Budget Review 2025-26
Understanding Demand for Grants: Railways (2025-26)
The Railways' financial
statements were presented as part of the Union
Budget 2025-26 by Finance Minister Nirmala
Sitharaman on February 1, 2025. Indian Railways operates as a commercial entity
under the central government and is managed by the Ministry of Railways through the Railway Board.
Sources of Railway Finance
The Railways’ expenditure is funded through three main sources:
1.
Internal Revenue:
This includes earnings from passenger and freight services.
2.
Budgetary Support:
Direct financial aid from the central government.
3.
Extra-Budgetary Resources (EBR): Borrowings, institutional financing, and
public-private partnerships (PPPs).
Internal revenue mainly covers working
expenses, including salaries, pensions, and
asset maintenance. However, the surplus generated is not enough to fund capital
expenditure (infrastructure projects like new lines, track renewals, and wagon
procurement). Hence, capital expenditure is primarily supported by government
grants and extra-budgetary resources.
Key Budget Figures for 2025-26
1.
Revenue Projections:
o
The internal
revenue for 2025-26 is estimated at ₹3,02,100
crore, an 8.3% increase from the revised estimate of 2024-25.
o
Traffic revenue
(income from operations) contributes 99.8%
of the total revenue:
▪
Freight services:
₹1,88,000 crore (62% of total traffic revenue).
▪
Passenger services:
₹92,800 crore (31% of total traffic revenue).
o
Compared to the
previous year:
▪
Freight revenue
is projected to increase by 4.4%.
▪
Passenger revenue
is projected to rise by 16%.
2.
Expenditure Estimates:
o
Revenue Expenditure (day-to-day operations): ₹2,99,059 crore, up 7.7% from 2024-25.
o
Capital Expenditure (infrastructure investment): ₹2,65,200 crore, same as the revised estimate for 2024-25.
o
The central
government’s budgetary support for capital
expenditure is
₹2,52,200
crore, covering 95% of total capital spending.
3.
Operating Ratio:
o
The operating
ratio (expenses as a percentage of revenue) is
projected at
98.43% in 2025-26.
o
This is a
slight improvement from 98.9% in
2024-25.
o
A lower
operating ratio indicates better financial health, as more revenue is available
for investments.
Railway Revenue
Indian Railways generates its internal revenue from three key sources:
1.
Passenger Train Operations
2.
Goods (Freight) Train Operations
3.
Sundry Revenue
– This includes earnings from rent, catering receipts, commercial utilization
of land, and advertisements on coaches and stations. For 2025-26, the estimated revenue breakdown is:
• Freight
Revenue: ₹1,88,000 crore (62% of total
internal revenue)
• Passenger
Revenue: ₹92,800 crore (31% of total
revenue)
• Sundry
Revenue: ₹12,100 crore (4% of total
revenue)
Railways’ Freight Growth Strategy
The
Railway Board (2022) observed that
while India's logistics market expanded
55 times between 1950 and 2021 (from 87 million tonnes (MT) to 4,500-5,000
MT), rail freight only grew 20 times (from 73 MT to 1,418 MT). This led to a decline in Railways' modal
share in freight traffic:
• 2007-08: 36%
2021-22: 26%
• Target
for 2030-31: 45%
Increasing Railways’ share is crucial for both environmental
benefits and efficiency improvements.
Freight Traffic Targets
• In 2022,
Railways set a goal to double originating freight traffic to 3,000 MT by
2027, later revised to 2030.
• To meet this goal, annual freight traffic
growth must be 9% until 2030-31.
• In 2025-26,
Railways aims to transport 1,700 MT of freight, representing an annual growth rate of
4.1% over
2022-23.
• Over the past decade (2012-13 to 2022-23), freight traffic has grown at a similar rate of 4%
annually.
Commodity-wise Freight
Distribution (2025-26) The highest
contributors to freight tonnage are:
• Coal: 51%
(estimated annual growth rate 5.8%)
• Iron
Ore: 11%
(estimated annual growth rate
3.8%)
• Cement: 9%
(estimated annual growth rate 2.4%)
To boost freight traffic further, Railways must attract more
cargo categories, such as:
• Finished
metals
• Agricultural
produce
• Chemicals
• Parcels
and container traffic
Container traffic is expected to grow at an annualized rate of 4.7% between 2022-23 and 2025-26.
Need for Capacity Augmentation
The
National Rail Plan (NRP) 2020
highlighted that underinvestment in capacity has resulted in significant congestion on high-demand routes and low average speeds, making rail freight less competitive compared to
road transport.
Key Congestion Issues:
• Over
100% capacity utilization on 80% of
highdensity routes and 48% of highly
utilized routes, leading to network
congestion.
