India moved to allow foreign investments in its state-run, colonial-era railroad network on Tuesday, a key reform outlined in a new railway budget that also vowed to build a corridor of high speed trains and radically overhaul services.
Involving private investors as well as leveraging resources of railway public sector units could help bring in billions of dollars needed to boost the country’s rail infrastructure that has suffered from years of low investment and populist policies to subsidise fares.
The move signals Prime Minister Narendra Modi’s resolve to curb populism and make tough decisions on politically sensitive issues, such as reforming the railways, and his choice of investment model to build some of his signature infrastructure projects.
Given Modi’s strong election mandate, some analysts had been looking for announcements in the railway budget for reform measures as a sign that the national budget due Thursday would contain investor friendly measures.
Presenting his maiden budget, Railway Minister DV Sadananda Gowda told parliament his ministry would seek cabinet approval for allowing foreign direct investment in the cash-strapped, overburdened network.
Such investments will, however, not be allowed in railway operations.
"Internal revenue sources and government funding are insufficient to meet the requirement,” Gowda said.
“Hence, the Ministry of Railways is seeking Cabinet approval to allow FDI in Rail Sector."
In a budget that seemed to have been shaped by Modi’s invisible hand, the government said it would focus on raising finance through public-private partnerships to modernise the decrepit train network that has hobbled growth in Asia’s third-largest economy.
Gowda’s speech in parliament was often interrupted by slogan-raising opposition members, particularly from the Trinamool Congress who opposed the FDI move as “dangerous” and almost came to blows with some BJP lawmakers. Later, the Congress called it a “pro rich” budget.
From announcing special lines to expedite coal transportation in an energy-starved country to running new trains connecting various pilgrim spots, Gowda promised to improve amenities and on-board catering as well as a cleaner travel experience.
The railway minister proposed India's first bullet train to run on the Mumbai-Ahmedabad track in western India besides also promising to start work on a high speed rail corridor connecting the major metros. His budget also proposed introducing 58 new trains, most of them in western and southern India.
Read: Which state got what
Catch the highlights of the rail budget 2014:
His budget also spoke of restructuring the powerful Railway Board to delink policy making and announced plans for a railway university. The government will also focus on greater use of green energy by installing solar panels atop railway property, build food courts and install wi-fi for passengers .
Read: High-speed trains are budget highlight
Indian Railways, the fourth largest rail network in the world, transports 23 million passengers a day, or more than the population of Australia. It is also one of the world's biggest employers with more than 1.3 million employees.
One of the first tough measures the prime minister announced after coming to office was to raise passenger fares by 14.2 percent and freight rates by 6.5 percent, a politically bold move considering that the hike was steepest in 15 years.
Speaking after the rail budget was presented, Modi said in a televised address that the budget had kept in mind the development of India."This budget shows where we want to take the railways and at the same time where we want to take India through the railways," the prime minister said.