The upcoming budget may likely witness government increasing the allocation towards automatic train protection (ATP) system Kavach by 25% for FY27 in addition to providing higher budgetary grants towards the production of advanced coaches (LHB), signalling systems and Namo Bharat Rapid Rail service, sources close to the development told FE.
As per the officials, the railways ministry is working on a massive 18,000-km tender for Kavach 4.0 that will require significant investments over the next few years. “The total capex on railways might not grow next year but some constituents will receive higher funding than others.
It’s expected that investments on electrification and gauge conversion will slow down owing to adequate progress over the past few years,” the official said.
As on December 2025, Kavach has been implemented on more than 2,200 route kilometres (RKMs), including the recently-commissioned Kavach 4.0 on 738 RKMs on the Delhi-Mumbai and Delhi-Howrah corridors.
Fiscal Growth Trends
Data from the previous budgets show that the capex on the railways has grown at a compounded annual growth rate (CAGR) of 10.3% between FY22 and FY25, lower than the nominal GDP growth on all these years.
Primarily funded through gross budgetary support from the central government, the capex in FY26 was kept at the FY25 levels due to the to significant under-utilisation of the FY25 funds.
Further, sources said that the railways is likely to miss its freight loading target of 1,700 million tonnes (MT) set for FY26, largely due to the sluggish container volumes, high-base effect, last-mile connectivity issues, passenger train priority, slow train speeds, and network congestion.
In 2024, the standing committee on railways had flagged concerns on the stagnating speeds of freight trains (25 kmph) over the past 11 years.
In eight months of FY26, the freight traffic stood at 1,070.8 MT, translating into monthly loading of 133.85 MT – short of the FY27 target of 141.66 MT. Lalit Chandra Trivedi, former general manager, East Central Railway said that while the demand hasn’t collapsed, the growth is steadily transitioning from volume expansion to efficiency and yield optimisation.
“Since the power demand growth is moderate and inventories are at comfortable position, the coal volumes have stabilised. Steel and cement dispatches have been uneven, impacted by softer construction activity in parts of the year and global demand slowdown.
Moreover, the container traffic has been affected by weak global trade and geopolitical disruptions,” Trivedi said.
Experts said that the next few months are going to be critical for the railways’ freight segment with the completion of western dedicated freight corridor (DFC) holds the key to meet the budget goals and beyond.
On the passenger side, the growth has been robust since FY22 (post-pandemic) on account of higher demand, increased capacity, introduction of new-age trains like Vande Bharat and Namo Bharat, and premiumisation of services.
Data shows that in four years through FY25, the growth in passenger volume (27.4%) and revenues (26.8%) have outpaced the growth in freight traffic (4.9%) and revenues (8.5%), respectively.
Revenue and Subsidies
In FY26 too, this growth will continue to sustain. To be sure, the freight segment remains the key revenue generator for the national transporter, and its profits are used to cross-subsidise the loss-making passenger services. Though in FY26, the railways has hiked the passenger fares on two occasions to cover the rising operational costs.
Meanwhile, experts said that a stronger policy push for PPPs (public-private partnership) is expected, especially in capacity augmentation, freight terminals, private sidings, station redevelopment, and asset monetisation areas.
“While the fresh market borrowings may not be explicitly announced, the budget could reinforce extra-budgetary resources, InvITs, land monetisation via Rail Land Development Authority (RLDA), and structured PPP models to crowd-in private capital and reduce direct fiscal pressure,” said Trivedi.