Foreign Direct Investment in Indian Railways


 1. Introduction

With a network of railroads spanning 67,956 kilometres (miles), and serving 23 million passengers and 3 million metric tonnes (one million pounds) of freight per day, the Indian Railways' rail network is among the world’s largest. When India's railway network is run by one manager, it ranks among the world's largest railway systems. The Indian Railways carried 8.086 billion passengers in the fiscal year ending March 2020 and transported 1.2122 billion metric tonnes of freight. Some important features of Indian railways include:

  1. It is the world's second-biggest rail network under one management, and it is also the largest in Asia.
  2. Freight Revenue for the Year 2020-21 is INR 114652.47 cr as compared to INR 112358.83 cr last year, showing a growth of positive 2%.
  3. In the month of June 2021, Indian Railways earned INR 11,186.81 cr from freight loading which is also 26.7 % higher compared to June 2020.
  4. The Indian Railways network spans more than 67,415 km, as of March 2019.
  5. Till March 2019, the Indian Railways employed 1.23 million people.
  6. As India's driver of economic growth and development, the Indian Railways aspires to be safe, financially sound, and environmentally responsible. A major focus of the plan is to improve the passenger experience, no fatality, low cost, and sustainability.
  7. The total CAPEX spent for the year 2014-2020 amounts to INR 6,45,600 crore, exceeding the cumulative investment made throughout the previous 60 years from 1951 to 2014.
  8. More than 95% of Electric Locomotive components will be supplied domestically under the MAKE IN INDIA programme

Additionally, the railway network is efficient for transporting people and goods for large distances. It is preferred to own a car in India, rather than use Indian Railways as a mode of transportation.

Investing in India's railway infrastructure is good for investors since the government takes steps to support investors. FDI in railroads has helped the development of infrastructure for freight and high-speed trains because of this system's swift reaction. Both local and international companies are looking to invest in India's rail projects.

2. Market Size

The railway has maintained consistent revenue growth for a long time. Gross revenue of Indian Railways (in Rs billion) in FY-20 was Rs 174,660.52 crore (US$ 24.78 billion). Revenue generated from freight operations during FY 20 amounted to Rs 113,487.89 crore (US$ 16.24 billion). In FY20, Indian Railways earned a net total of around $7.25 billion by the way of passenger revenues. As a result, freight revenue accounts for 65% of Railways' overall revenue. Next is the passenger segment, which brings in 35% of revenue.

Indian Railways carried the most freight in FY-20/21. By 2020-21, Indian Railways' freight revenue increased to Rs. 1,17,386 Crore (approx.), from Rs. 1,13,897 crore (US$ 15.36 billion) last year.

Since August 2020, the Indian Railways has transported about 1.45 million tonnes of farm produce and perishables by running the Kisan Rail Service.

In FY19-20, RailTel, a PSU under the Ministry of Railways, set a new all-time high for the company in terms of net profit — a record Rs. 11,660.05 million (US$ 158.48 million). over the combined income of the financial year FY18-19, this income amount grew by 12.3 percent.

The largest freight loading achieved by Indian Railways in January 2021 was 119.79 million tonnes, beating its previous record of 119.74 million tonnes set in March 2019. Freight loading by the Indian Railways generated an additional Rs.449.79 crore (US$ 61.13 million) over the same month last year, rising by 4% compared to last year's earnings of Rs.10,207.87 crore (US$ 1.38 billion). By the end of FY 2021, 30% of dedicated freight corridor (DFC) will be opened for traffic, with the remaining dedicated freight corridor (DFC) 2,800 km long completely complete by June 2022.

As of 2017, India was one of the top 20 exporters of rail networks around the world. During 2010-2018, India's export of railroads increased at a CAGR of 31.51% to $507.90 million. In 2019E, exports of railroads were valued at $635 million.

