Cabinet clears FDI proposals in railway infrastructure, defence

New Delhi: The Bharatiya Janata Party-led National Democratic Alliance government pushed ahead on Wednesday with efforts to attract more foreign direct investment (FDI) to India, clearing a proposal for FDI in railway infrastructure and increasing the cap on that in the defence business to 49% from 26%.

The cabinet, which met on Wednesday evening, cleared the proposal to allow 100% FDI in railway infrastructure, barring operations, via the so-called automatic route, said a person familiar with the development who didn’t want to be named. FDI channelled through the automatic route doesn’t require prior government approvals.

“We had sought cabinet approval for 100% FDI in nine categories in the railways which include high-speed rail projects, dedicated freight corridor, port connectivity, passenger and freight terminals, signalling systems, electrification, manufacturing and maintenance of rolling stock railway sidings,” said another person, a railway ministry official, who also requested anonymity.

“We sought approval to permit FDI for construction, operations and maintenance of these projects. FDI in operations is not permissible,” he added.

Railway minister Sadananda Gowda said in his speech during the railway budget presented on 8 July that the government was keen to attract FDI to the railways.

“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 FDI in rail Sector,” Gowda said.

Industry welcomed Wednesday’s move.

FDI would “help railways generate much-needed resources to introduce a high-speed train system, build and upgrade suburban corridors and most importantly add capacity through speedy development of dedicated freight corridors,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry, an industry lobby.

The move is also likely to find favour with foreign companies.

“We are interested in various rail projects in India and are hoping to embark on a journey together with the new government to bring world-class rail infrastructure to India,” said Harsh Dhingra, chief country representative, India, Bombardier Transportation.

Defence

The FDI ceiling in the sensitive defence sector has been hiked to 49% from the current 26 %, on the condition that control in joint ventures (JVs) for manufacturing of defence equipment will remain in Indian hands, the Press Trust of India (PTI) reported.

The change will “allow the domestic industry to benefit in the areas of design, development and state-of-the-art manufacturing. These elements are critical to incubate rapidly a robust capability for building indigenous platforms and ensuring supplies of equipment to maintain India’s defence preparedness,” said Vivek Lall, chairman of the aerospace and defence committee of the Indo-American Chamber of Commerce.

Partnerships with global companies are “essential to build the foundation for manufacturing and innovation,” he added.

Still, the increase may not be enough to attract big defence companies, an expert said.

Big defence companies will not like to invest their money, share their technology and designs unless they have adequate control over the investments, said C. Uday Bhaskar, distinguished fellow at the New Delhi-based Society for Policy Studies and a strategic affairs expert.

Bhaskar added that the government’s approach towards defence seems “hesitant” and likened it to the “irrational” fear in the 1980s that allowing Suzuki Motor Co. to make a car in India would mean the Japanese would take over the country.

Vivek Vikram Singh, director at Grant Thornton India Llp, agreed that the increase in the FDI limit wasn’t “transformational enough”.

“Sure, there will be a few JV formations where the tenders are already in the pipeline...and these will have a knock-on effect on the medium sized suppliers to these JV companies, as well as players who benefit from the offset opportunity. However, these benefits would have accrued even if the FDI limit was 26%; so not that much will change for the industry,” he said.

“The step is good, but not good enough in our perspective, as anything below 51% is unlikely to be encouraging enough to attract investors willing to transfer technology and make large-scale investments in capital and local skill development.”

Juvenile Justice Act

The government also gave its assent to proposed changes in the Juvenile Justice Act through which the Juvenile Justice Board will be empowered to decide whether a juvenile above 16 years will be sent to an observation home or tried in a regular court for heinous crimes such as rape, PTI said.

Changes in the law were considered after the outpouring of public anger that followed the 16 December 2012 gang-rape of a Delhi student.

Among the six people who raped and tortured the 23-year-old physiotherapy student—who eventually died of her injuries—with an iron rod was a minor, who was at the time a few months short of his 18th birthday. He was tried in a juvenile court last year and sentenced to three years in a reform home.

It was this lighter sentence that sparked a debate on whether the country’s laws were shielding young offenders. The parents of the victim wanted the juvenile to be tried and punished as an adult, but the Supreme Court rejected the plea.

Of the others, Ram Singh, seen as the leader of the group, was found dead in his prison cell while the remaining four have been sentenced to death.

The women and child development ministry had announced its decision to repeal the existing Juvenile Justice Act and put up a draft Bill on its website on June 18, within weeks of the new government taking over on 26 May.

The move hasn’t found favour with everyone.

“The amendment is based on the idea that some children are irredeemable. It will be counterproductive as children are going to become hardened criminals, alienated, socially ostracised and emotionally embittered.” said Arlene Manoharan, the programme head for juvenile justice at the Centre for Child and the Law, National Law School of India University.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.