FDI and Indian Railways: Is 100% Not Enough?


by Manash Pratim Hazarika.


The Indian Railway is considered to be one of the best railway systems in the world. It is said to have established a wide range of areas covered with immense customer base all around the country. Founded by the British Government and later on developed by the Indian Government after the independence it has mostly covered all cities across the country. The Indian railway maintain tourism and catering corporation which in turn has a network of hotels and restaurants that will help the customers in reaching out to the nearest and best hotels for stay. The tourism and catering corporation of the Indian Railway have large connections with the local tourism development boards of each state. The e-booking of the tickets have proved to be a major success and nearly 75 percent of the journey tickets are booked through internet.

But when it comes to travelling aboard a train in India one would definitely come across unhygienic lavatories, ghutka stained marks everywhere, poorly maintained railway stations and railway tracks, outdated technologies, and a train schedule that very rarely is punctual. This is how railway has always been and everyone availing train in India seems to have settled for it. Until the current government allowed 100% foreign direct investment (FDI) in this arena in 2014, the Ministry of Railway always had monopoly of control and regulation over railways in India, thus discouraging competition.

There are reasons as to why this change has taken place now after so many years of enjoying monopoly. Although the change in the political scenario of the country has mainly molded this outcome, reality check reveals that Indian Railway was making profit but not progress. Despite protests and apprehensions, the Indian Railway has little choice but to woo foreign investors as it currently lacks both resources and new technology to undertake expansion or modernization programmes. According to the last Railway budget presented in July after the Narendra Modi-led government came into power, gross traffic receipts in 2013-14 stood at Rs 1,39,558 crore but the operating ratio was high at 94%; in other words, for every Rs 100 that the Railways earns, it spends Rs 94 for day-to-day expenses leaving only Rs 6 for investment. Moreover the Indian Railway’s operating ratio has remained above 90% for six consecutive years, the best ever being 74.7% achieved way back in 1963-64.[1]

Indian Railway being the 4th largest railway network in the world transports the most number of passengers every day than any other railway network (2.4 Crore everyday). The Indian Railways is also the largest employer in the world, means it provides the highest number of jobs amongst all the sectors and departments throughout the world. Every year along with the Yearly Budget, a separate Railway Budget is introduced in the Parliament that proposes projects that never see completion because of improper allocation of funds.

The Indian Railway technically is now fully opened up. A foreign player can invest up to 100% in most segments of rail infrastructure such as suburban rail, metro rail, locomotive and rolling stock and dedicated freight lines. The objective for permission of FDI as stated in the Ministry of Railways’s Notification for Domestic/Foreign Director Investment has been stated as:

To augment capacity, modernize and bring efficiency through technology up-gradation on Indian Railways network and to generate finances for undertaking these activities from both domestic and foreign investors.

100% FDI under automatic route is permitted for the following[2]:

  • Construction, operation and maintenance of suburban corridor projects through PPP.
  • High speed train projects.
  • Dedicated freight lines.
  • Rolling stock including train sets and locomotive/coaches manufacturing and maintenance facilities.
  • Railway electrification.
  • Signaling systems.
  • Freight terminals.
  • Passenger terminals.
  • Infrastructure in industrial parks pertaining to railway line/siding including electrified railway lines and connectivity to main railway line.
  • Mass Rapid Transport Systems.

The government is aware of the fact that although such schemes have been undertaken, investors are skeptical of whether to invest in India. It is because of an uncertainty relating to whether such policies of the government would remain stable. It must also be ensure that the environment is investor friendly and there is no sort of road blockage when the project is initiated. It is to be noted that indecisiveness has been a culture in Rail Bhawan for a long time now but in addition to that one other factor that has affected the Indian Railway’s reputation is that in recent times no railway minister has remained in his post for a long duration. If the Indian government fails to carry on with similar policies and change their scheme of 100% FDI then the investors might have to incur losses. Companies such as EMD (USA), Bombardier Transportation (Canada), GE (USA), Siemens (Germany), and Alstom (France) have showed keen interest in extending their business into these ventures but the wait for how the first investor is treated in Indian market is what the current anticipation is all about. Japan has already agreed to modernize 400 railway station across India in addition to providing technology and expertise in solving problems of sanitation of toilets in trains and stations.

The current government’s ‘Make in India’ slogan is making hits across continents. Modi government is trying to establish ‘business friendly’ market for investors to come and produce their goods in India and export the same from here to the rest of the world. This way the aim is to employ millions of people in manufacturing sectors. Currently India lacks infrastructure capable of executing this plan and therefore a scheme for connecting all the major ports in India through railway has taken a major place in the next five year plan of the government. Industrial Corridors have been identified with the aim of connecting major cities to boost development and accelerate the flow of goods. The idea also involves developing smart cities in and around these Corridors which will be a sign of progress. Industrial Corridors include:

  • Delhi Mumbai Industrial Corridor
  • Bengaluru-Mumbai Economic Corridor
  • Chennai-Bengaluru Industrial Corridor Project
  • Vizag-Chennai Industrial Corridor
  • Amritsar-Kolkata Industrial Corridor

According to the Union Railways Minister, Suresh Prabhu, “The Indian Railways will continue to be owned by Government of India only. It will not go into the hands of multi-nationals. There are no second thoughts about it. We need to decongest our network by doubling, tripling or even quadrupling lines wherever we can. In urban areas it could only mean we go above the road. As two-thirds of our revenue comes from freight, we are going for dedicated freight corridors”.[3]

All such initiatives are in order to relieve the railway from its cash strapped condition with which the opportunity race for expanding the Indian Railway has begun. At the end Indian Railway must grow for India to grow, railway officials must feel secure at jobs, and all Indians must have the fruits of such lumps of planned investment. Railway has always been the backbone of Indian economy and 100% FDI in this sector is the first major change in Railway since its inception. Whether it is going to make Indian Railway better at affordable ticket prices for Indians or not? The answer to that question will be only be known in due course of time.




[1] Shantanu Nandan Sharma, ‘Modi Govt’s Plan to Allow 100% FDI in Rail Infra Picks up Pace; But Investors in Wait-and-Watch Mode’ (The Economic Times, Jan 11, 2015) http://articles.economictimes.indiatimes.com/2015-01-11/news/57941023_1_indian-railways-operating-ratio-arunendra-kumar

[2] Available at http://www.makeinindia.com/sector/railways, referred on 1st November, 2015

[3] ‘Huge Investment – The Need of the Hour for Indian Railways’ (India Transport Portal, February 12th, 2015), http://indiatransportportal.com/huge-investment-the-need-of-the-hour-for-indian-railways-29906

Image Source: photography.nationalgeographic.com


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