A Supreme Court order cancelling the “Deemed Licensee” status of Indian Railways to avail electricity from the grid without surcharges, coupled with a decline in freight loading and its earning in April, have sent the alarm bells ringing inside the Railway Board. On May 15, the Railway Board wrote to general managers of all zonal railways to review the financial status of its departments, while noting that there is a sharp rise in expenditure, with ordinary working expenses (OWE) increasing by 11.6% and pension expenditure by 9.1%. It said that the freight loading has declined by 1%, and freight earnings have declined more sharply by 5%, which are even lower than the corresponding figures for April 2024. The board also said that the May 8 Supreme Court decision is likely to put further pressure as traction energy costs — the electricity required for running the trains — are likely to increase by more than 30%. This is concerning for Railways as it is the largest single user of electrical energy in the country. The total amount spent by Railways for traction electricity during 2024-25 was Rs 32,378 crores. The traction energy costs account for one of the biggest shares in OWE or expenditure on running the network daily. If the electricity costs go up and freight revenues decline further, it will be a double whammy for the Railways, deteriorating its operating ratio, which has remained a challenge for years. Operating ratio means how much the Railways spend to earn a rupee. It should be as low as possible. Railways operating ratio has remained over 98%, meaning it spends over Rs 98 to earn Rs 100. Given the fact the passenger services are subsidised, freight remains a single most sector to increase the Railways’ earnings. The Deemed Licensee is a type of distribution company , that supplies the electricity and does not consume it for its own use. Under the Electricity Act, 2003, a deemed Distribution Licensee is the one who operates and maintains a distribution system and supplies electricity to the consumers in its area of supply. Further a consumer can procure electricity from two ways — either from the Distribution Licensee in their area of supply or from alternative sources through open access. Where any consumer avails electricity through open access, two surcharges namely Cross-Subsidy and an Additional Surcharge apply. These two surcharges are levied to offset the revenue shortfall of Distribution Licensees in providing subsidised tariffs to certain categories of consumers, such as agricultural users and low-income households. Since, Railways was procuring electricity as a Deemed Licensee through open access and it did not have to pay Cross-Subsidy Surcharge and Additional Surcharge. The impact on finances The net earnings of Railways have remained marginal in the financial years 2022-23 and 2023-24. For 2024-25, it was Rs 2,660 crore. Whereas, for 2025-26, it was revised downward to Rs 1,957 crore. A key factor for this scenario is the subdued income from the passenger sector. The freight earnings alone contribute to over 65% Railways’ total revenue. For FY27, the total revenue and expenditure is pegged at Rs 3.02 lakh crore and 2.99 lakh crore respectively. Out of this, the total passenger revenue is projected to be Rs 87,300 crore and goods revenue is projected to be Rs. 1.89 lakh crore. The total passenger revenue in 2024-25 was Rs 75,368 crore and in 2025-26, it was approximately Rs 80,000 crore, according to the Railways. The total freight earnings in 2024-25 was Rs. 1.71 lakh crore and in 2025-26, it was Rs. 1.77 lakh crore.