NEW DELHI, Feb 26 (Reuters): The government will increase investment in its overloaded railway network to Rs 8.5 lakh crore ($137 billion) over the next five years, railway minister Suresh Prabhu said on Thursday.

Presenting the railway budget, Prabhu said it would “set the direction of a long and difficult road of reform.”

Over the next year, investment in the railways will increase by about a half to Rs 1 lakh crore, including funds raised by market borrowing. To meet the five-year target, investment will have to speed up more after that.

Prabhu, a trusted economic aide to Prime Minister Narendra Modi, said he would raise funds from multilateral lenders, infrastructure and pension funds, as well as “monetizing” railway assets.

“Over the next five years, the railways have to undergo a transformation,” Prabhu said in a speech that was short on details.

He said the share of rail revenue available for investments would rise to 11.5 per cent in the fiscal year starting on April 1, up from 8.2 per cent in the current fiscal year.

India has more funds available for investment thanks to a sharp drop in the price of diesel fuel, which powers most Indian locomotives.

Prabhu said spending would be focused on improving and expanding existing railway lines, many of which are operating at more than full capacity, with the average speed of the country's best trains a sluggish 70km per hour.

India's is the world's fourth largest rail network, but has been outstripped by China, which now has more than six times as much track.

Excluding market borrowing, the amount projected for investment in 2015-16 is up by 31 per cent, signalling an increased commitment to infrastructure from central funds.