III. ‘Fiscal constraint’, fake alibi for inviting foreign capital
The Bibek Debroy Committee on the Railways[1] pleads the Government’s financial stringency as an alibi for turning to private and foreign capital: “With Government funding getting thinner on account of the Government itself being hamstrung for resources, …IR has little option but to look for non-government sources of funds for investment.”
In his 2015-16 Railway Budget speech, the Railways minister projected a seemingly ambitious programme, of investing Rs 8.5 lakh crore over the next five years, with the help of not only multilateral agencies such as the World Bank and Asian Development Bank, but also international financial investors:
…the scale of our investment needs is such that it will require us to seek multiple sources of funding…. For financing remunerative projects through market borrowings, it is intended to tap low cost long-term funds from insurance and pension funds, multilateral and bilateral agencies which can be serviced through incremental revenues. Railways will create new vehicles to crowd in investment from long-term institutional investors and other partners.
Debroy points out that foreign investors such as international insurance companies and pension funds will need to be provided assurance that they are not lending to the Railways as a whole, but to specific, profitable projects which have to be isolated financially from the rest of the Railways: “owing to the historical baggage of a large shelf of projects riddled with time and cost overruns and continued piece meal allocations, IR needs to change its investment strategy through ring-fenced investments in High Yield Projects.”