FDI in railways likely to be UPA govt's new year gift

Operations could remain out of bounds; cap expected to vary across segments

In a move seen as its last-ditch effort to shake off the so-called policy-paralysis, the United Progressive Alliance (UPA) government is going to allow foreign direct investment (FDI) in railways. The Cabinet Committee on Economic Affairs (CCEA) is likely to approve a proposal on this, albeit slightly watered down, early next month.

The original proposal had mooted 100 per cent FDI in the railways, but this cap could be lowered to 74 per cent in some areas.

It is learnt, the railway ministry, after much delay and significant changes, has approved the draft Cabinet note prepared by the Department of Industrial Policy & Promotion (DIPP), under the commerce ministry. The note has been sent to the Union Cabinet.

A senior official told Business Standard the proposal was currently with the Prime Minister’s Office and the Cabinet secretary. CCEA was expected to take it up either on January 2 or January 9, the official said, adding changes had to be made to DIPP’s version of the Cabinet note to bring it in sync with the Railways’ demand.

The 100 per cent FDI limit proposed by DIPP in its draft has been scaled down to 74 per cent in certain areas of the railways. Also, as was expected, foreign money would be allowed only in construction and maintenance of railway projects, and not in operations.

CCEA will take the final call on FDI cap. According to another official, the final Cabinet note suggests, while up to 100 per cent FDI should be allowed in dedicated freight corridors and high-speed railway networks under the fixed-line category, only up to 74 per cent should be allowed in collaborations and joint ventures in other areas.

Though the railway ministry has wanted investments to come in public-private partnership (PPP) projects, private players have shown little interest in this segment. Once the FDI proposal is cleared, foreign investors will get to hold stake in special-purpose vehicles meant for PPP in construction projects.

The railways plan to earn around Rs 60,000 crore through PPP projects, including construction of factories to manufacture locomotives and coaches. It is learnt that some Chinese firms, keen to invest here, have been closely watching the developments.

At present, FDI is not allowed in railway segments other than mass rapid transport and component manufacturing. According to DIPP statistics, foreign equity in railway-related components between April 2000 and September 2013 stood at $368.28 million.