On 6 August the Union Cabinet of India approved 100% Foreign Direct Investment (“FDI”) in railway infrastructure. The proposal was originally introduced in the Railway Budget that was tabled in the Indian Parliament on 8 July.
The current rules, as they stand, do not permit FDI in the railways. Under the approved proposals, 100% FDI would be allowed in railway infrastructure via the automatic route, i.e. without prior government approvals. The proposals are likely to allow for FDI in the following categories in the railway sector in India: high-speed rail projects; dedicated freight corridor; port connectivity; passenger and freight terminals; signalling systems; electrification; and manufacturing and maintenance of rolling stock. However, the FDI is restricted to railways infrastructure only and it does not extend to train operations.
It is expected that the Railways Minister of India will introduce a bill in the Indian Parliament soon to amend the current rules in line with the proposals approved by the Union Cabinet.
These recently adopted FDI proposals by the Government of India provide an important investment opening for the UK rail supply industry. India's railway network is recognised as one of the largest railway systems in the world under a single management - a total route network of about 64,600 km spread across 7,146 stations, with 19,000 trains operating the routes every day. In spite of these staggeringly large numbers, according to the Indian government’s estimates it needs at least $93 billion over five years to upgrade its existing railways infrastructure. The Government of India is hoping that the opening up of FDI in the rail sector would help it to bring in the much needed funds to modernise its creaking railways infrastructure.
This provides an excellent opportunity for the UK rail sector to undertake projects independently or more likely with an Indian joint venture partner who will have a deep understanding of how to undertake complex infrastructure projects in India. The UK rail sector will be able to draw upon its expertise to replicate advanced technology and systems common in the UK within the Indian rail network. Indian joint venture partners will place a lot of value on this expertise. The UK rail sector will need to move on this quickly. Chinese and Japanese companies have already indicated that they are keen to invest in the Indian railways sector.