By M. Vijayakumar, Joint Adviser, NITI Aayog
The first public railway line utilising steam locomotives for passenger transport was established in England. George Stephenson’s rail system, the Stockton and Darlington Railway, commenced operations on September 27, 1825. Following this, rail technology was quickly adopted in India, with its first journey commencing in 1853 and covering 34 km. Indian Railways (IR) has since leaped forward in its operations with enhanced safety systems, high-capacity loco systems (12,000 HP), passenger-friendly coaches and various types of wagons, most of which are indigenously developed. In addition, IR currently employs around 1.3 million people.
Network expansion and technology advancements
At the time of India’s independence, IR had 57,000 route km (rkm) of track, with less than 1 per cent electrified and 50 per cent broad gauge, while the rest were meter and narrow gauge. Today, the network spans 69,000 rkm, with 90 per cent of its routes electrified. At the time of independence, India did not manufacture locomotives domestically at a commercial scale. All the locomotives in use were imported, primarily from Britain, Germany and the US. Locomotive manufacturing in the country began in 1950. IR now operates India’s first semi-high speed, fully indigenous electric train–the Vande Bharat Express–designed and manufactured under the Make in India initiative.
Many freight terminals have been developed as Gati Shakti Terminals. IR has also made significant digital advancements, such as online passenger and freight systems, with various operational activities, especially real-time train tracking, being digitalised. The railway sector now comprises world-class public sector undertakings and manufacturing units, such as Rail Vikas Nigam Limited, IRCON, Indian Railway Catering and Tourism Corporation, Integral Coach Factory and RITES Limited.
World-class railway stations have also been developed through public-private partnerships (PPPs), such as the Rani Kamalapati Railway Station in Madhya Pradesh and Gandhinagar Capital Railway Station in Gujarat, with amenities comparable to modern airports. Additionally, 1,300 stations are in the pipeline for redevelopment under the Amrit Bharat Station Scheme, with mixed public-private funding.
Sector challenges call for damage control
In 2023-24, IR recorded a revenue expenditure of Rs 2,528.33 billion against a revenue receipt of Rs 2,560.93 billion, comprising Rs 706.93 billion of passenger revenue and Rs 1,682.93 billion of freight revenue. This resulted in a revenue surplus of Rs 32.6 billion. The capex allocation in the union budget in 2023-24 was Rs 2,622.16 billion. Currently, IR is unable to fund network expansion and station development from its earnings, and is reliant on budgetary support from the central government.
The accompanying graphs depict IR’s net revenue, working expenses and operating ratio (the percentage of revenue 
spent on operating expenses).
IR’s earnings are not always in harmony with the capital deployed by the government. The incremental capital output ratio stands at 20 (the ratio of change in capital to change in revenue), which signifies an inefficient financial return on investment. This means that if Rs 20 is being invested, the output is worth only Re 1. IR should aim to achieve a better incremental capital output–for instance, a minimum of Rs 70 billion per year (by rationalising the pricing of freight and passengers, maximising 
non-fare revenue and reducing expenses) to bring down the ratio from 20 to 4 in line with the economy.
Successful examples from countries such as China, France and the US reveal that separating operations and fixed assets, expanding marketing, improving governance, adopting a citizen-centric approach and ensuring greater autonomy in decision-making will lead to better profits. Some global examples are stated below:
- BNSF Railway Company (Burlington Northern Santa Fe) is one of the largest freight railroad networks in North
America, headquartered in Texas. It was created in 1995 through the merger of Burlington Northern and the Atchison, Topeka and Santa Fe Railway. In 2010, BNSF became a wholly-owned subsidiary of Warren Buffett’s Berkshire Hathaway Inc. BNSF implemented a series of reforms that significantly enhanced its operational efficiency, service quality and profitability. BNSF prioritised network rationalisation, removing redundant routes and focusing on high-demand corridors. The net income increased from $1.7 billion to $6 billion within five years. - The Chinese government began separating government functions from enterprise management, leading to the establishment of the China Railway Corporation in 2013 (later restructured as the China State Railway Group in 2019). This allowed the railways to operate more like commercial entities, with a focus on profitability and efficiency. A major reform thrust was the massive expansion of high speed rail (HSR), starting in the mid-2000s, which turned China into a global leader in HSR technology and network size (with 45,000 rkm of HSR). Additionally, the government introduced market-oriented mechanisms, allowing private and local capital into railway construction and services. Railway investments were restructured to rely more on bond financing and PPPs rather than only state funding. In addition, incentives for well-performing railway zones caused increased outputs.
The telescopic pricing structure by IR, effective from July 1, 2025, states that there will be no increase in fares for journeys up to 500 km in the ordinary class; an increase of Rs 5 for distances of 501-1,500 km; Rs 10 for distances up to 2,500 km; and Rs 15 for 2,501-3,000 km. This hike may result in an additional revenue of less than 2 per cent. There remains considerable scope for more substantial fare rationalisation due to improved economic conditions and declining poverty.
The railways sector should aim to compete with air transport, especially by accelerating the introduction of high speed trains. This would help reduce congestion at airports and also attract passenger traffic to rail, thereby boosting revenues. I should also generate additional income from their manufacturing units, non-fare revenue streams, the unbundling of non-core activities, real estate development and network expansion. The establishment of a rail development authority will also attract private players. Establishing a unified transport regulator would support faster and more balanced growth of the transport sector, and may attract private participation in operations, investment and maintenance. Increasing capex for the railways sector through the union budget remains a matter of discussion. Greater participation from the private sector could bring in both resources and improved efficiency. These suggestions could help IR generate additional revenue and become self-reliant.
