On the Right Track or Running Out of Steam?

India’s rail network must modernize swiftly or risk being overtaken by road and air transport.

Since independence, Indian Railways has been both a national lifeline and an economic bottleneck. While recent efficiency gains have led to a modest operating surplus, the sector’s razor-thin margins, slow freight growth and competition from roads and air travel threaten its long-term sustainability. If the government’s ambitious goal of increasing rail freight’s share from 26 percent to 45 percent by 2030 is to be realized, sweeping reforms and massive investments are essential.

The growth of India’s logistics sector has been staggering, with freight traffic expanding 55-fold since 1950. Yet, rail’s share of this market has increased only 20 times over the same period. The numbers are sobering: in 2007-08, rail accounted for 36 percent of freight movement; by 2023-24, that figure had dwindled to 26 percent. The government’s target to nearly double rail freight’s growth rate to 9-10 percent annually is ambitious, to say the least. Over the past decade, freight traffic has grown at an annualized rate of just 4 percent.

Moreover, Indian Railways remains heavily dependent on coal, iron ore and cement - commodities that make up 71 percent of its freight revenue. But as India accelerates its climate commitments and shifts away from coal, this reliance could become a liability. Diversifying the freight portfolio is imperative if rail is to remain relevant in the coming decades.

The slow pace of freight trains is another concern. Despite marginal improvements, India’s freight rail lags behind global benchmarks. The National Railway Plan (NRP) envisions boosting this to 50 km/h by 2030, but achieving that target will require nearly Rs. 9 trillion in capital expenditure. Dedicated freight corridors (DFCs) are a crucial part of the solution. While the Eastern and Western DFCs are 96 percent operational, additional corridors linking the east-west, north-south, and east coast regions are unlikely to be completed before 2031. If India fails to fast-track these projects, rail freight could become an afterthought in the logistics sector.

Passenger services remain a financial sinkhole. Non-AC services suffer a staggering 45 percent under-recovery, bleeding Rs. 60,000 crore annually. While air-conditioned (AC) services break even, they face stiff competition from low-cost airlines. The Rajdhani Express, once a flagship service, is often undercut by airlines offering faster and cheaper travel options. Meanwhile, Shatabdi Express services are losing ground to road transport. The new Delhi-Mumbai expressway will slash travel time between the two cities to 12-14 hours, while even the fastest Rajdhani takes 16 hours.

The government has attempted to modernize the passenger experience with new Vande Bharat trains, but capacity constraints persist. Investing Rs. 10,000 crore in manufacturing more non-AC coaches is a step in the right direction, but unless hygiene, station amenities, and punctuality improve, passengers will continue to opt for alternative transport modes. Expanding semi-high-speed and high-speed rail corridors is critical to counter road and air competition.

On the safety front, Indian Railways has made remarkable strides. Train accidents have plummeted from 3,953 in 2000-01 to just 40 in 2023-24. Accidents per million kilometers have also declined from 0.65 to a mere 0.03 over the same period. However, funding remains a challenge. The Rashtriya Rail Suraksha Kosh (RRSK) provides Rs. 20,000 crore annually for safety improvements, but Railways’ internal accruals often fall short of meeting commitments.

A crucial upgrade is the Kavach system, an indigenous anti-collision mechanism. Despite its promise, Kavach has been rolled out on just 5,000 km of routes, far from the scale required for a 68,000-km network. At Rs. 50 lakh per km and Rs. 80 lakh per locomotive, its expansion requires serious financial commitment.

Railways is one of India’s largest landowners, yet encroachments and bureaucratic hurdles have hindered the monetization of its vast assets. The government’s Rs. 10 trillion asset monetization plan, aimed at reducing national debt to 50 percent of GDP by 2030-31, puts railways at the center of efforts to generate fresh capital. Public-private partnerships (PPPs) for station redevelopment and commercial land use could provide a much-needed financial boost.

Since economic liberalization, Railways has adopted a more professional approach, but structural inefficiencies remain. The Standing Committee of Railways has recommended periodic fare rationalization to reduce losses, yet socio-political co nsiderations have made fare hikes politically unpalatable.

If Indian Railways is to become a modern, competitive transport network, it must embrace deep-rooted reforms. Else, falling behind roadways and air travel would jeopardize not just its own future but also India’s broader economic ambitions.

(The author is a Chartered Accountant and works at Automotive Division of Mahindra and Mahindra Limited. Views personal.)