A budget that throws sand in the wheels of Indian Railways

For the second successive time Finance Minister Nirmala Sitharaman’s Budget failed to utter the R word, confirming that the marginalisation of Indian Railways is well and truly complete.

Not even the spate of railway accidents soon after Prime Minister Narendra Modi assumed office for the third time has stirred the Finance Minister to pay heed to the enterprise as the nation’s critical lifeline.

This neglect of India’s largest enterprise – in the public as well as the private sector – was evident in the Economic Survey that was presented a day earlier. References to the Railways in an entire chapter devoted to infrastructure read more like a pamphlet singing paeans to the glories of Vande Bharat trains, instead of providing a road map for this most critical economic infrastructure.

After all, in the early days of the Modi regime, the Economic Survey, helmed by the then Chief Economic Adviser, had pointed out that investments in the “economic multiplier” worked with a factor of five in the case of railway investments. The implication was that one rupee of capital investment would generate five rupees of returns because of the wide spinoffs.

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An engine of growth neglected

Indeed, the practice of presenting a separate budget for Indian Railways was not merely a vestige of the country’s colonial past but a recognition that this enterprise, the country’s largest in terms of scale, scope and employment, deserved focused annual attention.

With economic growth projected to slow down even by the regime’s own admission, and with private capital investment not picking up, despite much cajoling and even outright begging by the leading lights of the government, a logical expectation was that capex would be significantly undertaken by the government. This countercyclical act, it was argued by some, would also lead to a pick-up in private investment.

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That has not happened in the overall Budget. And, it has been utterly marginal in the case of Indian Railways. Overall capex was projected at Rs. 1.11 lakh-crore by the Finance Minister in her July 2024 Budget; the revised estimates (RE) now reveal that this was missed by a margin of almost 10 per cent.

She has now projected a capital expenditure outlay of Rs. 11.21 lakh-crore for next fiscal. Perhaps the politician in the Finance Minister will forget by next year what she has promised now, because all attention then will be on her promise for the future, not what she actually delivered.

Capex mirage

The capital outlay for Indian Railways for the next fiscal year has been set at Rs. 2.52 lakh-crore – a little over one-fifth of the overall capital outlay in the Budget. Curiously, that figure has not budged a rupee in the three estimates since the last budget – the budget estimates (BE) for 2024-25, RE for the current year and the projection for next year.

To illustrate why this is grossly inadequate, all one needs to do is to compare the estimate for 2025-26 with the actuals of 2023-24. It turns out that the average annual increase in the outlay for the national lifeline will be majestic 2 per cent over a two-year period.

It is true that the capex for the Railways increased sharply – some may even claim it increased spectacularly – but this had a context. There were three sets of factors that indicated this was illusory.

First, capex had virtually collapsed during the pandemic; so, the subsequent increase, which initially appears stunning, was actually only a recovery from the doldrums. Second, this has to do with the Modi style of governance – promise the moon and then shift the goalposts further and further into the future (the Viksit Bharat target sits well with such an approach).

Soon after assuming office in 2014, Modi announced from the ramparts of the Red Fort a new project – the National Infrastructure Pipeline, in which the Railways was a component. Every successive budget (then presented by Arun Jaitley) since then missed the investment targets set in this policy. Still later, a new policy document surfaced, the National Rail Plan. This too met the same fate and was also quietly buried.

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Private investment delusion

The third aspect of the railway’s capex plan was the abiding – but misplaced – faith that the Modi government placed on private investments in the Railways. This was most notably a consequence of the government’s acceptance of the committee on restructuring the Railways, headed by the late Bibek Debroy.

For a number of years, every budget would make extravagant projections for investments by private companies in Public Private Partnerships (PPP), which were already proving to be controversial not just in India (remember the ILFS collapse?) but all over the world because of allegations of profit gouging. This is why the Finance Minister’s latest speech highlighting the use of PPPs as a device yet again rings hollow.

Critical bottlenecks

There is little doubt that the binding constraint in the Indian Railways is that of the network’s capacity. How can the fastest growing major economy in the world actually carry lower volumes of freight and passengers when compared to 2022-23?

Most of the major lines are congested. For example, the Kolkata-Chennai segment, on which the horrific accident at Balasore happened in June 2023, the density of traffic is 140-150 per cent of its carrying capacity. Curiously, the Modi regime’s penchant for running fancy trains – better no doubt in terms of amenities for passengers traveling on them – actually reduces the carrying capacity of the tracks even further.

The relatively faster Vande Bharats and the Shatabdis – incidentally both running on similar speeds and travelling times – require a lot of the slower goods as well as passenger trains traffic to be sidelined, which requires a further lowering of the railway’s capacity. The rest of the expenditures undertaken in the grand renovation of select stations indicate a further misplacement of priorities because they do zilch to enable the Railways to carry more people and goods on its network.

Cutting corners

In fact, this constraint is perhaps the underlying cause for the spate of railway accidents in the last few years. The severely congested network pressures railway workers at all levels to cut corners in order to accommodate the demands of those managing the traffic.

Significantly, although the Railway Minister never forgets to promise that the prodigal Kavach system is just round the corner – which would be the final solution to the problem of accidents, the Finance Minister did not even care to mention it in her speech or in the Budget papers.

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Nothing for tracks and signals

The expansion of the network, which obviously ought to figure among the highest priorities, receives no significant attention. The Budget projects an outlay of Rs 32,235 crore for 700 km of new lines in the next financial year, the same that was promised last year. In contrast, 4,621 km of new lines were added in 2022-23 and 2023-24, years in which the capex increased significantly.

Allocations for “track renewals,” a euphemism for replacing lines that have outlived their lives, has received a similar treatment. The Budget proposes to fund the renewal of 5,000 km of tracks, the same figure repeated faithfully three times – in the BE for 2024-25, the RE for 2024-25 and the Budget for 2025-26.

Capital expenditure on plant and machinery, which has a bearing on the safety of passengers travelling in carriages, has also been slashed by almost 30 per cent between the BE for 2024-25 and the Budget for the next financial year.

Comparing allocations in nominal rupees over time distorts our perception of how much money is required to achieve the stated objectives. One way of doing this, admittedly a rough one, is to compare the outlays per km of tracks – for renewal as well as new lines. This exercise reveals interesting insights. It turns out that the cost of a new line increased from Rs 13.43 in 2022-23 to an average of Rs 46.80 in the last three BEs (for 2024-25 and 2025-26), an increase of a whopping 250 per cent within three years. The average cost of a kilometre of track renewal increased by a relatively modest 41 per cent.

Funding shortfall

What this highlights is that the massive escalation of costs required to ease the fundamental constraint in Indian Railways demands a much bigger capex allocation than would have been the case normally.

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Amid large numbers of fatalities arising from accidents in which the signal systems were the prime cause, there was naturally an expectation that significantly higher allocations would be made for signalling and telecommunications systems. These expectations have been belied; allocations for the next year are barely 13 per cent higher than the revised estimates for 2024-25.

In the aftermath of the major railway accidents near Balasore and Visakhapatnam, in both of which faulty signalling systems were the prime cause, railway experts have been calling for a faster clearing up of the backlog of outdated signals that are a hazard on congested networks.

Life and death stakes

Given the abject neglect of the Railways in the budget, the nostalgia associated with what used to be the Railway Budget is not merely a sentimental thought — it has real consequences.

And, as we have seen, it's a matter of life and death.