The ‘railway budget’, now concealed in the folds of the general Budget, does not paint a happy picture of the behemoth’s finances. The expenditure side looks grim, particularly in view of the likely impact of the eighth pay panel report. The best bet for now is to raise revenues in passenger and freight to pay for higher revenue expenditure. Leasing out railway land too is a potential revenue source. The Centre should, however, meet capital expenditure needs of the Railways to boost logistics and energy efficiency.
It has done well to boost railways’ capex in recent years. A Budgetary support of ₹2.5 lakh crore this fiscal and ₹2.78 lakh crore for FY27 is part of a pattern. This has apparently led to an improvement in safety standards and upkeep. However, the sum should be spent well on track renewal, better coaches and freight infrastructure, rather than on grandiose, populist projects which yield little. Meanwhile, there has been a sharp slippage in railways’ revenues this fiscal. Passenger revenues (just under 30 per cent of rail revenues) have fallen nearly 14 per cent short of the budgeted ₹92,800 crore. FY27 aspires for a growth of 9.1 per cent over the modest revised estimates of Rs 80,000 crore in FY26. The fare hikes in July and December last year do not seem to have had the desired effect so far. Freight revenues (close to two thirds of rail revenues) have underperformed as well. There has been a 5 per cent slippage this year, with respect to the budgetary target. On freight, the railway budget projects a 5.8 per cent growth from revised estimates of ₹1.78 lakh crore for FY27, amounting to ₹1.88 lakh crore. The writing on the wall is clear: Railways’ revenues are not rising, while its committed expenditures are slated to increase. Both passenger and freight revenues need to be raised, and the cross-subsidy (passenger by freight) reduced. While passenger revenues can be raised through fare rationalisation, freight revenues require a change of strategy.
For years together, coal has been contributing to about half the freight earnings of the Railways. Non-bulk goods such as container traffic, vehicles, FMCGs, parcels and pharma account for barely 16 per cent of rail freight revenues. This is a fast growing segment. Getting traffic to shift from road to rail in non-bulk goods, which could include vegetables, calls for speedy, reliable, door-to-door deliveries. Even within bulk goods, there is scope for cement to shift to rail. The Railways has been successful in increasing its share in transporting cars, by working in tandem with industry.
On expenditure, research by PRS shows that salaries and pensions have impounded 65-70 per cent of railways’ revenues over the last decade (68 per cent estimated for FY27). This is one of the main reasons for the high operating ratio of the Railways, leaving nothing for capital expenditure. The operating ratio, at above 98, may spike with the pay panel award. In this scenario, a change of track is needed.
Published on February 9, 2026