Thursday, August 28, 2014

Foreign Investment in Rail Infrastructure

Following the liberalisation of foreign investment in the defence sector, the Department of Industrial Policy & Promotion, Government of India has issued Press Note No. 8 (2014 Series) that now permits foreign investment in the railway sector. The permitted scope of business in the sector is as follows:

Construction, operation and maintenance of the following:

(i) Suburban corridor projects through PPP, (ii) High speed train projects, (iii) Dedicated freight lines, (iv) Rolling stock including train sets, and locomotives/ coaches manufacturing and maintenance facilities, (v) Railway Electrification, (vi) Signaling systems, (vii) Freight terminals, (viii) Passenger terminals, (ix) Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivities to main railway line and (x) Mass Rapid Transport Systems.

This reform is significant because the legal regime transforms from one where no foreign investment was allowed in railway transport (except for mass rapid transport systems) to one where foreign investment is now allowed up to 100% under the automatic route. However, this is subject to any sectoral guidelines imposed by the Ministry of Railways. Moreover, in case of proposals involving foreign investment of more than 49% in sensitive areas from a security point of view, they must be taken before the Cabinet Committee on Security.

Although the reforms on foreign investment in the rail sector are far-reaching, on its face the press note seems to be limited to foreign direct investment (FDI) and does not seem to cater specifically to foreign portfolio investment (FPI) (as was the case in the press note on the defence sector).

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