Foreign investors will be allowed to fully own new services in
suburban areas, high speed tracks, and connections to ports, mines
and power installations, said two senior officials involved in the
Existing passenger and freight network operations will not be open
to foreign investors under the initiative, which seeks to ease
bottlenecks that slow travel on the world's fourth-largest rail
"The plan is to allow 100 percent foreign direct investment in
suburban corridors, high-speed train systems, freight line projects
implemented through public-private partnership," said an official at
the Department of Industrial Policy & Promotion.
The government officials said the move could attract up to $10
billion of foreign investment over the next five years.
Previous targets to attract private investment to build India's
infrastructure have been missed by a wide margin, but there were
positive initial responses from potential investors such as General
Electric Co and Bombardier.
Established under British colonial rule, India's vast train network
has been overtaken by China's rapid rail expansion over the past two
Indian train travel is very cheap, and transports some 25 million
passengers daily. But years of underinvestment mean the service is
slow and plagued by frequent accidents, most recently a fire that
killed nine people this week.
Freight charges are pegged far higher to subsidize the passenger
services, driving much cargo transport onto clogged roads.
In the 66 years since independence, India has added 13,000 km (8,077
miles) of new railway lines bringing the total size to about 64,000
km (39,767 miles).
Only 1,750 km (1,087 miles) of new lines were added by India from
2006 to 2011, compared with 14,000 km (8,699 miles) by China,
according to a report by the Ernst & Young.
Consequently, road transport as a share of freight traffic has gone
up to about 60 percent in India compared with about 44 percent in
the United States and 22 percent in China, government and industry
The reform, which does not need parliamentary approval, has been
agreed by the railways, industry and finance ministries and has been
submitted for consideration by the cabinet, which could sign off on
it as soon as next week, said one official. Parts of the cabinet
note were seen by Reuters.
The plan is one of a series of moves the ruling Congress party hopes
will help spur India's economy out of a deep slump ahead of a
general election due by May in which it is expected to struggle to
hold off the challenge of the opposition BJP.
Railway ministry officials expect interest from Chinese firms such
as CSR Corp Ltd, Germany's Siemens, as well as Japanese
manufacturers that already work in India as contractors and
suppliers to the railways.
The proposal was greeted enthusiastically by Canada's Bombardier,
which in 2008 set up a 33 million euros ($44.88 million) factory in
Gujarat state to build trains for Delhi Metro and plans exports to
other Asian markets.
"Bombardier is bullish about the demand and the future prospects of
Indian rail transportation industry," said Harsh Dhingra, chief
country representative, Bombardier Transportation.
"Multinational companies from North America, Europe, the U.S. and
Japan have shown a long-term commitment to set up a base and invest
in India to cater to the future demand in the sector."
India's rail wagon manufacturers were also enthused by the plans and
expect to set up joint ventures with foreign players.
"Obviously we will be interested in a joint venture. We are
positioning ourselves for that. We expect it will bring very good
business opportunity for us as well as for the country," said
Sandeep Fuller, the CEO of Texmaco Rail & Engineering Ltd, a Kolkata-based
[to top of second column]
India has opened industries including retail, civil aviation,
pharmaceuticals, telecommunications and defense to foreign investors
in recent years, with the goal of improving the nation's finances
and driving economic growth.
The liberalization has had mixed results, with supermarkets
especially complaining that red tape, politics and corruption make
it difficult to do business in India.
FDI inflows during the April-October period were down 15 percent
from a year earlier at $12.6 billion, despite the opening of new
The involvement of foreign firms in the main rail network is
currently restricted to exporting rolling stock, signaling systems
and engines to Indian Railways, a state-run behemoth that employs
around 1.4 million people.
Trade unions and many political parties oppose allowing foreign
investment in railways, and Chinese participation in particular
could raise suspicion in security circles. India, which fought a
brief war with China in 1962, is cautious about its growing role in
the Indian economy.
In the past, the government of Prime Minister Manmohan Singh has
backed off liberalization policies in the face of public and
According to local media reports, in October, India rejected bids
from two Chinese companies — CSR Corp and China CNR Corp — to set
up locomotive plants under the public-private partnership model.
Current policy only allows direct foreign investment in urban metro
Any investors in building track will still have to overcome the
administrative hurdles such as project approvals and land disputes
that meant investment by private Indian companies in railways has
not met government goals.
In the five-year period to April 2012, the railways only saw 4
percent of $16 billion investment targeted through public-private
General Electric Co, the world's largest maker of diesel
locomotives, said it would prefer a public-private partnership to
make locomotives with Indian Railways for new projects, but despite
a lot of discussion, "progress has been very slow".
The U.S. company said it would welcome any steps to open India's
railways to foreign investment.
"Any fresh impetus to expedite private sector participation on
existing project plans, as well as new areas, would be a welcome
step in the right direction," said Nalin Jain, South Asian business
leader for GE's transportation unit.
GE, which has operated in India since 1902 and has nearly 15,000
employees there, said it has submitted a formal proposal to
manufacture locomotives in India and was also trying to sell its
train signaling and speed control products for various subway
projects around the nation.
($1 = 62.1700 Indian rupees)
(Additional reporting by Swati Pandey in
Mumbai, Ernest Scheyder in New York and Solarina Ho in Toronto;
editing by Alex Richardson and Frank Jack Daniel)
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