Railways’ pre-emptive move before 8th Pay Commission: cut costs now, absorb higher wages later

With the 8th Central Pay Commission likely to raise wage and pension outgo from 2026, Railways is tightening costs and banking on freight growth.

Indian Railways has begun implementing cost-cutting measures across maintenance, procurement and energy use to strengthen its finances ahead of the higher wage and pension bill expected from the 8th Central Pay Commission, The Times of India reported.

The move comes as the national transporter prepares for a pay reset likely to take effect from January 1, 2026, which will raise salary and pension outgo for millions of employees and retirees.

According to the TOI report, Indian Railways posted an operating ratio (OR) of 98.90 percent in 2024-25, leaving net revenue of Rs 1,341.31 crore.

For 2025-26, the target OR is 98.42 percent, with anticipated net revenue of Rs 3,041.31 crore, reflecting the pressure on margins even as revenues rise.

Officials told TOI that annual payments to Indian Railway Finance Corporation (IRFC) are expected to decline from 2027-28 as recent capital expenditure has been funded largely through gross budgetary support (GBS), reducing reliance on borrowing.

“There are no plans for new short-term borrowing,” an official was quoted as saying by TOI.

The same official said annual freight earnings are projected to rise by about Rs 15,000 crore by 2027-28, coinciding with the period when higher wages are expected to be paid.

“Railways will ensure its finances are in a good condition to absorb the hit. Funds would not be an issue,” the official said, according to the report.

The 8th Central Pay Commission was constituted in January 2024 and is tasked with reviewing pay, allowances and pensions of central government employees.

Headed by former Supreme Court judge Ranjana Prakash Desai, the commission is expected to submit its report within 18 months, with interim reports as they are finalised. Its recommendations will cover nearly 50 lakh central government employees, including defence personnel, and around 69 lakh pensioners.

If past practice holds, the recommendations are likely to be implemented from January 1, 2026.

The 7th Pay Commission, set up in February 2014, saw its recommendations implemented from January 1, 2016, significantly raising the Railways’ staff costs at a time when operating ratios were already tight.

By tightening costs and leaning on freight growth well ahead of the next pay cycle, Railways appears to be trying to avoid a repeat of that post-implementation squeeze, when wage hikes collided with high operating expenses and limited fiscal room.

Till the new pay structure comes into force, central government employees continue to be compensated for inflation through dearness allowance (DA), which is revised every six months based on inflation trends.

For Railways, however, the real test will begin once DA is subsumed into revised pay scales under the 8th Pay Commission, making the current cost-cutting push a critical pre-emptive step rather than a cosmetic one.