In a significant move to improve its financial health, the Indian Railways implemented two separate passenger fare increases within the current fiscal year 2025-26. The hikes, first in July 2025 and again in December 2025, mark a concerted effort by the national transporter to narrow the substantial losses from its passenger services and ease the long-standing burden on freight users.
Why Two Fare Hikes in One Year?
The dual revisions are part of a rationalization strategy designed to improve the financial sustainability of passenger operations without imposing a sudden, steep shock on travelers. Railway Minister Ashwini Vaishnaw highlighted in Parliament that passenger fares recover barely 55% of the actual cost, implying a subsidy of about 45%. This means for every ₹100 spent on a passenger's journey, the Railways recovers only ₹55.
The railways has been absorbing escalating costs related to employees, pensions, safety investments, and network expansion while passenger fares remained structurally low. With freight growth moderating and further freight tariff hikes ruled out, officials stated that correcting passenger fares has become unavoidable.
Details of the Fare Revisions
The first revision, effective 1 July 2025, introduced marginal per-kilometer increases across most classes. Ordinary second class, sleeper, and first class saw a hike of 0.5 paisa per km, while Mail/Express non-AC classes increased by 1 paisa per km. AC classes were raised by 2 paise per km. Suburban services and season tickets were exempted.
The second hike, effective 26 December 2025, applied across all non-suburban trains. Key changes included a 1 paisa per km increase for ordinary second class travel beyond 215 km, and a 2 paise per km hike for Mail/Express non-AC and AC classes. Travel up to 215 km in ordinary class, suburban services, and monthly season tickets saw no increase.
In practical terms, a 500-km non-AC journey will cost about ₹10 more, while a Delhi-Mumbai AC-class trip becomes roughly ₹28 costlier.
Addressing the Massive Subsidy and Freight Cross-Subsidy
The data underscores the deep financial gap. The cost per passenger-kilometer is approximately ₹1.38, while the average fare charged is only about ₹0.73. This leads to an annual passenger subsidy burden of around ₹60,000 crore. Historically, these losses have been offset by higher freight charges, making India's rail freight tariffs among the highest globally and hurting competitiveness against road transport.
By marginally increasing passenger fares, the railways aims to narrow passenger losses, reduce pressure to raise freight tariffs further, and potentially attract more cargo back to rail. Experts note that the long-held expectation that freight volumes alone would bridge the passenger deficit has not materialized.
Impact on Railways' Finances
The December hike alone is expected to generate about ₹600 crore in additional revenue in the remaining months of FY26. This will aid in improving the operating ratio, which is budgeted at a high 98.43% for the year. Operating costs have surged, with employee costs at ₹1.15 lakh crore and the pension bill at ₹60,000 crore.
The ministry positions these calibrated increases as a necessary correction to sustain a safer and expanded railway system. The goal is to gradually improve internal surplus, reduce reliance on annual budgetary support, and create financial headroom for continued investment in safety, capacity, and service quality.
The latest increase in December is only the fourth fare hike under the BJP government in the past 11 years, following earlier revisions in July 2025, January 2020, and June 2014.
