The separate rail budget - a relic of the country's British colonial past - could show how far Modi's India is prepared to drive investment in a vital transport sector.
"The fall in diesel prices and a pick-up in freight earnings have given us a golden chance to raise investments," said one government official.
Falling oil prices have saved billions of dollars in subsidy spending across the economy, but Finance Minister Arun Jaitley is under pressure to prevent the fiscal deficit from busting a target of 3.6 percent of gross domestic product.
Railway Minister Suresh Prabhu, according to the officials, has factored in savings from cheaper diesel totaling between 120-150 billion rupees ($1.9 billion-$2.4 billion) in the 2015/16 fiscal year, starting on April 1.
But, he has also asked the finance ministry for an extra 200 billion rupees ($3.2 billion) to invest in track and rolling stock upgrades for a network used by some 25 million passenger each day.
He is unlikely to get that much, though one official with knowledge of the budget discussions expected a significant increase in federal funding for the railways.
In 2014/15, 454.5 billion rupees ($7.30 billion) was budgeted for investment in the railway - with the government providing 66 percent and the rest coming from internal resources.
India's biggest employer
An increase in the budget allocation would go some way to offset disappointment at the lack of private sector interest in investing in railways, after Modi's government last year suggested public-private partnerships for new routes.