• Freight
train speed in 2022-23 averaged 30 km/h, showing only a slight improvement from 26 km/h in 2012-13.
• The NRP aims to increase freight train speed
to 50 km/h by 2030.
Planned Initiatives for Capacity
Expansion:
To achieve
this, Indian Railways has proposed:
1.
Construction of Dedicated Freight Corridors
(DFCs)
2.
Adding new railway lines
3.
Multi-lane high-density corridors
4.
Procuring and diversifying wagons based on cargo
type
Capital Outlay: ₹8.5 lakh crore has been allocated for 2022-23
to 2026-27.
Currently,
two dedicated freight corridors are
operational:
• As of November 2024, 96% of the planned 2,843 km is operational.
• Three additional freight corridors (East-West,
North-South, and East Coast) are planned after
2031.
Issues in First and Last-Mile Connectivity
Railways struggle to compete with roads for freight transport due to better
first and last-mile connectivity in the road
sector.
Steps Taken to Improve
Connectivity:
1.
Infrastructure Investments: Linking industrial hubs, ports, and mining areas
to rail networks.
2.
Gati Shakti Multi-Modal Cargo Terminal (GCT)
Policy: o 354 multi-modal cargo terminals identified.
o
91 terminals
commissioned as of December 2024.
o
Each terminal
is expected to be completed within 24 months of approval.
3.
Door-to-Door Services: In partnership with India Post
to enhance small parcel transport.
Private Investment in Wagons
Indian Railways has introduced several schemes to encourage private
investment in freight wagons:
1.
General Purpose Wagon Investment Scheme – Private operators can invest in at least
one rake of wagons for carrying any commodity.
2.
Liberalized Wagon Investment Scheme – Allows manufacturers and logistics
providers to invest in special-purpose and
high-capacity wagons. In 2022, Roll-on-Roll-Off (RoRo) services were added to this scheme.
3.
Automobile Freight Train Operator Scheme – Permits private investment in specialized wagons for automobile
transportation.
4.
Wagon Leasing Scheme – Enables leasing of wagons through public-private partnerships
(PPP).
Challenges in Attracting Container
Traffic Railways' container traffic consists of:
• Export-Import
(EXIM) containers
• Domestic
containers (used for FMCGs, chemicals, and
pharmaceuticals)
Growth Trends:
• Domestic
container traffic is projected to grow at 9%
annually between 2015-16 and 2025-26.
• EXIM
container traffic is expected to grow at 5%
annually.
• Container traffic share in total railway volume is
expected to increase to 7.9% in 2025-26,
up from
6.6% in 2015-16.
Key Challenges in Container
Traffic Growth:
1.
Lack of assured transit time, leading to delays.
2.
Maintenance-related rake idling, increasing turnaround time.
3.
High access costs to container terminals.
4.
Expensive repositioning of empty containers, accounting for 60% of total loading costs.
Pricing of Freight and Passenger Services
The Railway Board (2022) noted
that rail tariffs, combined with high first and last-mile connectivity costs,
make rail freight less competitive than road transport.
Cross-Subsidization of Passenger
Services
• Freight
services subsidize passenger fares, making
passenger transport more affordable.
• As
of 2018-19, freight charges were nearly three times higher than passenger fares (NITI Aayog, 2023).
• Between 2009 and 2019:
o Freight rates increased
by 91%, while o Passenger fares
increased by only 28%.
Revenue Losses in Passenger
Services
• Most passenger categories fail to recover
their operating costs.
• Between 2018-19 and 2021-22, only AC 3-tier and AC Chair Car (in some
years) generated profits.
• The Standing Committee on Railways (2024) recommended a comprehensive review of
operating expenses and fare rationalization to
reduce losses while ensuring affordability.
Key Concern: Freight revenue alone is insufficient to cover passenger segment losses.
Railways’ Social vs. Commercial
Objectives
• Indian Railways is a commercial undertaking
of the government.
• However, passenger segment losses are
classified as "social service obligations", raising the question of whether a commercial entity should
bear social costs.
• NITI
Aayog (2023) observed a lack of clarity
between Railways' social and commercial objectives.
Slow Growth in Non-AC Passenger
Traffic
• The passenger segment consists of suburban and non-suburban operations, with 90% of passengers traveling on
long-distance (nonsuburban) routes.
• In
2025-26, Railways estimates 9% growth
in passenger traffic over the previous year.
• However,
growth in the non-AC segment has remained stagnant, possibly due to: o Limited supply of
non-AC coaches o Higher
preference for road travel
Planned
Expansion:
In December 2024, the Ministry
of Railways announced plans to add 10,000 non-AC coaches.
