A majority of taxes collected by the central govt by way of income tax, excise/ST etc are reverted back in thousands of crores to states by way of annual plan assistance and other funds by the Centre. These businesses, salaried persons who directly & indirectly contribute to the taxes/duties are facilitated by suburban travel, the subsidy of which is borne by IR, where as benefit is reaped by the state govt. Logically, a part of the revenue should be directly given by central govt to IR for the subsidy borne by IR, but unfortunately that did not happen. So IR ask directly to states to contribute/ participate & state govt readily agrees in many cases.
IR used to make up for...
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the losses by indisrciminately increasing freight fare and lost its market share to road/air mode. This way negligence of IR by center has made IR a financially sick organisation. RMs (mis)used scarce IR funds to buy votes rather than to improve the IR. The result is before us, a cash strapped IR taking hundreds of steps (often unethical) just to increase the revenue in order to meet the necessary expenses.