India Wednesday took a major step forward in big-ticket reforms, allowing varying levels of enhanced foreign equity in the crucial defence hardware industry and railroad infrastructure, keeping with the promise made in last month's national and rail budgets.
According to official sources, the decision was taken Wednesday evening at a crucial meeting of the cabinet, presided over by Prime Minister Narendra Modi, who has himself promised "Bullet Trains" in India and a best-in-the-world infrastructure, inclusive of railways, that will help a person travel between any two parts of the country within 24 hours.
The foreign investment cap in the defence sector, that has an allocation of $38 billion for this fiscal, has been hiked to 49 percent from the present 26 percent, in a move that can potentially help India curb its import bill on military hardware, 70-75 percent of which is sourced from overseas.
In the crucial railways sector, for which the Modi government has estimated the investment required at a whopping $38 billion in 10 years, 100 percent foreign equity has been allowed in areas such as high-speed train systems, suburban railroad network and dedicated freight projects to be implemented in public-private partnership mode.
"India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capabilities are still at a nascent stage," Finance Minister Arun Jaitley had said in his budget speech July 10, calling for corrective measures.
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"We are buying a substantial part of our defence requirements directly from foreign players. Companies controlled by foreign governments and foreign private parties are supplying our defence requirements to us at a considerable outflow of foreign exchange," Jaitley, who also holds the defence portfolio, said.
"Currently we permit 26 percent foreign direct investment in defence manufacturing. The composite cap of foreign exchange is being raised to 49 percent with full Indian management and control through the Foreign Investment Promotion Board (FIPB) route."
Jaitley's colleague, Railway Minister Sadananda Gowda, had made a similar pitch for the railroad network two days before him, while presenting his maiden rail budget.
"Growth of railway sector depends heavily on availability of funds for investment in rail infrastructure. Internal revenue sources and government funding are insufficient to meet the requirement. Hence, Ministry of Railways is seeking cabinet approval to allow foreign direct investment in rail sector," Gowda said.
"There has also been a lot of talk about public private partnership for raising resources. Railways being a capital intensive sector have not been successful so far in raising substantial resource through public-private partnership route. It is my endeavour to pursue this in right earnestness. It is our target that bulk of our future projects will be financed through this mode, including the high-speed rail which requires huge investments."
Ranked among the world's top five, the Indian railroad network ferries 23 million people and 2.65 million tonnes of goods daily, or 1.1 billion tonnes annually, from 7,172 stations on 12,617 passenger and 7,421 freight trains over more than 64,000 route km.
With a network stretching from Baramulla in Jammu and Kashmir in the foothills of the Himalayas to the southern tip of Kanyakumari in Tamil Nadu, the Indian Railways is also among the largest employers with an estimated 1.4 million people on its rolls.
Despite this, the country is still underserved by the railways given the demand on one side and the huge investments required to satisfy the same.
