First time in 8 years; higher freight earnings signal sound financial run
For the first time in at least eight years, Indian Railways has not mopped up funds from the market even though almost half the financial year is over, signalling a sound financial run.
Thanks to an across-the-board freight rate hike of 24-28 per cent in March, the Railways’ financial position has been looking up. Revenues from freight registered 26 per cent growth for the first four months despite loadings going up by a much lower level of 4.3 per cent. Freight earnings account for almost 70 per cent share of its total earnings.


In this backdrop, the Indian Railway Finance Corporation (IRFC), the fund-raising arm of the Railways, can afford to delay its borrowing in the current fiscal, given the tight liquidity situation in the market. IRFC has to raise Rs 15,000 crore, of which Rs 10,000 crore will be tax-free bonds. It is yet to get the Finance Ministry’s nod for this. So, the first round of fund-raising appears unlikely before October. IRFC funds are primarily used to buy rolling stock, such as locomotives, wagons and coaches. This ensures that the loans are securitised against rolling stock, allowing it to access cheaper funds.
In 2011-12 fiscal, IRFC raised funds at a weighted average interest rate of 8.73 per cent, which was 0.57 per cent lower than the average cost achieved by all AAA-rated entities put together. Till date, it has acquired 6,073 locomotives, 36,613 passenger coaches and 162,238 freight wagons for the Railways, which are valued at Rs 82,447 crore.
“This is a first such occurrence since 2004,” said a source.


On whether the delay in raising funds was because of a possible slowdown in acquisition of rolling stock, Vijaya Kanth, Finance Commissioner, Railway Board, recently told Business Line that there was no slowdown in rolling stock acquisition and this was more a reflection of the of the financial health of the Railways.
In fiscal 2011-12, the IRFC funded the acquisition of 506 locomotives, 2,757 passenger coaches and 13,208 freight wagons, valued at Rs 12,604 crore. This was the highest ever funding of rolling stock by IRFC.