Union Budget 2024: What's on the Horizon for India's Railways Sector

Finance Minister Nirmala Sitharaman will present the first Union Budget of the Modi government’s third term on July 23, 2024. The upcoming budget is expected to be an extension of the interim budget presented earlier this year in February 2024. In the run-up to the budget presentation, FM Sitharaman held several pre-budget consultations with representatives of various sectors in June.

Premchand Chandrasekharan - Partner, Avalon Consulting says the sustainability of India's growth trajectory will require as a necessary condition further development of infrastructure in terms of railways, roads, ports, airports, power (especially renewable energy), water etc.

“Unless the relevant infrastructure is made available, the reconfiguration of global supply chains that is currently on is likely to be less integrated with India and instead involve countries such as Vietnam. The regional distribution of this infrastructure development could seek to strike a balance between traditional industrial areas and newer locations within India,” Chandrasekaran said.

The announcement of the allocation for Indian Railways is eagerly awaited in the national budget. Until 2017, the railways had its own distinct budget, a tradition lasting 92 years. In 2017, the Railway Budget was integrated into the Union Budget on the advice of a committee chaired by Bibek Debroy of NITI Aayog and based on the white paper 'Dispensing with the Railway Budget' authored by Debroy and Kishore Desai. This step aimed to enhance the efficiency of budget management and governance. The Union Budget now includes a dedicated section for estimating expenses and granting funds specifically for Indian Railways.

In the Interim Budget 2024, the finance minister announced an 11.1% rise in capital expenditure (capex) for the fiscal year 2024-25. Sitharaman allocated Rs 2,52,200 crore to the railways as gross budgetary support, supplemented by an extra Rs 10,000 crore from resources outside the budget. Additionally, the government announced initiatives for specialized tracks dedicated to coal and mineral transportation, enhanced connectivity to ports, and strategies to alleviate congestion, aiming to boost operational efficiency and capacity.

It is anticipated that a slightly higher allocation would be made towards Indian Railways in the upcoming budget session in July 2024.

CA Muskkan Kukreja, Assistant Director and Program Coordinator at Somaiya Vidyavihar University says the capital expenditure in this sector is aimed towards transformation in passenger transport. This allocation is expected to be used to start new Amrit Bharat and Vande Bharat trains and for laying new tracks. It seems that the government is also prioritizing safety along with passenger comfort and is looking to expedite the deployment of automated train safety tech Kavach.

“There is room to balance spending between increasing consumption and maintaining a high capital expenditure plan in the upcoming budget, as according to the news reports the RBI is expected to pay the government a record-breaking dividend of Rs 2.11 trillion,” Kukreja said.

Railway stocks like Rail Vikas Nigam (RVNL), Indian Railway Finance Corporation (IRFC), IRCON International, NBCC (India), RailTel Corporation of India, and Texmaco Rail and Engineering are getting investors’ attention ahead of the Union Budget that will be presented on July 23.

Anirudh Garg, Partner and Fund Manager at Invasset says a key focus will be on infrastructure development, with plans to add 1,000 km of new railway lines and complete the electrification of 7,000 km of tracks, aiming for 100 per cent electrification by 2024. The Mumbai-Ahmedabad high-speed rail corridor is also expected to receive additional funding to expedite its completion.

Renu Arora, Director at JCBL Group Family Office emphasizes the modernization of railway infrastructure and implementing more preventive measures to avoid accidents. “Reintroducing senior citizen benefits, expanding the fleet with more coaches, and creating new revenue streams within the department will enhance overall efficiency and service,” Arora said.

Technological upgrades are expected to be a priority, with substantial investments anticipated in modern signaling systems to enhance safety and efficiency, and the adoption of AI for predictive maintenance to reduce operational costs and improve asset utilization.

“Passenger amenities are set to improve significantly, with major upgrades planned for 200 railway stations and the introduction of 100 Vande Bharat Express trains, which promise better travel experiences and reduced travel times,” said Garg.

In June 2024, Indian Railways achieved a freight loading of 135.46 million tonnes (MT), marking a rise of 12.40 MT compared to the corresponding period last year. The railway ministry reported a year-on-year growth of approximately 10.07 per cent.

From freight operations, Indian Railways generated revenue amounting to Rs 14,798.11 crore, reflecting a notable increase of Rs 1,481.29 crore or 11.12 per cent compared to June 2023 when it was Rs 13,316.81 crore.

Freight operations are likely to see a boost with the completion of the Eastern and Western Dedicated Freight Corridors, expected to significantly increase freight capacity and reduce logistics costs. Additionally, incentives for businesses to use rail transport could further enhance the competitiveness of the railway freight sector.