The slowdown in freight traffic on Indian Railways during the first eight months of fiscal year 2025 (FY25) has raised significant concerns, with growth recorded at a mere 2.1% compared to the same period last year. This growth rate falls substantially short of the government’s estimate of 4.4% presented in the FY25 annual budget. Experts have attributed this slowdown to the high base effect that followed the pandemic years, where growth rates were notably higher due to the low starting point. Before the pandemic, in fiscal year 2020 (FY20), growth rates for freight traffic were just 1%. This rate surged post-pandemic to 15% in FY22, 6.4% in FY23, and 4.7% in FY24. Despite Indian Railways reducing freight rates over the past 2-3 years to maintain high traffic volumes, this strategy has not yielded the desired results.
One of the critical factors of this slower growth is the significant decrease in freight revenue growth rates. Following a post-pandemic surge, freight revenue growth mirrored the volume trends, with a significant drop from 20% growth in FY22 to just 4% in FY24. The FY25 budget had projected a more optimistic 7% growth in freight revenue, aiming to reach Rs 1,74,500 crore. However, the achieved numbers indicate a struggle to meet these targets. Manufacturing and other industrial sectors have felt the impact as railways remain a key mode of transporting raw materials and finished goods. Indian Railways still boasts a competitive advantage with freight costs at Rs 1.36 per tonne per km, significantly lower than road transport at Rs 2.5 per tonne per km, and only marginally higher than water transport at Rs 1.06 per tonne per km.
Challenges and Economic Implications
Indian Railways heavily relies on freight traffic to compensate for operational losses in its passenger segment. The national transporter provides an annual subsidy of Rs 56,993 crore to passengers, offering a 46% rebate on ticket prices. Slower freight traffic growth could exacerbate these losses, forcing the railways to seek alternative revenue sources or increase passenger fares, which may not be politically feasible. Moreover, while certain freight segments, such as coal, show encouraging growth figures—with a 5.6% increase during April-November 2024—these are still below the budgeted projections of 9%. Other segments like iron and POL (petroleum, oil, and lubricant) have shown only tepid growth, further amplifying concerns over sustained freight traffic performance.
Dedicated freight corridors were envisioned as the future lifeline for Indian freight traffic, aimed at significantly improving traffic volumes and efficiency. However, these corridors have had limited impact so far, with incomplete segments hindering full operational potential. The western dedicated freight corridor, for instance, is expected to boost traffic substantially once the unfinished stretch connecting to the Jawaharlal Nehru Port Trust (JNPT) is completed. Performance on these dedicated corridors is crucial, as significant investments have been made with expectations of high returns in terms of traffic volume and revenue generation. According to the National Rail Plan, Indian Railways aims to increase its share in freight transportation from the current 27% to an ambitious 45% by 2030.
Strategies and Future Outlook
The first eight months of fiscal year 2025 (FY25) have shown a concerning slowdown in freight traffic on Indian Railways, with growth recorded at only 2.1%, a significant drop from the government’s projection of 4.4% in the FY25 budget. Experts believe this deceleration is due to the high base effect following the pandemic, which had previously resulted in higher growth rates from a low starting point. For context, the growth rate for freight traffic was just 1% in FY20, jumped to 15% in FY22, then fell to 6.4% in FY23, and further to 4.7% in FY24. Despite efforts to reduce freight rates over the past few years to attract more traffic, these measures have not been as effective as anticipated.
A key issue is the sharp drop in freight revenue growth, from 20% in FY22 to just 4% in FY24. The FY25 budget optimistically projected a 7% growth in freight revenue, aiming for Rs 1,74,500 crore, but meeting this goal seems challenging. The manufacturing and industrial sectors have been affected as they rely heavily on railways for transporting raw materials and finished products. Indian Railways still offer a cost advantage with freight costs at Rs 1.36 per tonne per km, much lower than road transport at Rs 2.5 per tonne per km, and only slightly higher than water transport at Rs 1.06 per tonne per km.
