s proposal to have state-of-the-art railway stations could materialise, besides other schemes. It is a good thing that Mr Prabhu has emphasised that this would not mean privatising the railways as this has assured the powerful railway unions, which have been up in arms at the thought of privatising railway services.