3. Reasons to Invest

a)      Various measures have been implemented by the MoR, such as the establishment of locomotive manufacturers, the expansion of the rail network, the redevelopment of railway stations, and the introduction of rail carriages in order to boost private investment and draw in more participants. More than 150 contemporary rakes will be introduced for private passenger rail service.

b)      The 'Make in India' programme over the past five years has led to nearly all of the track maintenance machines being manufactured in India by top global manufacturers.

c)      These rakes are under improved conditions as part of the project 'Utkrisht', which aims to help the condition of 66 key recognised Mail/Express trains, with 140 rake-units. Since the start of 2018-19, 90 rakes have been renovated. In the second phase, the project will focus on harvesting 500 rakes.

d)     In partnership with several domestic and international agencies, the National High-Speed Rail Corporation Limited (NHSRCL) has commenced construction of the high-speed train route between Ahmedabad and Mumbai. It is being implemented with Japanese financial and technical help, also known as the "Bullet Train'' project. With an operating speed of around 320 kmph, the high-speed railway line covers a distance of 508.2 km in around two hours. By 2023, it is projected to be up and running. Japan International Cooperation Agency provides financing for 81% of the overall project cost (JICA).

e)      The Ministry of Railways is setting up the DFC Corporation of India to take care of developing, implementing, and mobilising financial resources, building and maintenance, while operating the Dedicated Freight Corridors. Two projects, one in the east and one in the west, have been funded by the DFCCIL. By organising their freight operations into corridors, India has the potential to develop one of the world's largest freight delivery systems. The length of the two corridors totals 2,822 kilometres. Car payload capacity is projected to increase from 5,000 tonnes to 13,000 tonnes. The freight train will be extended from 700 to 1500 metres in length.

f)       Based on worldwide standards and with modern facilities, six stations have been selected to be developed utilising the PPP model. A private partnership appraisal committee has approved the redevelopment of Gwalior, Nagpur, Sabarmati, and Amritsar railway stations, all of which are under public-private partnership.

g)      Initiative called ‘Green Energy Project' at Indian Railways seeks to make the national rail network environmentally friendly by concentrating on renewable energy sources. An additional 1000 MW of solar electricity and 200 MW of wind power are on the books for installation by 2022-23. About 101.42 MW of solar power and 103.4 MW of wind power have already been put in place through this process. A large portion of the Solar power plant construction will be carried out through public-private partnerships. An MoU has been struck between the Indian Railways and GAIL (India) Ltd, which provides CNG/LNG/PNG supply for both industrial and home use. It is estimated that replacing natural gas with it will save the Indian Railways’ INR 20 crores per year.

4. Investments/ Developments till sept. 2020.

The increase in investment in railway-related components during the period from April 2000 to September 2020 was US$ 1.12 billion in FDI inflow.

Investments and advancements include the following in India's railways sector:

●        In February 2021, 30.54 million tonnes of loading stood, including 13.61 million tonnes of coal, 4.15 million tonnes of iron ore, 1.04 million tonnes of food grains, 1.03 million tonnes of fertilisers, and 1.97 million tonnes of other cargo (cement, excluding clinker).

●        The world's first double-stack, long-haul container train commenced service in January 2021 from New Ateli in Haryana to New Kishanganj in Rajasthan.

●        Nepal Received its first shipment of Hyundai automobiles from India in January 2021, when HMIL has declared that it has transported 125 cars to the country via Indian Railways. This is the first time the company has exported anything, and the eco-friendliness of the shipment is asserted. The company is doing this measure to minimise carbon impact by approximately 20,260 metric tonnes.

●        There will be at least six construction projects completed in 2021, including three new lines and three double-line projects. Two of the three new rail lines will connect to neighbouring nations, with one heading to Bangladesh and one to Nepal. Out of that 2 projects are on the verge of completion.

●        As a part of the Mumbai-Ahmedabad bullet train project, NHSRCL inked an agreement with L&T to design and execute 47% of the alignment works on November 26, 2020.

●        By taking advantage of the coronavirus lockdown, the Indian Railways undertook eight major capacity improvement projects in India. In September 2020, the Indian Railways announced the ‘Clone Train Scheme', in which it planned to run a clone train with the train of the same number, to help and provide relief to the passengers waiting for trains on busy routes. Non-AC sleeper coaches are to be phased out as a part of an initiative by the Railways to improve their network. This is being interpreted as a technical necessity for high-speed trains, but there is also an added benefit for passengers in terms of increasing the passenger experience.

