8th Pay Commission: Railways Ramps Up Cost Controls Before 8th CPC Implementation

Indian Railways is intensifying efforts to shore up its finances ahead of a likely jump in staff-related expenses once the 8th Pay Commission’s recommendations take effect. With wage revisions expected to significantly raise costs, the national transporter is rolling out targeted cost-control measures across maintenance, procurement and energy use to create the fiscal space needed to absorb the higher outgo.

The Eighth Pay Commission, set up in January 2025, has 18 months to submit its report, leaving Railways a narrow window to realign its accounts. The move reflects lessons from the Seventh Pay Commission, whose 2016 implementation delivered salary increases of 14-26 per cent and pushed up the wage and pension bill by nearly Rs 22,000 crore.

With the current cycle ending in January 2026, internal projections suggest the next revision could raise costs by as much as Rs 30,000 crore.

Despite the looming burden, officials remain optimistic. “We have planned for the additional fund requirement,” a senior official told Economic Times, noting that internal accruals, efficiency gains and higher freight revenues are expected to cushion the impact.

Indian Railways recorded an operating ratio of 98.90 per cent in FY 2024-25, generating net revenue of Rs 1,341.31 crore. The target operating ratio for FY 2025-26 has been set at 98.43 per cent, with net revenue projected to rise to Rs 3,041.31 crore. Energy savings will play a crucial role: full electrification of the national network is estimated to reduce annual costs by Rs 5,000 crore.

Additional fiscal relief is expected from FY 2027–28, when payments to the Indian Railway Finance Corporation (IRFC) begin to ease, as recent capital expenditure has been largely met through gross budgetary support. Officials have ruled out fresh short-term borrowing and expect freight earnings to strengthen. “Annual freight earnings will also rise by Rs 15,000 crore when higher wages need to be paid in 2027-28,” the official said.

Pressure from unions may add to the financial load. The Seventh Pay Commission used a 2.57 fitment factor, raising minimum basic pay from Rs 7,000 to Rs 17,990. Trade unions are now demanding a 2.86 fitment factor under the new commission, which could lift the wage bill by more than 22 per cent. Even so, confidence remains firm. “Railways will ensure its finances are in a good condition to absorb the hit. Funds would not be an issue,” the official said.

Reflecting these expectations, the Railways has increased its staff cost allocation to Rs 1.28 lakh crore for FY 2025-26, up from Rs 1.17 lakh crore in the previous year. Pension provisions have also risen to Rs 68,602.69 crore from Rs 66,358.69 crore in FY 2024-25.