Indian Railways is churning through interesting times. The stress of pandemic is clearly visible on railways’ finances with considerable revenue deficit to happen in the financial year 20-21.However, this is not a surprise as most of the organizations are facing the same stress due to pandemic especially those who are concentrated in services sector like transportation , tourism and leisure. The most interesting development on financial front has been the use of debt to fund safety works of railways which were erstwhile funded by ministry of finance through specific funds like RRSK etc. While this has been termed as one time measure but only time will tell how far such provisions will be used to fund unlimited demand of railway safety works.

To put the things in context, it is important to understand what comprises of ‘railway safety works’. Railway safety works, in fact , is a misnomer as it sounds as if most of the railway safety works are related to operational safety of railways like track or rolling stock. Contrary to this, most of the railway safety works are actually oriented towards either station-user safety or the road-users meeting the railway track on intersection. Railway Over bridges , Railway under bridges , Foot over Bridges, High level platforms are all fine examples of works funded through safety fund and now debt. It is also important to remember that Railway is under no obligation to construct over bridges or under bridges to facilitate road users. The presence of level crossing or popularly known as ‘fatak’ is enough for railways to fulfill its obligation. However, over a period of time, railway has also been taking up this work with states on cost sharing basis with most of the railways fund coming from finance ministry.

However, with finance ministry withdrawing the funds meant for such works, railway has decided to fund such works through debt. There are two fundamental problem in doing non-operations related safety works through debt. First one is that funding such projects through loans where rate of return is zero is going to create deep financial trouble for the organizations. Debt is a powerful leverage instrument and can be equally addictive for government organizations. The tendency to use debt to fund such projects are likely to set precedent and then regularize it as a norm. This will not only put railway finances into deep trouble but can also hurt IRFC(Indian railways finance corporation) which is floating the bonds to raise the money from the market. With IRFC’s IPO lined up and its ambitions to raise money from market , such risky bets can boomerang anytime.

Second problem is that Passenger safety work or road user’s safety work has to be essentially demand driven. Whether to have a Railway over Bridge or under bridge should be purely decided by local authority and depending upon the topography and demography either state should fund such a project or develop ROB’s and RUB’s on PPP models like Build-Operate-Transfer. It will ensure efficient allocation of resources and will only initiate need based projects. Further, since non-debt investment will come either from private player or state , it will help railways to not raise debt for non-remunerative works. Further, private players have more capacity and freedom to monetize such assets which is not available with railways. It will also likely rationalize the requirement for such projects and will bring prioritization of key projects. Similarly, construction of High level platforms and Foot over bridges at remote locations should be left to local panchayats or private parties as the expense to usage ratio in such projects is very high.

Covid-19 has brought interesting opportunities for railways. After a long time, it is visible that road traffic moving to railways. The e-way bills , a key measure of freight traffic is showing a downtrend whereas railway freight is showing an upward trend. This is the time for railways to rejuvenate its freight supply chain and regain its lost market share of freight traffic. To ensure this, it is important that railway finances should be purely aligned with operational safety and should shy away from spending on areas where returns are nil. The areas like passenger amenities or road user facility should be opened to private sector liberally. Private investment in such project will yield better returns than public investment fueled through debt. Leverage for better returns can be rewarding and leverage for no returns can be suicidal. Railways need to use leverage only for rewards and not to create a debt trap for itself. Sooner the railways realize this , better it is for the organization as well as the country.