To help fund an unprecedented modernization plan, the Indian Railways plans to rack up debt that is more than the GDP of many countries.

According to the Indian Railway Minister Suresh Prabhu, some 2.5 trillion rupees ($37 billion) of debt is required in the five years through 2020. There are at present 692 billion rupees of outstanding Indian Railway Finance Corp. bonds and the planed amount is more than triple of that. Prabhu said that non-fare revenue streams from advertising and land holdings are also being explored by the network.

“Very soon we’d go out to the market to open up advertising and branding on most of our trains and stations¸ Indian Railways has various land banks which we are looking to monetize through long-term leases and other commercial development,” Prabhu said in e-mailed replies to questions.

In order to drag a network with roots in British colonial rule into the 21st century, the world’s fourth-largest railroad aims to pour 8.6 trillion rupees into new tracks, faster trains and station redevelopment. Even as congestion and aging rolling stock slow speeds, Indian Railways carries about as many passengers daily as Australia’s population.

For the bulk of the five-year upgrade government spending and debt is the primary fall back for Prime Minister Narendra Modi’s administration. According to Prabhu, the private sector is expected to contribute roughly 1 trillion rupees.

Funding options are in place for some projects such as a $15 billion bullet train due to start operations in 2023. But finding all the money needed for other railway improvements and delivering projects on time are the questions that over India’s ability.

Operating costs east up most of the revenues of the network. As more than half of India’s 1.3 billion people live on less than $3.10 per day, based on World Bank data, raising passenger fares is politically challenging. Additionally freight-based earnings are dented as most cargo is shipped by road rather than rail.

“Cutting costs is also a major strategy going forward. We’re also focusing on increasing freight revenues by increasing the basket of goods we carry,” Prabhu said.

He said that the railroad saved 100 billion rupees last year by paring expenses.

The gross domestic product of nations such as Serbia or Bolivia is less than the prospective borrowing to fund Modi’s modernization project.

$800 million of dollar-denominated debt and 638 billion rupees of local-currency bonds are outstanding with the Indian Railways.

According to Bombay Stock Exchange prices, the lowest price since they were issued in 2014 was noted for yields on the 8.88 percent rupee bonds due 2029 when they fell to 6.08 percent on July 15.

The allure of bonds in Asia’s No. 3 economy was boosted with recent speculation that the Reserve Bank of India may become more dovish.

Bharat Salhotra, managing director of transport operations at Alstom SA’s Indian unit near New Delhi said that the scale of the railway network means it’s crucial to manage investment projects better even as Modi’s government recognizes the potential impact of railway modernization on the country’s economy.

“When you’re looking at an organization with the size and scale of the railways, they need to develop the competence and tools to be able to assess and prioritize investments,” he said.

(Adapted from Bloomberg)

Categories: Economy & Finance