Highlights of the Bill

Key Issues and Analysis

• The Bill retains the current organisational structure of the Indian Railways.  Experts have proposed various measures to improve the functioning of Railways like corporatisation of Railways, setting up an independent regulator, and giving more powers and autonomy to zones.   Suggestions to improve Railways’ finances include changing accounting methods, rationalising passenger fares, improving the freight basket, and raising revenue through private partnerships

PART A: HIGHLIGHTS OF THE BILL

Context

The Railways Act, 1989 regulates various aspects of the functioning and administration of the Indian Railways.[1]  It provides for the organisation of Railways into zones for administrative ease.1  The Indian Railway Board Act, 1905 constituted the Railway Board as the central authority to administer the Indian Railways.[2]   The central government may invest its powers and functions with respect to Railways in the Board.

The Railways (Amendment) Bill, 2024 was introduced in Lok Sabha on August 9, 2024.  It repeals the 1905 Act, and incorporates provisions related to the Railway Board into the 1989 Act.  As per the Statement of Objects and Reasons of the Bill, this will simplify the legal framework and reduce the need to refer to two laws.  While examining the Railways Bill, 1986 (that became the 1989 Act), the Joint Parliamentary Committee had recommended that the 1905 Act be incorporated into the 1986 Bill.[3]

Key Features

PART B: KEY ISSUES AND ANALYSIS

Improving Functioning of Railways

Indian Railways is a departmental undertaking of the central government and a government monopoly.  The Railway Board has the powers of policy making, operations, and regulation regarding Railways.[4]  Decision making is largely centralised with the Board and zones have limited powers with regards to budgetary control, sanction of infrastructure works and recruitment of human resources.[5]^,6  The Bill retains the current structure for administration of Railways.  Over the years, several Expert Committees have suggested measures to improve the functioning of Railways which include changing the organisational structure.[6]^{,[7],[8],[9],[10],[11],[12],[13]}

Indian Railways was envisioned as a commercial undertaking of the government, with an additional social responsibility to make transport services accessible and affordable to the public.[14]  Over the years, Railways has faced persistent challenges such as: (i) high operating costs due to significant salary and pension expenditure, (ii) continued losses from its passenger business due to under-pricing, (iii) under-investment in capacity augmentation (infrastructure development) due to poor surplus generation and limited private participation, and (iv) network congestion and cross-subsidy for passenger services reducing its freight competitiveness.  Table 1 lists key measures suggested by Expert Committees to address these issues.

Table 1: Recommendations of various Committees on reforming the Railways

Parameter	Recommendations
Regulatory Structure for Railway Sector	Set up independent regulator to fix tariffs, promote competition, and protect consumer interests6,7,9
Organisational structure of Indian Railways	Corporatisation of Indian Railways6,9  Reorganise Railway Board to reflect a corporate business structure7,9  Envision the Railway Board as a policymaker alone6,9  Provide zones with full financial autonomy6,7,9,10
Operations	Separate core and non-core business (hospitals, schools, catering and security) of the Railways6,9   Permit private participation in some railway operations6,7,8,9,10,13
Finances	Clearly define social obligations and commercial business roles6,9,12 Restructure accounting procedure to reflect zone and route-wise profit and loss statements6,7,9 Develop PPP models to attract private participation in: (i) developing and maintaining stations/ terminals, (ii) leasing of wagons, (iii) freight train operations, (iv) manufacturing of rolling stock, and (v) running non-core business operations6,9,10,13 Monetise railway assets9,10 Rationalise passenger tariffs6,9,11

Sources: India Railway Report, 2001 (Chair: Dr. Rakesh Mohan); Expert group on Modernisation of Railways, 2012 (Chair: Mr. Sam Pitroda); India Transport Report, National Transport Development Policy Committee (2014); Committee for Mobilization of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board, 2015 (Chair: Mr. Bibek Debroy); Committee on Creative Financing of Railways, 2014 (Chair: Mr. Montek Singh Ahluwalia); PRS. 

