Indian Railway Budget: Introduction, History & Evaluation

Why in News? 

Indian Railway Budget: Recently, the Railway Budget 2025 was announced with an allocation of ₹2.65 lakh crore. This allocation will focus on capital expenditure and infrastructure expansion. In this budget funding for customer amenities and public sector investments has reduced.

Key Highlights of Railway Budget 2025-26

• Allocation for Railways: 
  • The Union Budget 2025 allocated ₹2.65 lakh crore (₹2.52 lakh crore as gross budgetary support and ₹10,000 crore from extra-budgetary resources) for Indian Railways. 
  • The capital expenditure (Capex) has been increased to ₹2.62 lakh crore to modernize assets, expand infrastructure, and enhance safety measures.
• Passenger Travel: 
  • Indian Railways plans to introduce 200 new Vande Bharat trains, 100 Amrit Bharat trains, and 50 Namo Bharat rapid rail trains in the next 2–3 years. Additionally, 17,500 general non-AC coaches will be added to improve travel experiences for the low- and middle-income groups.
• Safety and Sustainability
  • A total of ₹1.16 lakh crore has been allocated for railway safety projects, including advanced safety mechanisms. 
  • The Railways aims for 100% electrification by FY 2025–26 and will explore small modular reactors as a non-fossil energy source.
• Freight and High-Speed Network
  • Indian Railways is set to become the world’s second-largest freight carrier, targeting 1.6 billion tonnes of cargo by the end of this fiscal year. 
  • It also plans to develop a 7,000 km high-speed rail network supporting speeds of up to 250 kmph by 2047.
• Employment Generation
  • The budget focuses on creating employment opportunities through investment in rail infrastructure. It also provides relief to the middle class by reducing the income tax burden, aligning with the government’s vision of ‘Viksit Bharat’.
• Financial Provisions
  • Allocations of ₹706 crore for debt servicing of market borrowings for national projects and ₹200 crore from the Nirbhaya Fund. Reimbursement of losses on strategic line operations has been increased to ₹2,739 crore. Gross budgetary support is now nearly nine times higher than in 2013–14.

Introduction of Indian Railway Budget

The Indian Railway Budget was an annual financial report for the country’s vast railway network, managed by the Railway Board, which oversees rail transport in India. 

• Traditionally, this budget was presented by the Minister of Railways in Parliament, usually a few days before the Union Budget, until 2016.
• Earlier, the Railway Minister presented the budget estimates for the upcoming financial year, they also provided a performance overview of the previous year’s railway activities. 
• After 2016, the Modi government merged the Railway Budget with the General Budget. Now the Railway Budget is presented by the Finance Minister.
• This was not just about figures but about setting priorities for the upcoming year, which included various key aspects. 
• These priorities often revolved around expanding the railway network, improving rail infrastructure, and making investments in rolling stock (the trains and other vehicles used for rail transport).
• Along with the budget, the minister also presented an outcome and performance budget, which detailed both the financial allocations and the physical outcomes achieved in the past year.

History and Evaluation of Railway Budget

• The Origin: The Railway Budget was first separated from the General Budget in 1924. This decision came after the Acworth Committee, headed by British economist William Acworth. Committee recommended a reorganization of the Indian railways. From that point onward, the Railway Budget became an independent financial document, presented a few days before the Union Budget. This practice continued uninterrupted for 92 years, until the year 2016.
• First Railway Budget: After India gained independence, the first Railway Budget was presented by John Mathai, the country’s first Railway Minister, in 1947. This marked the beginning of a new era, as the country navigated its way towards rebuilding and expanding its railway system.
• Merger: In 2016, the Modi government announced a significant decision: the merger of the Railway Budget with the Union Budget. The government’s decision to merge the two budgets was seen as a step towards better financial integration and efficiency.
• How the Merger Works
  • Under the new system, the Finance Ministry would prepare a single Appropriation Bill that included estimates for the railway sector. 
  • Indian Railways would no longer be required to pay dividends to the government, and its capital-at-charge would be wiped out. 
  • Instead, the Ministry of Railways would receive gross budgetary support from the Finance Ministry to cover part of its capital expenditure.
• Notable Railway Ministers
  • Lalu Prasad Yadav served as the Railway Minister from 2004 to 2009 and presented the Railway Budget six times.
  • Mamata Banerjee became the first female Railway Minister in 1999 and was also the first woman to present the Railway Budget in 2000.
  • In 2014, D. V. Sadananda Gowda, as Railway Minister, announced the launch of India’s first bullet train and high-speed rail routes.
  • The last separate Railway Budget was presented on 25th February 2016 by Suresh Prabhu.

