As the Union Budget 2026 approaches, a familiar question has resurfaced: should the government push further for privatization of Indian Railways? Reality is not easy to understand, and it comes to light only when certain assumptions begin to break down. Indian Railways is called “Lifeline of India”. It is not only a strong pillar of the economy, but is also deeply embedded in the social and economic fabric of the country. However, the main reality is that railways are different from highways or airports. If the development of the country is to be made superfast, then it is necessary to make the Railways such a powerhouse that there is no hindrance in the progress of the country. This time, it has become very important to take many important decisions regarding the country’s railways in the budget. Let us also tell you what the experts have to say on this.
Importance of transport in India’s growth story
India’s urban and economic ambitions are inextricably linked to transport capacity. Systra India MD Hari Kumar Somalraju said in the ET report that the relationship between urbanization and GDP growth is clear. Most developed economies have more than 5 km of metro rail network per million urban population. Despite India having the world’s third largest metro network of over 1,000 km, this figure is about 1.9 km per million, which is well below the limit.
Somalraju said in the media report that by the way, India is the most populous country in the world. To become a developed nation with a $4 trillion economy by 2047, India should not be satisfied with growth alone; He will have to develop at a rapid pace. And transportation is a driving factor in every major economy. He said that congestion in cities like Delhi, Mumbai and Bengaluru is no longer just a quality of life issue, but is also silently reducing productivity and economic output. He further said that according to World Bank estimates, every $1 billion invested in metro systems could create 50,000 to 100,000 jobs, which is why emerging economies prioritize network expansion rather than cosmetic expansion.
Somalraju said in the media report that but metro alone is not enough. Along with investment, last mile connectivity, multi-dimensional integration and development of simple, standardized metro systems are also required. Shanghai, not London or New York, is the benchmark – having built nearly 800 km of metro in just two decades.
There are no railways, airports or roads
When the privatization debate turns to Indian Railways, comparisons with highways and airports can be a bit misleading. Roads and airports function as independent assets, with user charges and easily measurable service standards. However, the railways operate as a national network, where every part depends on the others.
In railways, capacity allocation, signaling, safety, timetables and maintenance are system-wide decisions. A private operator may run a train, but he does not control the network conditions that ultimately determine punctuality or reliability.
MK Gupta, former member (engineering), Railway Board, said in the ET report that railways cannot be divided into independent parts like roads or airports. It is a tightly connected system where security, operations and efficiency are centrally coordinated. Any reform must respect this structure.
Budget can’t ignore this
India has experimented with private capital before. In the colonial period, railways were built under the “guaranteed return” model, which assured investors of fixed returns. This led to a construction boom, but also created indefinite fiscal liabilities, which ultimately led to nationalization.
Gupta further said, “The lesson is clear: poorly designed guarantees and risk-sharing structures can turn private partnerships into long-term burdens. The aim of the Budget is not to repeat old mistakes, but to design more intelligent, limited-risk partnerships.
Budget and Financial Reality of Indian Railways
Today railways depend on freight transportation. Transport of heavy and long distance freight such as coal, iron ore, cement, steel and containers provides financial support to the railways as their prices are determined commercially. Passenger fare, especially for suburban and second class travel, remains socially and politically limited.
Freight earnings have increased from about Rs 1.13 lakh crore in 2019-20 to about Rs 1.68 lakh crore in 2023-24, and freight traffic has reached a record level. There has been a steady improvement in passenger revenue after the pandemic, but it is still lacking.
According to Gupta, this dependence is the reason why privatization is controversial. Railways is not just a business, but a strategic national infrastructure with safety, equity and integration obligations.
Gupta says in the ET report that the plan for private passenger trains promised better trains and better service, but there was limited interest in bidding. The reasons for this were structural: fares are politically sensitive, operational costs are volatile, and the quality of service depends on network control – routes, punctuality and maintenance schedules – which remain with the Indian Railways. Gupta said that when profit potential is low and operational control is limited, serious investors will remain cautious.
Where does private partnership really work?
Gupta said in the ET report that the real question of the budget is not about privatization, but where private capital adds value without compromising the integrity of the system.
Somalraju and Gupta argue that there are several viable areas where the government can encourage private participation and announce major measures in the upcoming budget. These include station redevelopment and station facility management through PPP model; rolling stock manufacturing and component supply; Wagon Leasing; freight terminals and logistics parks; RRTS operations and select premium services; cleaning, catering and support services; And includes operation and maintenance contracts with strict safety standards.
Funding is the biggest challenge
Somalraju said in the media report that railway modernization cannot be funded only through gross budgetary support. The National Railway Plan estimates that by 2051, an investment of Rs 2.3 lakh crore is required for dedicated freight corridors and about Rs 15 lakh for high speed rail.
He further said that to bridge this financial gap, a strategic shift towards a micro public private partner ecosystem is necessary. For dedicated freight corridors, adopting a hybrid annuity model can reduce the risks associated with greenfield projects and traffic uncertainty. However, private funds cost more than sovereign loans.
What things need to be emphasized
The things that should never be privatized are equally obvious: signaling control, safety certification, network command-and-control work, and operational priority setting. Gupta warned that once safety critical functions are weakened, the cost of failure becomes unbearable. If the Budget is serious about reform, it should focus on clear risk sharing, bankable and transparent concession terms in PPP contracts, monetization of land and stations without diluting operations, and private funds into asset creation and service – not system control. According to Somalraju, investment in transportation is not expenditure; This is nation building.