FDI in Indian Railways
Currently FDI in IR is fully opened up in 17 areas. A foreign player can invest up to 100% in most segments of rail infrastructure such as suburban rail, metro rail, locomotive and rolling stock and dedicated freight lines, Railways electrification, Signaling systems, Freight terminals, Passenger terminals etc. In high-speed rail projects — informally called bullet trains — a foreign player is now allowed to run a parallel and fully privatized railway company, completely detached from the existing IR network. But FDI continues to remain prohibited in Railway Operations.
Mechanism
FDI in rail infrastructure up to 100% will be cleared through automatic route, which means no approval from the Foreign Investment Promotion Board would be required. However, proposals involving FDI beyond 49% in sensitive areas from a security point of view would have to be brought by the Ministry of Railways before the Cabinet Committee on Security for consideration on a case to case basis.
Analysis
Allowing FDI in railways is a much debated topic. Proponents of FDI argues that present infrastructure of Indian Railways is inadequate to cope up with the rising demands. The immediate requirement is to enhance the capacities on railways to decongest the routes and vertical expansion in cities towards upgrading the infrastructure. To meet the funding requirements of railways, which according to the 12th Five Year Plan were estimated to be approximately Rs. 8.4 lakh crore, allowing substantial foreign direct investments is critical. However keeping in view the present fiscal constraints, Railways has to explore all possible means both within and outside the country to mobilize resources to develop a high class infrastructure to cater to the future needs. It is expected that opening up of 17 sectors can attract upto Rs 90,000 crore FDI into Indian Railways. But it is necessary that Indian Railways needs investments both financial and technological so that domestic capacity could also be enhanced. Therefore Indian Railways has now no option but to take the FDI route to become more competitive. Attracting FDI is highly desirable, but the success of the FDI story will depend on how much freedom the private players get to fix tariffs and market their products
Therefore, FDI liberalization in the sector would help in modernisation and expansion of the railway projects but the govt. has to move cautiously because of the security risk involved although various concerns have already been taken into account by placing strict approvals of govt. for FDI in strategic areas.
