Indian Railways is proactively implementing stringent cost-control measures across its operations in anticipation of the financial implications of the 8th Pay Commission (CPC). These measures focus primarily on trimming expenses related to maintenance, procurement, and energy consumption.

The 8th CPC, constituted in January 2024, is tasked with reviewing the salaries, allowances, and pensions of central government employees. Its recommendations, which are expected to be effective from January 1, 2026, will impact nearly 50 lakh central government employees, including defense personnel, and 69 lakh pensioners. The commission is expected to submit its report within 18 months of its formation.

The Railways' emphasis on cost control stems from the substantial financial impact expected from the 8th CPC. The 7th Pay Commission, implemented in 2016, led to a 14-26% increase in wages for railway employees. This resulted in an additional ₹22,000 crore in wage expenditure, including salaries and pensions. Projections suggest that the 8th CPC could further increase these costs by approximately ₹30,000 crore.

To mitigate the financial strain, Indian Railways is focusing on enhancing operational efficiency and increasing freight revenue. A senior official stated that the additional funding requirements would be met through internal accruals, anticipated savings, and increased freight earnings. There are no plans to raise any fresh short-term debt. Annual freight earnings are expected to rise by ₹15,000 crore when higher wages need to be paid in 2027-28.

The cost-cutting initiatives span several key areas:

• Maintenance: Optimizing maintenance schedules and adopting more efficient maintenance practices.
• Procurement: Streamlining procurement processes and negotiating better deals with suppliers.
• Energy: Reducing energy consumption through electrification and other energy-efficient measures. Indian Railways anticipates saving around ₹5,000 crore annually on its energy bill after the network's electrification is completed.

Indian Railways has allocated ₹1.28 lakh crore for staff costs in the fiscal year 2025-26, up from ₹1.17 lakh crore in 2024-25. Additionally, ₹68,602.69 crore has been earmarked for the pension fund in FY26, compared to ₹66,358.69 crore in FY25.

In fiscal year 2024-25, Indian Railways recorded an operating ratio (OR) of 98.90%, resulting in a net revenue of ₹1,341.31 crore. The target OR for fiscal year 2025-26 is 98.43%, with an anticipated net revenue of ₹3041.31 crore. Yearly payments to Indian Railway Finance Corporation (IRFC) are expected to decrease in fiscal 2027-28, as recent capital expenditure has been funded through gross budgetary support (GBS).

Central trade unions are advocating for a fitment factor of 2.86 for the 8th CPC, which could potentially increase the national transporter's wage bill by over 22%. The 7th Pay Commission introduced a fitment factor of 2.57, raising the minimum basic pay from ₹7,000 to ₹17,990.

The government has clarified that there is no proposal to merge Dearness Allowance (DA) with basic pay at this stage.