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Indian Railways’ Freight Revenue Growth Trails GDP Expansion
Context:
Indian Railways’ (IR) freight revenue has struggled to keep pace with the nominal Gross Domestic Product (GDP) growth in recent years, reflecting persistent challenges in its operational performance.
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- According to figures presented in the Union Budget, freight receipts grew by only 4% in FY24, and 7% in FY25, and are projected to expand at a modest 4% in FY26.
- In contrast, nominal GDP grew by 9.7% in FY25, with budget estimates (BE) projecting a 10.1% rise in FY26.
- While passenger revenues have rebounded significantly after the pandemic slump—marginally outpacing GDP growth—the increase remains insufficient to meaningfully reduce the cross-subsidisation of passenger services by freight operations.
Capital Expenditure Constraints
- The financial strain is further compounded by a slowdown in capital expenditure (capex).
- The budgeted capex for FY26 stands at ₹2.55 lakh crore, the same as the revised estimate for FY25.
- With fresh borrowings effectively frozen, IR’s expansion plans rely heavily on government allocations.
- Unless operational revenues accelerate, the railway’s ambitious growth initiatives may face roadblocks.
- Experts note that freight rates are being kept deliberately low to remain competitive with alternative logistics channels such as road transport and inland waterways.
- Although rail transport is more cost-efficient—costing ₹1.36 per tonne per km compared to ₹2.5 per tonne per km via roads—trucks offer greater flexibility and last-mile connectivity, making them a tough competitor.
- In November 2024, Railway Minister Ashwini Vaishnaw announced that rail’s share in the total logistics market had risen to 29%.
- However, the target is to reach a 35% share over the next six years to help reduce logistics costs and curb inflation.
Freight Revenue Boost on the Horizon?
- Despite the modest 4% increase projected in freight receipts for FY26, experts believe that Indian Railways’ freight operations could receive a significant boost once the Western Dedicated Freight Corridor (WDFC) becomes operational, expected by the end of 2025.
- At the same time, IR is ramping up premium passenger services to further enhance revenue growth in FY26.
- According to a report from Elara Capital, as of January 5, around ₹40,400 crore—79% of the budgeted allocation for rolling stock in FY25—had already been spent.
- The pace of investments is expected to accelerate in FY26, with several fast-tracked projects and new customer-centric initiatives.
Expansion of Premium Trains
- The introduction of premium trains is set to play a key role in revenue enhancement.
- Indian Railways has ambitious plans for rolling out new Vande Bharat trains in the next financial year.
- So far, orders have been placed for around 210 Vande Bharat sleeper trains, with the first prototype successfully completing trial runs at 180 kmph.
- The official launch is expected in the first quarter of FY26.
- Additionally, four models of the Vande Bharat Chair Car 2.0 are set to be introduced before the end of the current fiscal year.
Challenges from Legacy Expenditures
- Despite these growth initiatives, Indian Railways continues to grapple with legacy expenditures that impact overall financial performance.
- One of the biggest burdens is pension payments, which accounted for 24% (₹66,359 crore) of IR’s revenue expenditure in FY25.
- Notably, the annual pension fund allocation is nearly equal to the spending on maintenance and repair of critical safety systems.
- In 2023, the Standing Committee on Railways highlighted that higher pension contributions—primarily to fulfill the railways’ social service obligations—are adversely affecting the operating ratio.
- Unless alternative revenue sources are strengthened or cost-saving measures are implemented, IR’s financial health may remain under pressure.