Recently Introduced Passenger Train Services
Train Type |
Launch Year |
Features |
Amrit Bharat Non-AC Trains |
2024 |
Fully non-AC,
12 sleeper + 8 general
coaches |
Vande Bharat AC Chair
Car |
2019 |
160 km/h
speed, 136 trains operational by Dec 2024 |
Vande Bharat AC Sleeper |
TBD |
Can reach
180 km/h, to be operational post field trials |
Bharat Gaurav Trains |
2021 |
Tourist
& pilgrimage trains (AC +
non-AC coaches) |
Sundry Revenue: Untapped
Potential
• Sundry
revenue includes earnings from:
1.
Catering services
2.
Advertisements on coaches and stations
3.
Licensing land & buildings
• In 2025-26,
sundry revenue is projected at ₹12,000 crore (9% increase over the previous year).
• Despite
this, its contribution to total revenue remains low (around 4%).
Railways’
Target: Increase non-fare revenue from
3.4% to 20% by 2030.
Key Measures to Boost Sundry
Revenue
1.
Advertising on coaches and stations
2.
Station redevelopment projects
3.
Asset monetization
CAG
(2022) highlighted significant scope
for increasing ad revenue and commercial land utilization.
Station Redevelopment Schemes
• Adarsh
Station Redevelopment Scheme (2009-
2022) o 1,253 stations were redeveloped.
o
Financed
through general budgetary support.
o
₹9,328 crore
allocated between 2018-19 and 2021-22.
• Amrit
Bharat Station Redevelopment Scheme
(2023-Present)
o 1,337 stations identified for redevelopment. o Focuses on:
1.
Enhancing station infrastructure
2.
Promoting local products through kiosks
3.
Building executive lounges & business
meeting spaces o Two stations under PPP
mode.
Challenges
in PPP Investment:
• Kelkar
Committee (2015) recommended PPPbased
station redevelopment.
• Standing
Committee on Railways (2023) noted that only
two bids were received for 23 proposed PPP projects, indicating low private sector interest.
Railway Expenditure: Key Trends
and Challenges
1. Salaries
and Pension: A Major Financial Burden
• A significant portion of Railways’ revenue expenditure is allocated to staff salaries
and pensions.
• Over the last 10 years, Railways has spent 69% of its internal revenue on these expenses.
Projected
for 2025-26:
• 42%
of internal revenue allocated to staff
salaries.
• 22%
of internal revenue allocated to pensions.
• Both salaries and pensions have grown at 8%
annually, while internal revenue has
grown at only 6%.
Pension
Reforms:
• New
Pension Scheme (NPS) (implemented in 2004) was expected to reduce the pension burden by 2034-35 (Standing
Committee on Railways, 2020).
• Unified
Pension Scheme to be introduced from
April 1, 2025:
o
Employees under NPS can shift to this scheme.
o
Government’s contribution rate will increase from 14% to 18.5%, ensuring assured pension benefits.
• 8th Pay Commission announced, likely increasing salary and pension
expenditure.
2. Rising
Debt Servicing Obligation
• Railway raises extra-budgetary resources through the Indian Rail Finance Corporation
(IRFC), which borrows from the market and
follows a leasing model to finance
rolling stock.
Outstanding
Liabilities:
• ₹1.1
lakh crore in 2015-16 → ₹4.4 lakh crore
in 2025-26.
• Lease
payment expenses (including principal and interest) are rising:
o
Interest payments:
₹8,598 crore (201617) → ₹31,433 crore (2025-26).
o
Principal repayments: ₹7,000 crore
(2016-17)
→ ₹27,905 crore (2025-26).
• In 2025-26, lease charges will consume 20% of
Railways’ internal revenue.
Concern:
Growing lease liabilities could limit future investments in railway infrastructure.
3. Fuel
Expenses and Shift to Electrification
• In 2025-26, Railways will spend ₹38,259 crore
on fuel (4% increase from the previous year).
• 97%
of broad-gauge routes electrified (as of December 2024).
• Transition
from diesel to electricity is expected to reduce
fuel costs.
Cost-Saving
Measures:
• Direct
electricity procurement (Open Access Model)
has saved Railways ₹13,417 crore between 2017-18 and 2021-22.
• However, only 11 states have granted open
access permissions.
Renewable
Energy Initiatives:
• Railways
aims to install 30 GW of solar and wind power capacity by 2030.
• However, as of October 2024, only 375 MW solar and 103 MW wind power have been commissioned.
Challenges:
• States’
reluctance to grant open access for electricity procurement.
• Slow
progress in renewable energy adoption.
Rising
Specific Energy Consumption (SEC):
• SEC
measures energy efficiency in freight transport
(lower ratio = better efficiency).
• CAG
(2024) warns that increasing electrification
may lead to higher SEC in freight.
