India, FDI in railways gest a green signal

The Ministry of Home Affairs of India has finally given its green signal to the proposal of allowing foreign direct investment (FDI) in railways. The Cabinet Committed on Economic Affairs (CCEA) is expected to consider the proposal later this week.

The department of industrial policy and promotion (DIPP) has been pushing for allowing FDI in railways since August last year. The government is also keen to have it passed before the elections. By the final Cabinet note, India will allow foreign players to invest only in construction and maintenance of railway projects, not in operations.

As a result, 100% FDI might be allowed in this case.
Apparently, the final Cabinet note is to propose that up to 100% FDI should be allowed in dedicated freight corridors and high-speed railway networks falling under the fixed-line category. And, up to 74% should be allowed in the case of collaborations and joint ventures in other areas.

The railways ministry seemed keen in getting FDI, especially in public-private partnership (PPP) projects. This is because domestic private players have shown little interest in this segment.
Officials had earlier indicated that once the FDI proposal was cleared, foreign investors will be allowed to hold stake in special-purpose vehicles meant for PPP in construction projects.

The move will also help the railways achieve its revenue target of Rs 60,000 crore through projects like construction of factories to manufacture locomotives and coaches.

Currently, FDI is not allowed in railway transport other than mass rapid transport systems and component manufacturing. According to DIPP statistics, foreign equity flows in railway-related components between April 2000 and September 2013 stood at $368 million.