RailEnquiry

In a move that seeks to overturn the Railways’ policy against foreign direct investment in its core business of laying tracks and running trains, the Railways Ministry has proposed that the Cabinet allow FDI to build dedicated lines for industries.

Accepting that its current plans to boost connectivity to sectors such as mining and industry have not succeeded, the ministry has forwarded its proposal for FDI in a cabinet note sent to the committee on infrastructure headed by Prime Minister Manmohan Singh. The note from Mukul Roy’s ministry comes at a time his Trinamool Congress party has been opposed to FDI in other sectors such as retail.

Foreign direct investment in its core areas has been an absolute no-no for the fourth largest rail network in the world despite a huge shortage of funds to finance expansion. The 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 Department of Industrial Policy and Promotion.

Acknowledging the shortage of rail connectivity to coal and iron ore mines such as the ones run by Coal India, the ministry has pitched for private and foreign investment to develop committed railway lines. “It is proposed that rail connectivity to ports and mines would be developed...as private railway line by acquiring land and making investment in it. This would be declared as a non-government railway for public carriage of goods,” says the cabinet note.

The note also adds that such FDI should be through the approval route, although the government allows 100 per cent FDI in manufacturing through the automatic route.

The Sam Pitroda Committee on Modernisation of Railways, set up by previous Railways Minister Dinesh Trivedi, and subsequently the Planning Commission, have estimated that the railways need to invest Rs 7,35,000 crore in the next five years to match the growth rate of the Indian economy.

Officials said that the railways seem to accept that FDI has become necessary as measures such as the Railway Infrastructure Investment Initiative (R3i) and proposed rail connectivity to coal and iron ore mines have not “elicited the expected investment from private companies and there has been a persistent demand to make the policies more investor-friendly”.

Under the model, the concessionaire would build lines and maintain them while the railways will have joint equal right to use the infrastructure to ferry goods. Rail Bhawan expects the project concession period will run for 30 years with the return on equity linked to the interest rate on 10-year G-Secs.

“FDI will obviously add fresh financial muscle to the railways to execute its new line projects. For instance, in the case of iron ore, the current carrying capacity of railway wagons is around 3,000 tonnes but in countries such as the US, it is around ten times higher,” said Dilip Oommen, CEO of Essar Steel.