By Neelanjana Paul, KLE Society’s Law College, Bangalore.

Understanding Privatisation and FDI

The economy of India had undergone significant policy shifts in the beginning of the 1990s. This new model of economic reforms is commonly known as the LPG or Liberalisation, Privatisation and Globalisation model. The primary objective of this model was to make the economy of India the fastest developing economy on the globe with capabilities that help it match up with the biggest economies of the world.

The chain of reforms that took place with regards to business, manufacturing, and financial services industries targeted at lifting the economy of the country to a more proficient level. These economic reforms had influenced the overall economic growth of the country in a significant manner.

Privatisation refers to the participation of private entities in businesses and services and transfer of ownership from the public sector (or government) to the private sector as well.

Foreign Direct Investment or FDI, is a type of investment that involves the injection of foreign funds into an enterprise that operates in a different country of origin from the investor

FDI in Indian Railways


Railway Sector has been the best example of monopoly trade in India since a very long time. Until now, as a remnant of India’s protectionist past, no private citizen or institution could inject money, or therefore own the railways. It was a nationalized unit of the Government of India and was thought of as a public service.  As a strategy to modernise the creaky infrastructure of the cash-strapped railways to fund a big-ticket project, a proposal for introducing FDI in Railway Sector has been passed.

It is expected that the new guidelines can attract upto Rs 90,000 Crore FDI into Indian Railways.

Among others suggestions, proposal to build Bio-toilets in passenger coaches and mechanized/ automated laundry system at every station are the ones which are getting huge attention, as the plans were in the pipeline since ages, but due to lack of funds, the plans were never implemented.

17 key areas of Indian Railways where 100% FDI will be allowed:

  1. Installation and maintenance of Bio-toilets in passenger coaches
  2. Technological solutions for manned and unmanned level crossings (Construction and maintenance of ROB/RUB /Limited Height Subway)
  3. Technological solutions to improve safety and reduce accidents (Installation and maintenance of Asset failure detection systems (Track/ OHE/ Rolling Stock/Signaling etc.)
  4. High Speed Train Projects: Projects involving those trains which will run above 250 Km/hr speed; and will have no connection or link with any existing railway line or route. The designer will have complete freedom to exercise his creativity and ideas; Government will also chip in with resources and money.)
  5. Mechanized laundry (land will be leased by Ministry of Railways at Re 1 / annum)
  6. Producing non-conventional energy from sources such as solar, tidal, wind, etc. with open market tender being offered.
  7. Rolling stock procurement
  8. Concessioning of stand-alone passenger corridors (branch lines, hill railways etc., renovation of these lines, optimizing them for better commercial usage)
  9. Testing facilities and world class laboratories for experimenting new technology
  10. Setting up Railway Technical Training Institutes
  11. Construction of world class passenger terminals and renovation/maintenance of existing stations
  12. Creation of Freight terminals/ Logistics Parks in strategically important locations
  13. Signalling System-Construction of new facilities to develop advanced systems and renovating/maintaining existing systems
  14. Railway Electrification
  15. Rolling stock including train sets and locomotives or coach manufacturing and maintenance facilities
  16. Dedicated freight lines on a Joint Venture and/or PPP model, with clear revenue sharing guidelines (Private Trains on certain lines will also be allowed from now on)
  17. Suburban corridor projects through PPP- All new suburban corridor projects are permissible when launched through PPP route by MoR. The developer can construct, maintain and operate the corridor within the concession period.

The Railway Board has outlined a series of ‘terms and conditions’ which apply in this unique 100% FDI route, such as in those projects which are situated near border areas, FDI beyond 49% will be brought before the cabinet panel for due approval; safety clearance and audit are required for projects involving public carriage of passenger and more.

Although, this has created an alarm among the Railway Unions across India who think that FDI would ultimately lead to Privatisation. Clearing the misconception, Cabinet had taken the decision to ease the FDI policy in those areas of railways that are not going to affect security and sovereign authority of the sector and the nation. So, overall, the control would be with the Railways, ownership being with the Railways and essential operations being kept within the Railways. Getting FDI would help in speeding up lots of handicaps which the railways are facing because they are unable to finance many of their prodigious projects.

It is estimated that over 5 lakh crores is required to complete the ongoing projects alone. Indian Railways needs Rs. 1,00,000 crores for the Diamond Quadrilateral Project. It is estimated that the IR spends 94% of its revenues only on maintenance, salary, etc. And it now just has 6% left to do any new constructive infrastructure development work. One may wonder, when our national players like GMR can help in building these, why do we need to involve foreign players in the powwow. But, the catch is, even these Indian companies have to take a loan from somewhere, mostly banks, that are situated within India itself. We cannot mobilize money within the country when it is scarce, so we need money from “outside”. Fresh dollars need to be pumped inside the country, only then will the country will be richer. So, instead of national players, we need foreign players. That is why, FDI is very important in infrastructure.

Benefits of FDI in Railways

  1. Railways is one common thread which binds the entire country, from one point to one other. However, there are areas and locations where Railways need to augment their infrastructure. With the current funding and prevailing scenario, it seems unlikely to generate such extravagant funds and expertise.
  2. As and when FDI comes in play, plenty of employment would be generated in primary, secondary and tertiary fields, which in turn will improve the GDP, create infrastructure, bring in efficiency to local business, improve their technological expertise, and in turn will help our standing in the technological world.
  3. DFC (Dedicated Freight Corridor) needs reams of FDI and advanced technical expertise. If properly conceived and executed, it can reduce our dependence on other mode of transportation such as Heavy Duty Truck, Container Trucks and thus reduce the import bills on oil, and thus we can save the dollar by getting more dollar. Moreover, we can further reduce wastage of perishable items thereby bringing in efficiency, and reducing cost.

However, we need to make sure that FDI doesn’t have a direct standing on train fares for consumers. Poorest of the poor, and people from the remotest of areas use this mode of transport. It shouldn’t impact the fares, and routes on profitability basis. It is and should remain a social enabler.