Structure and Preparation Process of the Railway Budget

• Structure 
  • The Railway Budget is presented in a well-organized manner, with clear divisions of receipts and expenditures. It provides a detailed view of the financial health of the Indian Railways and outlines how the funds will be allocated for different purposes.
  • Receipts: These include income from passenger fares, freight charges, investments, and other sources.
  • Expenditures: This includes capital expenditure (for infrastructure, rolling stock, etc.) and revenue expenditure (for operational costs such as salaries, maintenance, and services).
  • The budget is divided into Demands for Grants and appropriations, and it contains various financial documents.
  • Sources of Funds for Railways: The Railway’s funds come from different sources, primarily from the Consolidated Fund of India and the Contingency Fund of India.
• Preparation
  • The preparation process begins in November of the preceding year and is concluded in February with the presentation of the budget in Parliament. 
  • Estimation: The Railway Administration works with various units and departments to estimate their financial needs for the upcoming year. These estimates are prepared based on: Actual Expenditure from the previous year. Expenditure for the first seven months of the current year.
  • Review: The Railway Ministry evaluates the budgetary requirements in light of changing circumstances. The Ministry also considers any special circumstances like natural disasters, safety measures.
  • Presentation: The Railway Board plays a central role in the preparation process. The revised and budget estimates are compiled and presented to the board for approval. 
  • Review by Financial Commissioner: The Financial Commissioner of Railways reviews the estimates to ensure accuracy and feasibility. This process includes detailed scrutiny of both revenue and capital expenditure.
  • Financial Documents: Once the estimates are finalized, various documents are prepared. Demands for Grants are the formal requests made to Parliament. 
  • Finalization: In February, the finalized budget is presented to Parliament by the Finance Minister. 

Reasons of Merging Railway Budget with General Budget

• Decline in Railway Revenue Contribution: After India’s independence in 1947, the revenue from the railways contributed significantly more to the national income compared to other sources. In the 1970s, railway revenue accounted for only about 30% of the total national revenue. By 2015-16, this figure had reduced further to just 11.5% of the total revenue. This declining contribution weakened the rationale for a separate budget dedicated solely to the Railways.
• Administrative Complexity: Having two separate budgets—the Railway Budget and the General Budget—created administrative complexities. It led to a fragmented approach in managing national finances, requiring parallel systems for financial planning and approval. The merger was seen as a way to streamline processes, reduce duplication, and ensure a coordinated approach to financial planning.
• Shift in Economic Philosophy: Initially, the separation of the Railway Budget was aimed at providing financial autonomy to the Railways. However, as the Indian economy evolved, the idea of maintaining a separate financial structure for the Railways became less viable.

Impact of Railway Budget on the Indian Economy

• Boost to Infrastructure Development: The Railways has been a major contributor to the infrastructure development of India. The annual Railway Budget determined the funding for infrastructure projects, such as the construction of new rail lines, modernisation of stations, and expansion of freight and passenger services.
• Employment Generation: The Railways is one of India’s largest employers. Investments outlined in the Railway Budget have led to the creation of millions of jobs in various sectors, including engineering, maintenance, and administration. The expansion of the rail network also generates employment in local areas.
• Regional Development: The introduction of new rail lines and the upgrading of existing networks has been instrumental in promoting regional growth, especially in remote and underserved areas. Regions that are better connected by rail often experience economic upliftment due to better access to markets, jobs, and essential services.
• Trade and Commerce: Railways play a vital role in transporting goods (such as coal, raw materials, agricultural produce, and manufactured goods) across the country. The Railway Budget often sets aside funds to improve freight transportation capacity, which directly impacts the industrial and agricultural sectors.
• Tourism: The Railway system also played an essential role in tourism by improving access to major tourist destinations across the country. The growth of tourist trains, for instance, brought in revenue from domestic and international tourism, further contributing to the service sector of the economy.

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