Indian Railways, a critical sector for the Indian economy, is set to receive a significant boost in the upcoming Budget 2025-26 to be presented on February 1. A 15-20% increase in capital expenditure allocation is expected, as the funds earmarked for the sector in the previous budget are likely to be exhausted in time. Of the Rs 2.65 lakh crore capex for FY25, nearly 80% has already been spent. If the sector indeed receives the anticipated infusion, the total capital expenditure allocation for Indian Railways will exceed Rs 3 lakh crore.
Indian Railways is the nation’s largest employer and has seen consistent investment in modernisation and expansion. The new funds will be directed toward upgrading railway stations, launching modern trains, and decongesting the track network. A significant portion of the budget will be allocated to laying new tracks and upgrading existing ones, as well as purchasing rolling stock—locomotives, wagons, and coaches. Given its vast influence on daily life and economic activities, the railways sector is closely watched during budget announcements.
READ | India’s labour laws: Progress, pitfalls, and the way ahead
Capital expenditure plans for FY26
The upcoming budget is expected to include the announcement of additional Vande Bharat services, along with a significant increase in Vande Metro trains, designed for suburban commuters. Currently, Indian Railways operates 136 Vande Bharat trains nationwide, and it is set to begin operations of Vande Sleeper trains next fiscal year, providing enhanced comfort for long journeys.
A major infrastructure development initiative for FY26 will be a higher target for investments via the Public-Private Partnership (PPP) route. This follows strong progress in FY25, where nearly 90% of the planned Rs 10,000 crore PPP capital expenditure had been achieved by mid-January.
The sector has already invested Rs 21,000 crore in the National High Speed Rail Corporation Ltd (NHSRCL), the entity responsible for executing the bullet train project. A significantly higher allocation is expected in FY26 to expedite infrastructure development on this crucial corridor.
Additional initiatives expected include increased funding for the bullet train project, advancements in the KAVACH safety system, and the integration of artificial intelligence in operations, such as ticketing. Moreover, India Inc has urged the government to maintain its high capital spending plan to attract private investment and support the slowing economy.
Climate change and the role of Indian Railways
Under its Nationally Determined Contributions target for 2030, India has committed to reducing the emission intensity of GDP by 45% from the 2005 level. Railways play a key role in sustainable transportation, as rail travel is significantly more energy-efficient than road transport. In fact, rail freight generates less than one-fifth of the greenhouse gas emissions of road transport per tonne-kilometre. Shifting freight from road to rail could make a substantial contribution to India’s climate goals.
However, studies indicate that the growth rate in both commuter and freight services is slowing, which poses a challenge to India’s net-zero ambitions and efforts to decarbonise the transport sector. While the National Rail Plan aims to increase rail’s share in freight transport to 45% by 2030-31, achieving this target will require significant investments and a concerted effort.
Overcoming operational challenges
Indian Railways operates the fourth-largest rail network in the world, with 68,043 route kilometres in 2021-22. However, the sector has been facing numerous challenges that are impeding its growth, including technological obsolescence, regulatory complexities, aging infrastructure, and passenger overload. In recent years, the sector has witnessed multiple accidents, such as the Balasore and Kavaraipettai incidents, and the derailment of the Agartala-Lokmanya Tilak Express in Assam. These accidents have raised serious safety concerns.
Indian Railways requires an urgent overhaul of its business strategies to address rising operational costs. Key areas of focus should include diversifying revenue sources, addressing capacity constraints, and improving service quality.
Enhancing safety measures
Safety must remain the top priority for Indian Railways, especially in light of recent incidents. Expediting the installation of KAVACH, an India-developed automatic protection system, should be a national priority. KAVACH, designed to prevent train collisions, has been in development since 2012 under the name Train Collision Avoidance System (TCAS). As of 2024, it has been installed on just 2% of Indian Railways’ route length. Studies suggest that the government could complete its installation across the entire network within a decade by allocating just 2% of its annual capex.
In addition to KAVACH, overhauling existing signalling systems should be a priority. Moreover, addressing the deplorable working conditions reported for East Coast, Western, and Central Railways locomotive pilots is essential. These include long shifts, unhygienic resting facilities, and the absence of toilets on engines. Improving safety cannot be done in isolation—it must be accompanied by addressing these systemic issues.
Indian Railways must balance the demands for improved safety, infrastructure, and service quality with operational and financial constraints. The sector’s inability to generate sufficient revenue to fill budgetary gaps, coupled with increasing financial pressures, has made it difficult to maintain and enhance safety measures. The government’s continued support for capex is essential, but the question remains—will this allocation be enough to address the sector’s growing challenges?