Need for independent regulator for the Railway sector

Railways has sought to increase private participation in several segments.[15]^,[16]   These include: (i) wagon investment, (ii) station and terminal operations, and (iii) running of freight trains including container trains.6^,15^,16  These measures aim to attract investment, increase efficiency in operations, and improve service standards.9  The Committee on Restructuring of Railways (2015) had noted that participation from the private sector has been limited.6  It had observed that Railways’ monopoly over operations discouraged private participation.  In July 2020, Railways had invited private participation in the operation of 151 passenger trains across 12 clusters.[17]   However, no bids were received for nine clusters.17 

To protect the interests of stakeholders and promote competition, the Committee had recommended setting up an independent regulator.  It would have powers to regulate aspects such as: (i) tariffs, (ii) safety, (iii) access to railway infrastructure for private operators, and (iv) technical and service standards.6  Independent regulators have been set up by law for sectors such as telecom, electricity, insurance, and airports which have had private sector participation since 1991.[18]^{,[19],[20],[21]}

In May 2017, the Union Cabinet had approved the constitution of the Rail Development Authority (RDA).[22]   RDA would provide expert advice to the Ministry on: (i) pricing of services, (ii) measures for enhancement of non-fare revenue, (iii) encouraging market development and participation of stakeholders in the rail sector, and ensuring a fair deal to them, (iv) protecting consumer interests, and (v) benchmarking service standards against international norms.22  The Authority is yet to be set up.

Autonomy to zones

Under the Railways Act, railway zones are responsible for operation, scheduling, and maintenance of railways under their jurisdiction.1  Distribution of the powers between the Railway Board and the zones is such that the zones possess limited autonomy over budgeting, sanctioning of funds for infrastructure works and recruitment of personnel.5^,6  Several Committees have proposed decentralising more powers to the level of zones.6^,7^,10  

The Sreedharan Committee (2014) had recommended that financial powers need to be devolved to the zonal level.6  This would grant them autonomy to make decisions on project tenders for their zones without approaching the Board.6  The Committee on Restructuring Railways (2015) also observed that zones should be allowed to make decisions independently.  It noted that this would ensure healthy competition between zones and make them accountable for their own transport output and profitability.6  Once the zones are awarded autonomy, the Railway Board could function like a corporate board of a company that decides policy.6 

Improving finances

Pricing for passenger segment:  The passenger segment of Railways has been registering consistent losses over the last several years.[23]   This is primarily due to Railways operating its passenger segment below cost.6^,12   These losses are classified as social service obligations.12  The Committee on Restructuring Railways (2015) had observed that the methods of calculating the cost of running passenger business were not scientific or accurate.6  The NITI Aayog (2016) had recommended that the Railways price fares according to prevalent market rates to recover costs.12  The Rakesh Mohan Committee (2001) and Anil Kakodkar Committee (2012) had also suggested that passenger fares be rationalised.9^,11  

Improving share in freight transport:  The Railway freight basket is dominated by bulk commodities such as coal, iron, and steel.  Experts have highlighted that there is an untapped potential for Railways in transporting retail and fast-moving consumer goods (FMCGs).[24]   Yet the freight mix of the Railways has remained unchanged, and FMCGs are predominantly transported over road.24  Freight tariffs are not competitive as they cross-subsidise the losses in the passenger segment.²⁴  Freight trains also run at lower average speeds, as the key rail routes register over 100% capacity utilisation, implying significant network congestion.[25]  Goods trains are typically expected to travel at an average speed of 75 kmph.24  The average speed of goods trains in 2020 and 2021 was 40.6 and 36.5 kmph respectively.[26]  

To improve the efficiency of freight transportation, the National Rail Plan (2020) provided several measures such as the creation of dedicated freight corridors, multi-laning of railway lines, and the development of integrated freight terminals.[27]  As per the Plan, Railways would be able to improve the average speed of freight trains to 50 kmph by 2026.[28]  The Plan noted that the internal revenue surplus of Railways will be inadequate to fund the initiative, and that it would require funding from channels such as budgetary support from the central government, market borrowings, and private partnerships.

Laws in other sectors such as electricity seek to limit cross-subsidy across segments.  The Electricity Act, 2003 requires the regulators to gradually reduce cross-subsidy and make tariff reflective of the cost of supply.[29]  

Financing of capital expenditure:  Railways’ internal revenue has funded less than 5% of its total capital expenditure since 2017-18.  A key reason could be a high level of committed expenditure.   About 70% of Railways’ own revenue is spent on salaries and pensions. Over the years, the Railways has been able to increase investments by utilising market borrowings.  However, dependence on borrowings has created an increasing interest burden (about 8% of revenue receipts in 2024-25).  In recent years, increase in budgetary support from the central government has helped reduce the dependence on borrowings (see Figure 2).

Figure 1: Financing of Railway capital expenditure   Sources: Expenditure Profile, Railway Statements, Union Budget documents, 2014-15 to 2024-25; PRS.