One of the biggest questions that has been batted around Delhi's economic circles and not-so-economic drawing rooms over the last few weeks has been how much public investment we can expect from Prime Minister Narendra Modi's second budget.

Former Reserve Bank of India Governor Bimal Jalan, who was picked by Modi to head the Expenditure Management Commission which advises the prime minister on spending, recently endorsed extra expenditure even if that would push the government into further debt.

Deficit Targets

Finance Minister Arun Jaitley, however, has all along stuck to the deficit targets left him by the previous government, although he has not shied away from complaining about this legacy. The Finance Ministry's Mid-Year Economic Review, meanwhile, suggested that the government believes in fiscal expansion.

Rail Budgets don't always directly correlate to the final budget numbers. Because the numbers are smaller and the challenge different, the rail budget can often grow at a different rate compared to the full budget. But if austerity is the name of the game, one would expect this to affect the Indian Railways too. It hasn't.

 


Rail Minister Suresh Prabhu announced a massive increase in spending on the Indian Railways for the coming financial year, to the tune of Rs 1,00,011 crore. That's an increase of more than 52% over the revised estimate in the previous financial year, a huge jump for any government department, let alone one that is already quite large. Not only that, Prabhu said that he even expected that number to get bigger.

Of this up to Rs 40,000 crore will be coming from the central government in terms of direct budgetary support, and another Rs 1,645 crore as part of a diesel cess. This is the clearest indicator of how much the government is willing to shell out in terms of public funding. It has increased the support to the railways by almost Rs 10,000 crore, equalling the total increase in outlay from central funds that had been achieved over the previous three years combined.



Different Sources

But not all of that cash is going to come from the central government. Prabhu also announced that he would be attempting to bring in money from lots of different places. Internal Resources within the railways are expected to provide around Rs 17,793 crore, but the budget speech also suggested that up to Rs 37,000 crore would be coming from Extra Budgetary Resources, essentially borrowings.

Half of that was basically expected, coming from regular market borrowing. But the other half, Prabhu expects to get from institutional sources such as states or Public Sector Units.




"Railways will create new vehicles to crowd in investment from long-term institutional investors and other partners. These may include setting up an infrastructure fund, a holding company and a JV with an existing NBFC of a PSU with IRFC, for raising long term debt from domestic as well as overseas sources, including multilateral and bilateral financial institutions that have expressed keen interest in working closely with Railways in this endeavor. We will monetize our assets rather than sell them," Prabhu said.



Clearly, the government is ready to go out on a limb and get into debt, in order to "transform" the Indian Railways, as Prabhu put it. He has also indicated more than optimistic figures for passenger growth and freight receipts over the next year, even though this year's numbers were below estimates. It's only a matter of days before we know whether this exuberance has infected the finance ministry as well.