India Considers Raising FDI Cap for Railway Projects

September 26, 2013 Posted by India Briefing Reading Time: 2 minutes

Sept. 26 – The Department of Industrial Policy and Promotion (DIPP) announced a proposed plan this week to raise the FDI cap for railway projects to 100 percent. In their cabinet note, the DIPP proposed an FDI increase for railway expansion projects and station development plans in order to boost the sector’s economic viability.

“On the railways’ recommendation, we have proposed 100% FDI be allowed in infrastructure projects for building lines and maintaining it. The operations side will remain with the railways,” said a high-level DIPP official.

The railway sector in India, which currently is not eligible for FDI participation, has faced severe financial constraints in recent times, which the DIPP hopes can be rectified with greater foreign financial participation.

“The move will help in attracting more and more FDI besides helping in the development of infrastructure for industrial purposes. Indian railways are facing a cash problem,” further commented the DIPP official.

The proposed FDI changes will allow special purpose vehicles, established for the express purpose of investing in India railways, to participate in projects designed to increase India’s rail connectivity with industrial hubs and mines.

As a primary means of long-distance travel, India’s railway systems sees over 23 million passengers each day. Train transportation also serves the country’s industrial sector, hauling hundreds of millions of metric tons of freight each year, including key commodities such as coal, iron and grains.

Despite the importance of India’s railway system, the sector has sustained large losses due to cheap fares and expensive maintenance costs.

The FDI proposal will establish a public-private partnership model aimed at raising Rs. 6,000 crore (US$15.5 million) from private investors. Several projects have already received international attention, including two train factories located in India’s northern city Bihar.

The Indian government, in an effort to strengthen the country’s economy, has approved FDI cap increases in several other industries, including telecom, aviation and retail. Investment from foreign enterprises was down almost 40 percent during the last fiscal year, a situation the government hopes can be remedied by encouraging greater international participation.

The DIPP’s cabinet note issued this week will be open for ministerial comment before going to the Indian Cabinet for final approval.

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