Highlights Freight revenue cross-subsidises passenger services. Freight remains concentrated in coal and other bulk goods.  Share of container services has remained small, although, has seen a slow increase. Operating ratio is above 98%, leaving little revenue surplus for capital works.  90% of revenue is committed to salary, pension, and lease liabilities in 2026-27. Implementation of the 8th Pay Commission recommendations may increase expenditure pressure. Capital expenditure has been sustained mainly through budget support.  Performance indicators such as average speed of trains and efficiency of capital, have not yet shown significant improvements.

The Railways finances were presented on February 1, 2026, by the Finance Minister Ms. Nirmala Sitharaman along with the Union Budget.   Indian Railways is a commercial undertaking of the central government.  The Ministry of Railways administers Railways through the Railway Board.[i]   

Expenditure of Railways is financed through: (i) its own internal revenue (mainly goods and passenger earnings), (ii) budgetary support from the central government, and (iii) extra-budgetary resources (includes borrowings, institutional financing, and public-private partnerships).  Working expenditure including salaries, pension, and maintenance of assets is covered through its internal resources.  The revenue after covering this expenditure is insufficient to fund capital expenditure (such as construction of lines, track renewals, and wagon procurement).  Hence, capital expenditure is also supported by grant from the central government and extra-budgetary resources.  This note looks at the proposed expenditure of Railways for 2026-27, and the state of its finances.

Figure 1: Railways’ internal revenue inadequate to finance its capital expenditure (2026-27 BE)

 

Note: Lease charges – payments to Indian Railway Finance Corporation for leased assets.  EBR: Extra-budgetary resources.  BE: Budget estimates.
Sources: Expenditure Profile, Railway Statements, Union Budget Documents, 2026-27; PRS.

Announcements in Budget Speech 2026-27 East-West Dedicated Freight Corridor (DFC):  A new DFC, connecting Dankuni in West Bengal with Surat in Gujarat, has been proposed.  It will integrate with the existing Western DFC, and will pass through Odisha, Chhattisgarh, Maharashtra., and MP. High-speed rail corridors:  Seven high-speed rail corridors have been proposed connecting major cities such as Mumbai, Hyderabad, Bangalore, Pune, Chennai, and Varanasi.  These corridors are expected to span nearly 4,000 km and attract investments of around Rs 16 lakh crore.

Budget Overview

• Traffic revenue:  In 2026-27, 99.7% of revenue is estimated to be raised from traffic operations.  62% of traffic revenue is estimated to come from freight (Rs 1.89 lakh crore), and 29% from passenger services (Rs 87,300 crore).   Revenue from freight and passenger services are estimated to increase by 5.8% and 9.1% over the previous year, respectively.

• In 2025-26, freight revenue is estimated to be 5.1% lower than budgeted.  In the same year, revenue from passenger services is expected to fall short by 13.8% compared to budget target.

• Revenue Expenditure:  The total revenue expenditure in 2026-27 is estimated at Rs 2,99,500 crore, an increase of 8.1% over the revised estimate for 2025-26.

• Capital expenditure:  In 2026-27, capital expenditure is estimated at Rs 2,93,030 crore, an increase of 10.5% over the revised estimate for 2025-26.  Budget support from the central government is estimated at Rs 2,78,030 crore, financing 95% of the capital expenditure.  Budget support in 2026-27 is estimated to be 10% higher than the previous year.

• Operating Ratio:  In 2026-27, operating ratio is estimated to be 98.4%.  This is lower than the revised estimate for 2025-26 (98.8%).  However, the ratio in 2025-26 is expected to be higher than the initial budget estimate (98.4%).  Operating Ratio is the ratio of working expenses to traffic receipts.  A lower ratio implies better profitability and availability of resources for capital spending.