Indian Railways under debt traps!

By M.Y.Siddiqui

Indian Railways (IR) faces a severe financial strain, often described as debt trap, due to high operating ratios, mounting losses in passenger services and heavy reliance on borrowings for capital expenditure. Debt services costs have risen sharply, taking up over 17 percent of revenue receipts, while profitability depends almost solely on freight traffic to subsidise passenger services.

Total debt of Indian Railways, as on December 31, 2025, in Assets Under Management/Borrowing of the Indian Railway Finance Corpration (IRFC), the dedicated market borrowing arm of Indian Railways, stood at 4.75 lakh crore (rupees 4,75,451.25 crore). This debt supports infrastructure development, such as rolling stock and project assets.

 In addition, the union government in the Ministry of Railways has taken loan of Rs. 1.5 lakh crore from LIC, more than Rs. I lakh crore from Japan for funding the bullet train project on Mumbai-Ahmedabad-Mumbai route, and several tranches of loans from the World Bank, Asian Development Bank, and others under bi-lateral and multi-lateral arrangements, the details of which are not given by the Ministry.

Key aspects of the debt situation include rising debt servicing, declining internal revenue, high operating ratio, vicious cycle, dependency on borrowings, structural challenges like freight subsidy, capex (capital expenditure) pressure, operating loss trend. Repayment of principal and interest to organisations like the Indian Railway Finance Corporation (IRFC) is substantial, with commitments for ongoing projects. Internal revenue, once the primary source of funds, has decreased significantly.

Passenger services have high operating ratio approximately 178 percent in 2023-24, meaning expenses far exceed earnings. Railways also face vicious cycle of low investment in infrastructure that leads to slow speeds, inefficiencies, and loss of businesses, which further deteriorates financial health. While the railways capex budget has increased for modernization, it often relies on borrowings. CAG has flagged financial lapses in revenue recovery and asset management.

Key drivers for losses are lack of significant passenger fare increases over long periods, high employee and pension costs, and competition from other modes of transportation, roadways/airlines, for passengers. All of these culminate in future concerns for sustainability of borrowings for large, long-gestation projects (like the bullet train) is a point of contention. There is a need for high growth to avoid being in a terminal debt trap.

Private sector is reluctant to invest in heavy capital expenditure like railways, with a long gestation period of 5-10 years. During such gestation time, technology changes fast making profit out of fructification of projects redundant. Railways being subject of fast rusting and corrosion, the depreciation cost is in the highest category. The private investors’ primary interest being quick profit motive, they are least interested in long-gestation heavy capital investment. Ultimately, railways are the basic concerns of government. Only profit making services of railways like trains on profit earning routs including some high remunerative freight services have been privatized on profit sharing basis! 

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