Railway finances: Let us get them firmly on track

Paper: GS – III, Subject: Indian Economy, Topic: Infrastructure, Issue: Reforming Indian Railway Finances.

Context:

The financial challenges faced by Indian Railways (IR) due to its subsidized fare structure and proposes a gradual shift towards a more commercially viable model, drawing parallels with the deregulation of India’s oil sector.

Key Highlights:

The Dilemma of Indian Railways:

• Indian Railways (IR) has long grappled with the question of whether it should operate as a commercial enterprise or as a departmental undertaking prioritizing social objective.

Historically, governments have leaned towards the latter, resulting in political influence shaping various aspects of IR, including:

• Track expansion: Decisions on where to expand the railway network.
• Stops along routes: Adding or removing stops based on political considerations.
• Train fares: Setting fares with a populist angle, often favoring lower-priced classes.

Recent Fare Revisions: A Drop in the Bucket:

• The recent fare revision, effective December 26, 2025, exemplifies this dilemma.
• While fares for AC and non-AC coaches on mail and express trains have increased, suburban fares and monthly season tickets, which cater to the largest segment of passengers, remain unchanged.
• Ordinary-class travel for distances up to 215km has also been spared.
• The estimated additional revenue of ₹1600 crore from this revision is a welcome but insufficient measure to address IR’s financial woes.

The Alarming Operating Ratio:

• The Fifth Report of the Parliamentary Standing Committee on Railways (August 2025) highlights IR’s poor financial health, pointing out that its Operating Ratio (OR) has remained above 98% since 2022-23.
• This means that for every rupee earned, almost a rupee is spent, leaving little for capital investments.
• A weak OR forces IR to rely on budgetary support or borrowings, increasing its interest burden.

The Stark Contrast in Fares:

Indian Railways fares are significantly lower than those of comparable railway systems in other countries.

• For example, a Vande Bharat seat from Delhi to Varanasi costs approximately $21-40, while an Amtrak ticket from Washington DC to Boston, covering a slightly shorter distance, costs $200-$500.

The Social Role of Indian Railways:

• It is crucial to acknowledge IR’s vital role as the country’s lifeline, transporting around 20 million passengers daily, with numbers increasing to 30 million during festive seasons.
• Beyond affordable transportation of freight and people, IR has been a powerful force for national integration and facilitates diverse economic activities.

The Need for Reform:

• While weaning a country accustomed to subsidized rail travel off “freebies” will be challenging, it is necessary.
• Even with an OR under 100%, IR consumes taxpayer funds that could be used for more deserving causes.

Lessons from the Oil Sector:

The deregulation of India’s oil sector offers a valuable precedent for gradually moving away from subsidies for rail travel. This approach could involve:

1. Phased Fare Increases
2. Targeted Subsidies
3. Improved Efficiency
4. Public Awareness Campaigns

Indian Railways needs to be financially sound, even if reforms are politically difficult to sell. By learning from the oil sector’s deregulation, IR can gradually reduce its reliance on subsidies, improve its operating ratio, and ensure its long-term sustainability.

Source: (Live Mint)

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