INVESTMENT in the national rail network by the Indian government has risen sharply in the last decade. As documents prepared for the country’s annual budget show, capital expenditure at Indian Railways (IR) rose from Rs 144bn ($US 1.57bn) in 2004-05 to Rs 600bn in 2013-14, Rs 1 trillion in 2014-15, Rs 2.03 trillion in 2022-23 and Rs 2.65 trillion in 2025-26, with the budgetary estimates for 2026-27 reaching Rs 2.93 trillion.

It would be easy to dismiss this increase as political rhetoric, but the figures tell a positive story. Annual allocations for construction of new lines increased from an average of Rs 38.4bn in the period from 2009 to 2014 to an average of Rs 200bn since the government led by prime minister, Narendra Modi, took office in 2014, representing a comparative increase of 420%.

The funding allocated to adding additional tracks to existing lines shows a comparative increase of approximately 550% over the same period, while funding allocated to electrification averaged Rs 20bn between 2009 and 2014 and then experienced a 200% increase to Rs 60bn. Spending on safety-related items has increased by a factor of approximately five since 2014, while money allocated to rolling stock procurement has risen from an average allocation of Rs 100bn in 2009-2014 to Rs 450bn since 2014. In the last 11 years, an unprecedented sum of Rs 22 trillion has been invested in India’s rail network.

IR does not seem to be learning from its past mistakes, much less changing direction.

So far, so good. But despite consistent levels of spending on infrastructure, the challenges facing IR appear to have grown, with improvements in the organisation’s financial health or operational efficiency hard to discern. Take just one example: from 2014 to 2022, IR’s operating ratio hovered at a high level of between 90% and 98%, peaking at 98.5% in 2017 which was the worst result in a decade. For 2025-26, the operating ratio was reported as 98.4%. Those who follow IR’s financial performance closely suggest this figure was only achieved by some creative accountancy that kept allocations to the company’s depreciation reserve fund (DRF) and pension fund unrealistically low.

Revenue performance has been underwhelming, with passenger income in 2025-26 projected at Rs 800bn against a budgeted estimate of Rs 928bn. Similarly, freight income has been projected at Rs 1.78 trillion against a budgeted Rs 1.8 trillion. Passenger and freight traffic have shown very modest compound annual growth of 2-3%, while road has continued to chip away at rail’s modal share.

At the same time IR’s debts have been on the rise. As highlighted by several reports, including those produced by the Parliamentary Standing Committee for Railways and the Comptroller and Auditor General of India (CAG), IR’s reliance on extra-budgetary resources (EBR) raised by borrowing through the Indian Railways Finance Corporation (IRFC) has been increasing since 2015. IR is currently estimated to fund approximately 60% of the company’s capital expenditure with borrowing having risen from Rs 110bn in 2014 to Rs 819bn in 2018. As early as 2015, the Committee on Railway Restructuring had warned of an emerging debt trap. The CAG report of 2022-23 said that IR’s borrowing is masking the organisation’s inability to control revenue shortfall through better asset utilisation.

Structural issues

IR undoubtedly has reasons to be cheerful this year. The long awaited Udhampur - Srinagar - Baramulla Rail Link (USBRL) has been completed, while connectivity to the mountainous northeastern states has also been improved. The Eastern and Western Dedicated Freight Corridors (DFC) have largely been completed, while IR’s safety performance has shown a relative improvement, at least on the previous year. The long-awaited sleeper version of the 160km/h Vande Bharat EMU has also been launched at last.

However, the hype and hubris surrounding big-ticket projects can’t distract keen observers from the fact that IR’s structural problems seem to have remained unaddressed. A recent example came in the budget speech given by finance minister, Nirmala Sitharaman, on February 1, when she announced the bold objective to build seven new high-speed lines, in addition to the line between Mumbai and Ahmedabad, which is under construction, and a new DFC to connect Dankuni in West Bengal with Surat in Gujarat.

Oddly, Sitharaman remained silent on the many projects announced in her earlier budgets, including a long list of DFCs focusing on particular freight flows such as cement, energy and minerals, as well as a commitment to enhancing port connectivity. “Do these plans still exist, or have they wandered off?” former IR general manager, Sudhanshu Mani, asked in a recent blog post.

In the last few years, IR has focused on major projects which have not yielded the expected results. Under the Stations Redevelopment Plan announced in December 2022, for example, 1337 stations were identified as suitable candidates for renewal. But while annual spending under the plan is now Rs 120bn, work has so far been completed at just 160 stations. It is unfortunate that IR has recently failed to attract large-scale private investment in areas such as station redevelopment, rolling stock manufacture, premium train operations, or developing freight traffic. But of greater concern is that IR does not seem to be learning from its past mistakes, much less changing direction. The policy to develop rail freight by attracting private finance did not materialise in this year’s budget speech as hoped.

The Public Investment Board, the inter-ministerial body that approves major infrastructure projects, is understood to have lately taken the view that IR needs to revise its strategy to ensure that investment brings about the desired outcome in terms of revenue generation through the adoption of flexible contracting models, and by attracting private finance capital. A report by the Parliamentary Standing Committee for Railways from as far back as 2018 highlighted the issue of insufficient spending on asset replacement, despite the overall high level of investment in rail. IR, at the same time, has been struggling with capacity problems, low train speeds and project delays. A CAG report in 2021 pointed out that 50% of IR projects were experiencing delays. These issues do not appear to have been adequately addressed.