The ministry of commerce and industry is set to approach the Union Cabinet with a proposal to allow 100 per cent foreign direct investment (FDI) in railways, in its final reform push before the General Elections next year.
According to the proposal being finalised, 100 per cent FDI will be allowed in fixed line projects of railways such as freight corridors and high speed rail networks. In case of joint ventures, FDI of up to 74 per cent will be permitted in the sector.
“It is expected to be taken to the Cabinet for approval in the new year,” said a senior government official. Once approved, an enabling provision will be added to the Schedule I of Industries Act 1951 that currently does not allow FDI in sectors such as atomic energy and railways.
The department of industrial policy and promotion (DIPP), which is finalising the proposal, is understood to have earlier suggested 100 per cent FDI only in rail connectivity projects for ports and mines.
The proposal is now being reviewed to address concerns of the railway ministry, which is keen to use foreign investment to fund public-private partnership (PPP) projects Rs 1 lakh crore in the 12th Five Year Plan period.
“Since FDI will be through the automatic route, no scrutiny will be required from the Foreign Investment Promotion Board,” the official said.
However, the issue of security clearance for projects in strategic areas has to be sorted out. “There should ideally be some kind of vetting mechanism for projects in sensitive areas such as border regions,” said the official.
Typically, the proposals for FDI in these areas are sent to the ministry of home affairs for clearance.
Currently, Indian Railways allows FDI only in the manufacture of components by private companies that supply to the network. Between 2000 and 2012, the total FDI into the Railways has been Rs 1,354.65 crore according to the DIPP.