On February 1, Union finance minister Nirmala Sitharaman presented a railway budget for 2026-27 that exuded confidence—revenue pegged at Rs 3.02 lakh crore, freight earnings projected to grow by 5.8 per cent, an improved operating ratio of 98.4 per cent, and a record capital outlay of Rs 2.93 lakh crore.
Just months on, that story is beginning to show cracks. The tone of a May 15 railway ministry letter to all zonal railways—reviewed by INDIA TODAY—could not be more different. Instead of growth targets, it talks about “stagnant revenue”, a “matter of concern”, and the urgent need to not exceed spending limits. The red flags have been cited barely into the first quarter of the new fiscal year.
Numbers that should worry
The Budget pegged freight earnings to grow by 5.8 per cent in 2026-27. In April, the very first month of the fiscal year, freight earnings fell by 5 per cent than the same month last year. Worse, they are even below the corresponding figures for April 2024—a regression to levels two years ago.
The ministry’s letter states plainly: “Freight loading has declined by 1 per cent while freight earnings have declined more sharply by 5 per cent, and freight earnings in April 2026 are even lower than the corresponding figures for April 2024.”
Total traffic earnings: A “marginal growth of only 1.8 per cent” against a budgeted increase of over 8 per cent.
Costs up, revenue crawls
If the money situation isn’t bad, the expense side is truly horrid. The money spent on day-to-day operations (ordinary working expenses or OWEs) has increased by 11.6 per cent. The amount spent on pensions has increased by 9.1 per cent. The rise in total revenue expenditure was 8.1 per cent as projected in the Budget. April alone has already surpassed that path on spending and not even met it on the revenue side.
“Such a disproportionate rise in costs and almost stagnant revenue growth is a matter of concern,” states the letter.
And in more pain, the letter states that the cost of traction energy (electricity and fuel that run trains) is “likely to rise by more than 30 per cent”. As already reported by INDIA TODAY this week, the Supreme Court’s recent decision on the “Deemed Licensee” status of Indian Railways will make things tougher in terms of OWE. Post-verdict, the railways stares at electricity surcharge dues running into thousands of crores and risks losing its entire savings achieved through electrification.
The 2026-27 Budget anticipates that the railways will have an operating ratio of 98.4 per cent—that is, spending Rs 98.4 for each Rs 100 earned. That is a very slim margin. But if the imbalance indicated by April’s revenue growth of 1.8 per cent and cost growth of 11.6 per cent persists, that ratio would cross 100 per cent, and the railways would be spending more than what it is getting in revenue.
The letter acknowledges this risk explicitly, stating: “If this trend continues, it may lead to a deterioration in the operating ratio and reduced internal resource generation.”
The railways has no option to borrow its way out of a revenue shortfall on the operating side. As the letter underlines: “Indian Railways is mandated to meet its revenue expenditure from its own internal receipts.” No bailout. No wiggle room. If the trains don’t earn enough, the organisation is squeezed.
Financial discipline
Officials INDIA TODAY spoke to emphasised that the communique is more about adhering to financial discipline than anything else. “The whole year is ahead of us and there is always room for fiscal discipline and tightening of belt,” said a railway ministry official involved in the matter.
However, there is acknowledgement of the concern. “A lot of liabilities of the last financial year are being cleared in the current year. Last year, they were stopped and many establishment and contractual bills were deferred,” the official said.
The ministry has already fired off cost-control directives. Zonal railways have been told to show “strict adherence to the prescribed spending limits circulated earlier on April 1 and later concerning the ordinary working expenses”.
The spending limits imposed at the beginning of April were already tightened by mid-May—not even six weeks later. Budgets are to be adjusted monthly now. Officials announced that these deviations would be “closely monitored and regulated”. Regular review of rolling stock costs should be “on concurrent basis”—cost revenue must not be shoved down to the future months to ensure clean books.
Zonal railways have also been ordered to “formulate a concrete action plan for enhancing Sundry Earnings”, which is railway ministry-speak for “find more ways to earn money, somewhere, anywhere”.
One month of data and trend do not make a fiscal year. And the railways is known to shore up its freight loading figures towards the later quarters. But if its earnings trend serves as bellwether for the economy, then it would signify something larger.
Sitharaman’s Budget speech painted a railways that is investing big, modernising fast and riding a wave. That may be the case. The Railway Board’s internal outlook towards its finances says the sheen is wearing off. Both can be true at the same time.
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Source: India Today
