After negotiations that went on for almost a year, the finance ministry has agreed to service debt — both principal and interest — which the Indian Railways will take to fund ‘nationally important’ projects.
This is a one-time arrangement for 2018-19, which means the actual gross budgetary support for the financial year gone by will reduce by around `5,000 crore from `53,060 crore, whereas loans under extra budgetary support will rise by an equal amount.
While the total cost of the 10 projects that will be financed through this arrangement is `50,000 crore, the fund requirement for these projects for 2018-19 is `5,000 crore.
The finance ministry will get a shot in the arm through this arrangement as it has missed revenue targets on both direct and indirect tax fronts. The goods and services tax collections for the fiscal 2018-19 has fallen short by `60,000 crore compared with revised estimates, and at the same time direct tax mop-up is seen to be missing target by around `35,000 crore. As reported by FE in July 2018, the finance ministry had asked the railways to borrow to fund projects and that the former would pay up the principal part of the loan as and when the repayment begins. The railway ministry had declined to accept the offer as it felt its borrowing limits were being tested already. The railways, as per estimates, would have already borrowed `55,000 crore under extra budgetary support for 2018-19.
North Block is believed to have mooted reducing GBS to zilch and repayments from the consolidated fund of India of principal amounts of the railways’ resultant (enhanced) borrowings. This would have helped the central budget in the short term as the repayment obligations will be only a fraction of the current GBS size in the initial years. But the railways refused to raise debt service burden on itself. The nationally important projects to be funded via the new mechanism include projects in the northeast, apart from others, but are not strategically important projects for which funds come from the defence ministry.