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.