4. Limited
Revenue Surplus: Hindering Investments
• Over the last decade, Railway expenditure has
consumed 99% of internal revenue receipts.
• Minimal
surplus available for capital investments from
internal resources.
Operating
Ratio (Efficiency Indicator)
• Operating Ratio = Total working expenditure /
Internal revenue.
• A higher ratio indicates lower financial
efficiency (i.e., Railways spends too much to
earn ₹100).
Operating
Ratio Trends:
• Above
96% since 2016-17.
• 107%
in 2021-22, meaning Railways spent more than
it earned.
• 98.4%
projected for 2025-26.
CAG
(2023) Observations:
• Without certain adjustments (e.g., advance
receipts, pension deferrals), the operating
ratio would have exceeded 100% in multiple years.
• Indicates Railways’ financial stress and low
profitability.
5. Impact
on Infrastructure Maintenance: Depreciation
Reserve Fund (DRF)
• DRF
funds the replacement of aging railway assets
(tracks, rolling stock, bridges, etc.).
Appropriation
to DRF has significantly declined in recent
years.
Budgeted
vs. Actual Allocations:
• 2021-22: ₹800 crore budgeted → ₹0 spent.
• 2025-26: ₹1,500 crore allocated (insufficient for backlog).
CAG
(2023) Findings:
• ₹34,319
crore worth of assets need urgent replacement.
• Rolling
stock and track renewals face the highest backlog.
Concerns:
• Inadequate
DRF allocation is leading to delays in
asset renewal, increasing safety risks
and operational inefficiencies.
1. Rashtriya
Rail Sanraksha Kosh (RRSK): Railway
Safety Fund
• Created
in 2017-18 by the central government to renew, replace, or upgrade critical
safety assets of Indian Railways.
• Originally planned as a ₹1 lakh crore fund
over five years.
Annual
Funding Structure:
• ₹20,000
crore per year (₹15,000 crore from the central
government + ₹5,000 crore from Railways' internal revenue).
• The fund was extended for another five years from 2022-23.
Challenges
in Funding:
• Due to low revenue surplus, Railways has struggled to contribute its share to
RRSK.
• 2025-26
Allocation: ₹2,000 crore from internal
revenue.
• 2024-25
(Revised Estimate): Allocation 49%
lower than the initial budget estimate.
Key
Concern:
• Insufficient funding could impact safety
infrastructure upgrades and accident
prevention measures.
2. Capital
Expenditure & Government Support
• Railways'
capital expenditure (CAPEX) for 2025-26:
₹2,65,200 crore.
• Only
1% of CAPEX will come from Railways' internal revenue.
• 95%
of CAPEX will be financed by the central government.
Extra
Budgetary Resources (EBR):
• Includes
borrowing, institutional financing, and public-private partnerships (PPP).
• Use of EBR increased from 2014-15 to 2020-21 but has since declined.
• In
2025-26, only 4% of CAPEX is expected to come from EBR.
Private
Sector Participation:
• Economic
Survey 2024-25 emphasized that private sector
involvement in:
o
Infrastructure construction o Maintenance
o
Asset monetization
o
Project impact assessments
• Standing
Committee on Railways (2024) recommended
encouraging private investment in railway infrastructure to reduce the
financial burden on the government.
3. Railway
Safety: Trends & Measures
• Total
consequential train accidents (2000-01 to 2023-24): 3,953.
• 2022-23: 48 accidents.
• 2023-24: 40 accidents.
Accident
Rate Improvement:
• 2000-01: 0.65 accidents per million km.
• 2023-24: 0.03 accidents per million km.
Common
Causes of Derailments (CAG, 2021):
1.
Bad driving or over-speeding.
2.
Poor track maintenance.
3.
Track deviations beyond permissible limits.
4.
Defective coaches/wagons.
5.
Errors in shunting operations.
Shortfalls
Identified by CAG (2021):
• 30-100%
shortfall in railway track inspections.
• 63%
of non-AC coaches lacked fire extinguishers.
Safety
Measures Implemented by Railways:
1.
Replacement of mechanical signalling systems for better control.
2.
Removal of unmanned level crossings to reduce accidents.
3.
Kavach – Automatic Train Protection System:
o
1,465 route km covered (South Central Railways). o Installation
cost: ₹50 lakh/km and ₹80 lakh/locomotive.
o
₹1,547 crore spent on Kavach as of December 2024.
References:
• Indian Railways website
• Railways year book
• CAG report
• PSR legislative survey
• Various statistical reports of Railways
• Amrit Bharat Station Scheme
• GCT Policy
• RRSK
• Various press releases
• From Various websites
• It is only for educational purposes. Kindly don’t use
this data for any official purpose.
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