(MENAFN- Live Mint)

New Delhi: Budgetary support for the Indian Railways is poised to hit a new high in 2026-27 as the government prepares an ambitious plan to upgrade the national transporter with faster, modern trains and better safety systems, two people aware of the matter told Mint. Capital expenditure is expected to rise about 12% next year to roughly ₹2.76 trillion, which would be the highest-ever allocation for the Indian Railways, the people said.

Indian Railways operates with a two-pronged financial structure: its capex is primarily funded by the Union budget, while its operational expenses are mostly met through its own internal revenues.

The planned increase comes on the heels of unusually rapid spending this year, with the railways having exhausted more than 78% of its 2025-26 budget as of mid-November. This is its highest mid-year utilization on record, underscoring the pace at which large projects have moved to execution.

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“An allocation in the range of ₹2.76 trillion will be a new high, but it's in line with the scale of projects already underway, from dedicated freight corridors and higher-speed routes to a full overhaul of rolling stock," said the first person cited above, requesting anonymity.“The railways has now asked the ministry of finance for a further step-up in FY27, after allocations remained flat for the past two years," this person added.

Budgetary support for the railways held steady at about ₹2.52 trillion in both FY25 and FY26 as the Centre balanced fiscal consolidation with competing expenditure pressures. But a surge in project execution has altered its plans. In 2025-26, Indian Railways is on course to deploy its entire capital outlay well before the end of the year and may seek additional funds under a supplementary demand for grants, said the second person mentioned above.

Much of the spending has been on capacity expansion, new lines, track doubling, electrification, and metropolitan transport, as well as modern locomotives, coaches (including Vande Bharat trains), and wagons. The Kavach automatic train protection system, the recasting of signalling networks, and track renewals have also absorbed significant funds.

“The surge in spending was expected at this stage of execution, but the real gains will come only if capital continues flowing into new assets," the second person added.

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Modernising Indian Railways

The push to accelerate the railways' modernization began in 2022-23, when the government sharply increased its support to speed up construction and replace ageing assets. The next phase is expected to be even more expansive, with the rollout of 300-400 Vande Bharat trains in multiple formats, including sleeper versions; the procurement of 7,000-8,000 new trains over the coming decade to eliminate waiting lists; a long-term plan to build about 50,000 km of new tracks; and a doubling of the safety budget to meet the railways' Mission Zero Accidents goal.

Meanwhile, a higher allocation in 2026-27 could also allow the railways to keep passenger fares and freight rates unchanged for another year, though a reclassification of freight categories is likely.“The stability in tariffs aligns with the government's strategy of supporting users during a period of heavy infrastructure build-out," said the first person mentioned above.

Progress on dedicated freight corridors, particularly the completion of the Western dedicated freight corridor (DFC) and significant advancement on the Eastern DFC is expected to be central to the next budget. As these routes open, freight capacity is expected to improve substantially, helping the railways lift its core revenue stream.

Spokespersons of the railways and finance ministries didn't respond to Mint's emailed queries.

On 12 November, Mint reported that the Centre was likely to hold infrastructure spending in 2026-27 at roughly the same level as in 2025-26, betting on a revival in private capital expenditure. A capex target of about 3.1-3.2% of GDP for 2026-27 would mark a shift toward a more calibrated phase of fiscal consolidation, signalling the government's attempt to balance economic momentum with its deficit goals at a time of heightened global uncertainty, the report said.

Meanwhile, experts said the railways' capex for 2026-27 should be from a mix of gross budgetary support (GBS) and market borrowings. Currently, most of its financial support comes from the budget.

“Ideally, railways' capital expenditure should be through a mix of GBS and market borrowings. This would not only help mobilize larger funds for capital expenditure but would also prevent it from masking some of its revenue expenditure as capital expenditure to show higher capex," said V Shanker, former executive director (planning) at Indian Railways.“The private money flowing in through borrowings would ensure that funds are used efficiently," he added.

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