With a view on modernizing, upgrading and facilitating capacity augmentation in the Indian railway network, the Ministry of Railways (“MOR”) has on 10 November 2014 published guidelines for private participation in the railways sector (by domestic and foreign participants) (“Guidelines”). While the Government of India (“GOI”) had initiated the privatisation of railways in India through Press Note 8 issued by the Department of Industrial Policy and Promotion (“DIPP”) on 27 August 2014 (“Press Note 8”), the Guidelines offer further clarity on private sector participation in the burgeoning Indian railways sector. Highlights of the Guidelines are set out in the following paragraphs:

  • The Guidelines are intended to complement the existing foreign direct investment (“FDI”) norms set out in Press Note 8 and are not intended to derogate from the provisions of any existing directives or norms established by other departments of the GOI in relation to rail projects unless specifically identified as having an overriding effect or as provided for otherwise in the concession agreements to be entered into in the rail sector.
  • The Guidelines identify 17 areas forming part of railways infrastructure where 100% FDI has been permitted, namely:
    • sub-urban corridor projects through public-private partnership (“PPP”);
    • high speed train projects;
    • dedicated freight lines;
    • rolling stocks manufacturing;
    • railway electrification;
    • signalling system;
    • freight terminals / logistics parks;
    • passenger terminals;
    • railway technical training institutes;
    • testing facilities and laboratories;
    • standalone passenger corridors;
    • non-conventional sources of energy;
    • mechanised laundry;
    • rolling stock procurement;
    • bio-toilets;
    • technological solutions for manned and unmanned level crossings; and
    • technical solutions to improve safety and reduce accidents.
  • Although 100% FDI has now been permitted in dedicated freight lines, where such infrastructure is being developed through existing joint venture projects under the Non- Governmental Railway Participative Model Policy 2012, 26% equity shall be retained by the MOR or any of its public sector undertakings.
  • While encouraging steps have been taken to promote private participation in the railways sector, the MOR retains the right to verify the antecedents of foreign collaborators and domestic promoters. Approval from the GOI is still required for projects involving passenger transit in light of applicable precommissioning safety norms.
  • The Guidelines also provide that viability gap funding of 20% of the project cost or as modified from time to time, may be available for a project. Guidelines identify specific projects which will be eligible for foreign direct investment. The Guidelines have also proposed 13 destinations for the development of passenger terminals, including one each at Chandigarh, Gandhinagar, Nagpur and Anand Vihar.

Khaitan Comment

The Guidelines represent a concrete step building on the initiation of privatisation of the rail sector through Press Note 8. The Guidelines clarify the position of the MOR on the privatisation of railways through domestic and foreign participation and identify specific avenues for investment in major railways infrastructure projects.