(Corrects investment size of factory in paragraph 16 to 33
million euros and NOT $940 million)
By Manoj Kumar
NEW DELHI Jan 9 India will soon invite foreign
businesses to help expand its once-mighty but now outdated
railways, government sources said, in a move that would mark the
opening up of one of the country's last great state-controlled
Foreign investors will be allowed to fully own new services
in suburban areas, high speed tracks, and connections to ports,
mines and power installations, said two senior officials
involved in the deliberations.
Existing passenger and freight network operations will not
be open to foreign investors under the initiative, which seeks
to ease bottlenecks that slow travel on the world's
fourth-largest rail system.
"The plan is to allow 100 percent foreign direct investment
in suburban corridors, high-speed train systems, freight line
projects implemented through public-private partnership," said
an official at the Department of Industrial Policy & Promotion.
The government officials said the move could attract up to
$10 billion of foreign investment over the next five years.
Previous targets to attract private investment to build
India's infrastructure have been missed by a wide margin, but
there were positive initial responses from potential investors
such as General Electric Co and Bombardier.
Established under British colonial rule, India's vast train
network has been overtaken by China's rapid rail expansion over
the past two decades.
Indian train travel is very cheap, and transports some 25
million passengers daily. But years of underinvestment mean the
service is slow and plagued by frequent accidents, most recently
a fire that killed nine people this week.
Freight charges are pegged far higher to subsidise the
passenger services, driving much cargo transport onto clogged
In the 66 years since independence, India has added 13,000
km (8,077 miles) of new railway lines bringing the total size to
about 64,000 km (39,767 miles).
Only 1,750 km (1,087 miles) of new lines were added by India
from 2006 to 2011, compared with 14,000 km (8,699 miles) by
China, according to a report by the Ernst & Young.
Consequently, road transport as a share of freight traffic
has gone up to about 60 percent in India compared with about 44
percent in the United States and 22 percent in China, government
and industry data shows.
The reform, which does not need parliamentary approval, has
been agreed by the railways, industry and finance ministries and
has been submitted for consideration by the cabinet, which could
sign off on it as soon as next week, said one official. Parts of
the cabinet note were seen by Reuters.
The plan is one of a series of moves the ruling Congress
party hopes will help spur India's economy out of a deep slump
ahead of a general election due by May in which it is expected
to struggle to hold off the challenge of the opposition BJP.
Railway ministry officials expect interest from Chinese
firms such as CSR Corp Ltd, Germany's Siemens, as
well as Japanese manufacturers that already work in India as
contractors and suppliers to the railways.
The proposal was greeted enthusiastically by Canada's
Bombardier, which in 2008 set up a 33 million euros ($44.88
million) factory in Gujarat state to build trains for Delhi
Metro and plans exports to other Asian markets.
"Bombardier is bullish about the demand and the future
prospects of Indian rail transportation industry," said Harsh
Dhingra, chief country representative, Bombardier
"Multinational companies from North America, Europe, the
U.S. and Japan have shown a long-term commitment to set up a
base and invest in India to cater to the future demand in the
India's rail wagon manufacturers were also enthused by the
plans and expect to set up joint ventures with foreign players.
"Obviously we will be interested in a joint venture. We are
positioning ourselves for that. We expect it will bring very
good business opportunity for us as well as for the country,"
said Sandeep Fuller, the CEO of Texmaco Rail & Engineering Ltd,
a Kolkata-based wagon manufacturer.
India has opened industries including retail, civil
aviation, pharmaceuticals, telecommunications and defence to
foreign investors in recent years, with the goal of improving
the nation's finances and driving economic growth.
The liberalisation has had mixed results, with supermarkets
especially complaining that red tape, politics and corruption
make it difficult to do business in India.
FDI inflows during the April-October period were down 15
percent from a year earlier at $12.6 billion, despite the
opening of new sectors.
The involvement of foreign firms in the main rail network is
currently restricted to exporting rolling stock, signalling
systems and engines to Indian Railways, a state-run behemoth
that employs around 1.4 million people.
Trade unions and many political parties oppose allowing
foreign investment in railways, and Chinese participation in
particular could raise suspicion in security circles. India,
which fought a brief war with China in 1962, is cautious about
its growing role in the Indian economy.
In the past, the government of Prime Minister Manmohan Singh
has backed off liberalisation policies in the face of public and
According to local media reports, in October, India rejected
bids from two Chinese companies -- CSR Corp and China CNR Corp
-- to set up locomotive plants under the
public-private partnership model.
Current policy only allows direct foreign investment in
urban metro projects.
Any investors in building track will still have to overcome
the administrative hurdles such as project approvals and land
disputes that meant investment by private Indian companies in
railways has not met government goals.
In the five-year period to April 2012, the railways only saw
4 percent of $16 billion investment targeted through
General Electric Co, the world's largest maker of
diesel locomotives, said it would prefer a public-private
partnership to make locomotives with Indian Railways for new
projects, but despite a lot of discussion, "progress has been
The U.S. company said it would welcome any steps to open
India's railways to foreign investment.
"Any fresh impetus to expedite private sector participation
on existing project plans, as well as new areas, would be a
welcome step in the right direction," said Nalin Jain, South
Asian business leader for GE's transportation unit.
GE, which has operated in India since 1902 and has nearly
15,000 employees there, said it has submitted a formal proposal
to manufacture locomotives in India and was also trying to sell
its train signalling and speed control products for various
subway projects around the nation.
($1 = 62.1700 Indian rupees)
($1 = 0.7353 euros)
(Additional reporting by Swati Pandey in Mumbai, Ernest
Scheyder in New York and Solarina Ho in Toronto; Editing by Alex
Richardson and Frank Jack Daniel)