Railways Plans Bigger Funding Role for States, Local Bodies in Rail Projects

Indian Railways has proposed a larger funding and execution role for state governments and local bodies in railway projects, especially new lines and gauge conversion, in an effort to ease persistent delays and draw more resources into network expansion.

Under the approach being considered, states and local authorities could become financial stakeholders in projects that directly serve their regions. A state or local body could contribute through direct funding, land or enabling infrastructure, or take part in a special purpose vehicle alongside private investors and financial institutions. Projects with strong regional interest could be partly funded and facilitated by the state, with Railways and private investors supplying the remaining capital and execution capacity.

The proposal would formally fold a bigger role for states and local bodies into the existing public-private partnership framework. Railways already recognises state governments and local bodies as potential stakeholders under its Participative Policy, 2012, which offers five PPP models: non-government rail, joint ventures, customer-funded projects, build-operate-transfer and BOT-annuity. The Railway Board has now decided to add development partner and hybrid annuity models to widen private participation.

Government-backed annuity payments could give investors revenue visibility in projects where commercial returns are difficult because Railways retains operational control of the network.

Such participation may be most relevant for doubling and gauge-conversion work, where economic gains accrue directly to a state or a cluster of districts but execution stalls on land acquisition, utility shifting and local clearances. Sanjay Kumar Sinha, founder and managing director of Chaitanya Projects Consultancy, said bringing states and local bodies more closely into PPP projects for new lines and gauge conversion could address some of the most persistent execution challenges and align projects better with regional development priorities.

Sinha said the model is workable if the contractual and institutional architecture is structured appropriately, with land acquisition, statutory clearances and utility shifting explicitly assigned to the state or local partner while construction and operational performance remain with the private concessionaire. He suggested dedicated state-level rail project cells involving land, revenue, utilities, forest and environment departments, with defined timelines for resolving issues. The model could also target projects linked to ports, mines, industrial clusters and logistics hubs, where states have a direct economic incentive to improve rail connectivity. He cited the Vizhinjam port-rail connectivity project, where state-level involvement in land acquisition and facilitation helped advance work.

V. Shanker, former executive director-planning at Railways, said last-mile rail connectivity to ports, mines and industrial hubs should be developed through PPP financing as the most feasible approach for infrastructure development.

Railways continues to commit substantial budgetary resources to network expansion. In 2026-27, it has budgeted ₹36,722 crore for new lines and ₹4,600 crore for gauge conversion, a combined allocation of about ₹41,300 crore. As of 1 April 2026, 198 new line and gauge conversion projects covering around 20,600 km had been sanctioned.

Land acquisition remains a stubborn constraint. Railways has identified five major projects in Tamil Nadu delayed by land acquisition, while four projects in Punjab have faced similar delays. Greater state involvement could help address these bottlenecks given state administrations' role in land records, acquisition and local coordination.

Railways has an existing PPP pipeline of 54 projects worth around ₹1.8 trillion, while 18 PPP projects worth ₹16,636 crore had been completed and seven worth ₹16,334 crore were under implementation as of September 2025. The proposed approach would shift the PPP conversation beyond stations, terminals and freight facilities towards core network expansion, potentially reducing pressure on Railways' own capital while giving states a stronger stake in projects whose benefits are primarily regional.

Not everyone is convinced. Subodh K. Jain, former member (engineering) of the Railway Board, was sceptical, saying whatever was done before 2014 is buried and has no relevance today, and that the proposal is like trying to whip a dead horse that makes no difference.

A query emailed to the railway ministry seeking details of the proposed framework, including the extent of financial participation envisaged from states and local bodies, remained unanswered.