The government will increase investment in its overloaded railway network to Rs 8.5 trillion ($137 billion) over the next five years, Railway Minister Suresh Prabhu announced in his first Budget speech on Thursday, promising to modernise existing tracks but shying away from raising fares to fund the expansion.
Presenting the Railway Budget just two days before the government delivers its first full annual budget, Railway Minister Suresh Prabhu said it would "set the direction of a long and difficult road of reform."
Over the next year, investment in the railways will increase by about a half to Rs 1 trillion ($16.15 billion) including funds raised by market borrowing. To meet the five year target, investment will have to speed up more after that.
Prabhu, a trusted economic aide to Prime Minister Narendra Modi, said he would raise funds from multi-lateral lenders, infrastructure and pension funds, as well as "monetizing" railway assets. He said the railway would not be privatized.
"Over the next five years, the railways have to undergo a transformation," Prabhu said in a speech that was short on details.
He said the share of rail revenue available for investments would rise to 11.5 per cent in the fiscal year starting on April 1, up from 8.2 per cent in the current fiscal year.
India has more funds available for investment thanks to a sharp drop in the price of diesel fuel that powers most Indian locomotives.
The Bombay Stock Exchange (BSE) share index reacted negatively to the speech, sinking 0.7 per cent, with wagon makers Titagarh Wagons down 2.6 per cent, while Texmaco Rail & Engineering lower 7 per cent.
Passenger fares are subsidised by freight revenues that are high compared to other countries. Prabhu said he planned to raise the amount of freight carried to 1.5 billion tonnes a year, from 1 billion tonnes at the moment.
Prabhu said spending would be focused on improving and expanding existing railway lines, many of which are operating at more than full capacity, with the average speed of the country's best trains a sluggish 70 km (44 miles) per hour.
Accidents are common and trains, platforms and toilets on the network are often filthy.
India's is the world's fourth largest rail network, but has been outstripped by China, which now has more than six times a much track.
Providing jobs for 1.3 million people, the railway is India's largest single employer, and reform is politically sensitive. Successive governments have shied away from modernization, preferring instead to use the system to provide cheap transport and create jobs.
FULL COVERAGE:Union Budget 2015
Prabhu did not announce any new trains in the budget, departing from a tradition of laying on new services to politically important constituencies.
There are over 300 projects pending that need about Rs 1.8 trillion ($28.9 billion), said a senior official.
Excluding market borrowing, the amount projected for investment in 2015/16 is up by 31 per cent, signalling an increased commitment to infrastructure from federal funds.
The separate rail budget is a relic of the country's British colonial past, when the network was India's most profitable industrial asset.