Cabinet nod to FDI hike in railways, defence

August 08, 2014 - 12:00:00 am

NEW DELHI: India’s cabinet has approved plans to open its defence and railways industries to foreign investment as new Prime Minister Narendra Modi’s right-wing administration moves to reform and revive the ailing economy.

The cabinet agreed late on Wednesday to increase the limit on foreign direct investment in defence to 49 percent from 26 percent, and allow unlimited investment in railway infrastructure, officials said.

Railway Minister Sadananda Gowda yesterday said that foreigners would still be barred from investing in railway operations, amid uproar in parliament over the measures.

“As far as the operating portion of the railways is concerned, certainly we are not allowing FDI. (It is) only in infrastructure and other areas,” Gowda told reporters.

Left-wing parties accused the government of “selling off” national assets, while industry applauded the move as critical for moderisation of the sectors.

The government, which unveiled both plans in the budget last month, is attempting to push ahead with reforms after sweeping to power at elections in May with the biggest mandate in 30 years.

But its efforts hit a major hurdle this week, when the opposition blocked its attempts to introduce legislation to lift investment in the insurance sector.

Modi’s government wants to speed up modernisation of its Soviet-era military after years of slow procurement and the collapse of deals over corruption allegations.

Investment in India’s vast and crumbling state-run railway network, which carries 23 million passengers a day, is desperately needed after years of neglect.

India struggles to fund upgrades of the network, partly developed under British colonial rule, because most of its revenues are spent on operating costs, and fears of a major public backlash if fares are lifted.

Railway and defence shares were mostly trading up yesterday on the cabinet approvals, on the Bombay Stock Exchange.

Industry body FICCI said lifting the railway cap was critical “for introducing high-speed trains, suburban corridors and dedicated freight line projects” with public private partnerships.

But analyst Vishwas Udgirkar, a director of Deloitte India, warned against expecting a rush of investment, saying foreign companies would first form joint ventures with India firms before taking cautious steps.