Finance Ministry Rejects Railways’ Request to Convert Covid Loan into Grant, Grants Two-Year Moratorium

The Ministry of Finance has rejected a request from the Ministry of Railways to convert a Rs 79,398 crore special loan into a grant. This loan was taken in 2020-21 to help the Railways manage the financial impact of Covid-related disruptions and to fund pension liabilities.
Instead of converting the loan into a grant, the Finance Ministry has agreed to provide the Railways with a two-year moratorium on repayments. This decision comes just ahead of the loan’s redemption deadline in the financial year 2025-26.
The loan was initially provided to the Railways by the Central government to cover revenue losses caused by the suspension of train services between March and May 2020, during the peak of the pandemic. The loan also helped address pension fund shortfalls.
In its pre-budget discussions with the Finance Ministry, the Railways had proposed converting the loan into a grant. However, both ministries eventually agreed on the two-year repayment pause.
The Ministry of Railways confirmed the moratorium in a statement, noting that it would pay Rs 1,358 crore in interest for the period from 2024 to 2026.
According to Budget 2021-22 documents, the special loan of Rs 79,398 crore was provided to the Railways to address the “COVID-related resource gap” and to cover pension expenses from 2019-20. The opening balance of the Railways’ pension fund for 2020-21 showed a deficit of Rs 28,398.46 crore.
The Ministry of Railways emphasized that Indian Railways is performing well and is undergoing significant infrastructural development. The two-year moratorium will help manage its financial situation during this transformation. The Railways will continue to pay interest during the moratorium period.
While the Ministry of Railways has not shared further details on the loan following a January RTI query, the Ministry of Finance stated that the issue of loan repayment is under advanced deliberation as part of the Pre-Budget discussions for Budget 2025-26.
In light of the approaching loan redemption deadline, the Central government has taken steps to manage its finances, including a series of buybacks and switches of dated securities totaling Rs 2.15 lakh crore in the 2024-25 financial year.
The special loan was extended to the Railways with certain repayment conditions tied to its performance metrics. However, the Railways has faced difficulties meeting these conditions, leading to its request for a loan conversion into a grant.