Railways being the largest public sector undertaking has varied and complex problems. Some of them are as under:
1. Its present railway network is overburdened and inadequate to meet the new challenges of a fast developing economy.
2. Some regions are beyond the reach of railways due to unfavourable geographical conditions. These areas need to be opened to railways for removing regional inequalities in economic growth.
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3. Railways are facing stiff competition from road transport and thus its share in passenger and goods traffic is declining.
4. Railways are overburdened with surplus staff on its regular pay roles. This burden hinders the further development of railways.
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5. The railways have to develop uneconomic projects due to political pressures and interferences.
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6. Railways have huge outstanding payments to diesel and electric power supply companies.
7. The State Electricity Boards and NTPC increase the tariffs arbitrarily and thus adds to the burden of railways.
8. Railways are the largest consumer of diesel. Any increase in the rates of diesel, adversely affect the financial resources.
9. Most of the equipment used by the railways are now obsolete and need immediate replacements.
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10. There is mounting deficit due to non increase in fares and tariffs by the Government due to political reasons.
Despite these problems and shortcomings, there is no other substitute for railways, as these are 5 times more energy efficient and four times more economical than road transport.
In the last few years, some administrative changes have been implemented to reduce the deficit. As a result of consistent efforts, the Indian Railways are now generating surplus funds.