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The modernization of Indian Railways requires a multi-faceted approach, with emphasis on developing freight corridors, rolling stock, safety measures
Budget 2025: Railway Budget
To transform Indian Railways into a world-class system capable of meeting rising demand and complementing India’s economic growth, the budgetary outlay for Indian Railways in the union budget assumes critical importance. Approximately 40% of Indian Railways’ capital expenditure is supported through budgetary allocations from the union government, underscoring the critical role of these funds. With the Union Budget for 2025-26 on the horizon, there is considerable anticipation regarding the allocation of funds towards the modernization, safety, and expansion of Indian Railways.
Shortfall in Projected Capital Expenditure
While significant progress has been achieved, with capital expenditure increasing by 77% over the past 5 years, there remains a gap between projected and actual capex. Of the ₹13.6 lakh crore earmarked for Indian Railways under the National Infrastructure Pipeline (NIP) from FY 2020 to FY 2025, only ₹9.59 lakh crore has been expended so far. Addressing this shortfall will likely necessitate a significant increase of 15-20% in allocations.
Key Focus Areas
The modernization of Indian Railways requires a multi-faceted approach, with emphasis on developing freight corridors, rolling stock, safety measures, and robust infrastructure. These areas collectively form the foundation for a world-class railway system capable of meeting the demands of a growing economy.
Dedicated Freight Corridors: Making Freight Faster and Smoother
Dedicated Freight Corridors (DFCs) represent a transformative initiative aimed at improving freight efficiency and reducing logistical costs. Two flagship projects—the Eastern DFC (connecting Punjab to Bihar) and the Western DFC (linking Maharashtra to Uttar Pradesh)—have already achieved significant milestones, with the Eastern corridor fully operational and large sections of the Western corridor functioning.
The next phase of development should focus on new corridors, such as the East-West (Maharashtra to West Bengal), North-South (Haryana to Tamil Nadu), and East Coast (West Bengal to Andhra Pradesh) DFCs, as envisioned in the National Rail Plan. These corridors hold the potential to enhance freight movement and further integrate the country’s economic hubs.
Trains Made in India: A Push for Local Manufacturing
Investment in railway rolling stock has risen substantially, with spending increasing from ₹27,000 crore in FY 2022 to ₹52,000 crore in FY 2024. Projections suggest a cumulative expenditure of ₹3 lakh crore by 2026. However, a significant portion of components such as wheels, brakes, and axles continue to be imported.
The introduction of a Production-Linked Incentive (PLI) Scheme for railway components would incentivize domestic manufacturers to produce these critical items locally. This initiative would reduce dependence on foreign suppliers, create employment opportunities, and support India’s vision of self-reliance in critical sectors.
Safety First: The Kavach System
Safety remains paramount for Indian Railways. The indigenously developed Kavach system—an Automatic Train Protection (ATP) technology—represents a major advancement in railway safety. The Kavach system has already been deployed across 1,465 route Kilometers and 144 locomotives on the South-Central Railway. A proposal to extend its implementation to an additional 6,000 Kilometers is currently under consideration. Given its critical importance, a substantial budget allocation for the Kavach system is expected.
Development of Associated Infrastructure
Developing supporting infrastructure is as crucial as modernizing trains and technologies. Projects like flyovers, bypasses, freight terminals, and passenger hubs play a vital role in eliminating bottlenecks, enhancing operational efficiency, and increasing network capacity.
The government has prioritized infrastructure development, doubling investments in flyovers and underbridges from ₹4,800 crore in FY 2022 to ₹9,200 crore in FY 2024. However, sustained progress requires a mix of budgetary support and innovative financing mechanisms like public-private partnerships (PPPs).
Budgetary allocations are essential for projects that are economically vital but not financially viable for private investors, such as flyovers and underbridges. In contrast, PPP models are better suited for revenue-generating initiatives like freight terminals, passenger hubs, and logistics parks. Given the push for infrastructure development, greater involvement of the private sector in the development of associated railway infrastructure is expected to be a key focus in forthcoming announcements.
The union budget for FY 2025 presents an opportunity to address existing challenges, prioritize key projects, and ensure a balanced approach to modernization and infrastructure development. With focused investment in freight corridors, rolling stock indigenization, safety measures, and allied infrastructure, Indian Railways can achieve its vision of becoming a world-class transport system.
As the nation moves forward, the modernization of Indian Railways will not only enhance mobility but also contribute to India’s broader aspirations of sustainable and inclusive growth.
Written by: Megha Arora, Partner & Abhishek Rohatgi, Associate, Indus Law.
Disclaimer:The views expressed in this article are those of the author and do not represent the stand of this publication.
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