5. Government initiatives for Increasing Resources

The efforts undertaken by the government are:

●        Electrification has increased more than 5 times in the last seven years (2014-2021) compared to the previous seven years (2007-21).

●        Chenab Bridge, currently the world's highest railway bridge, completed by the Indian Railways in April 2021. Chenab Bridge is a total of 1315 metres, which will be 35 metres higher than the Eiffel Tower in Paris. According to the estimate, the total price of the bridge is approximately Rs. 1,486 crore (US$ 200.46 million) and the design life of the bridge is expected to be for 120 years.

●        The Indian Railways has planned various projects for completion in FY 21-22. To ensure that the new government's plan for rail development in various zones will be finished on time, the Railway Ministry has designated 56 rail projects that will be completed by the end of March 2021.

●        The Union Budget during the 2021-22 Fiscal Year has allotted $15.19 billion (Rs. 110,054.64 crore) to the Ministry of Railways.

●        On February 14, 2021, the Indian Minister of Railways, Mr. Piyush Goyal, dedicated 88 railway projects in the states of Kerala, Tamil Nadu, Madhya Pradesh, West Bengal, and Karnataka with a combined value of Rs. 1,000 crore (USSP 138.14 million).

●        New Delhi railway station was included in a "Request for Qualification" (RFQ) for redevelopment in February 2021, which has an estimated project cost of Rs. 5,000 crore (US$ 690.75 million).

●        By the end of 2020, the Ministry of Railways will launch an RFQ process for private sector participation in operating passenger train services on 109 OD lines. The strategy entails implementing 12 new trains by the end of FY23, 45 in FY24, and 50 in FY26, which adds up to a total of 151 trains by FY27. About Rs. 30,000 crore (US$ 4.09 billion) would be invested by the private sector.

●        The Indian Railways created an anti-COVID-19 carriage in November 2020 to control the spread of the coronavirus . Water tanks with hand-free flushing, and copper-coated handles and locks complete this anti-COVID-19 coach.

●        On November 29, 2020, Railway Minister Piyush Goyal stated that tea will be sold in 'Kulhads' (earthen cups) instead of plastic cups at all railway stations in the country. Of the over 400 train stations serving tea, approximately 40 serve in ‘Kulhads'. The project will be done by the Indian Railways and will contribute to the goal of a plastic-free India.

●        From October 2020, the Railway Ministry adopted a policy that encourages the private sector to participate in the development of goods shed facilities at small/roadside railway stations to boost terminal capacity. It is permitted for private companies to create a goods wharf, water supply, lodging for labourers, approach roads, loading and unloading docks, and other infrastructure relevant to the operation of their business.

●        The feasibility study for seven bullet train projects was sanctioned on September 22, 2020, available to PPP investment.

●        Project Development Cell (PDC), a new cell under the railway board tasked with increasing investments and influx of foreign direct investment was created in July of 2020. (FDI).

●        To enable the country to link its rail network with other modes of transport and establish a multi-modal transportation network, the federal government has begun planning a ‘National Rail Plan'.

●        Research Designs & Standards Organisation (RDSO), the research arm of Indian Railways, has introduced a new vendor registration system that features digital and transparent methods and procedures.

6. FDI Policy

100% FDI is permitted in the infrastructure segment of the railway. In principle, foreign direct investment is allowed in the building, operation, and maintenance of the railway sector. Some of them are given below:

  1. Suburban corridor projects through PPP model
  2. Projects to build high-speed trains
  3. Dedicated, regularly scheduled freight trains
  4. Train sets, locomotives, and coaching facilities for the construction and maintenance of rolling stock
  5. Electrification of railway lines
  6. Communication systems
  7. Booths to handle freight
  8. Porter/subway terminals
  9. This infrastructure includes electrified railway lines and connections to the main line
  10. Largest Rapid Mass Transit Systems
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