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).

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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