FDI

1. FOREIGN DIRECT INVESTMENT IN INDIAN
RAILWAYS AND DEFENCE FOR INTEGRATION
BY
DR. D. ELANGO
Assistant Professor, Dept of Economics
Govt Arts College, Coimbatore
POST-GRADUATE AND RESEARCH DEPARTMENT OF ECONOMICS
GOVERNMENT ARTS COLLEGE
COIMBATORE

3. WHY WE NEED FOREIGN CAPITAL
• CAPITAL
• TECHNOLOGICAL TRANSFER
TO AVOID EXPLOITATION OF NATURAL
RESOURCES
•DEVELOPMENT OF INFRASTRUCTURE
•FINANCING BALANCE OF PAYMENT DEFICIT
•FDI CREATES JOBS etc.,

8. FDI IN INDIAN RAILWAYS

9. A GLANCE OF INDIAN RAILWAYS
India has the fourth largest rail network in the world, but
the work, its performance and developments have not
been very satisfactory. Railways carry some 25 million
passengers a day, and despite the fare being cheap, we
still do have a large percentage of ticketless travel (there
are no figures available here) and the freight carried is
substantial. Indian railways have an estimated $19 billion
in annual revenue.
we may note that, in 66 years India has added 13,000
Kms of new railway lines, while, according to Ernst &
Young, China added 14,000 Kms just between 2006 and
2011! On the top of that, the China Railway Construction
Corporation has plans to invest a staggering $104.2
billion in fixed assets during 2014.

10. GOVT MOVES PROPOSAL TO ALLOW 100% FDI IN
RAILWAYS
The commerce and industry ministry has initiated
the exercise to allow 100% FDI in several segments
of railways, moving beyond its earlier plan to open
select sectors such as high-speed train systems,
dedicated freight lines built through the public-
private partnership route and in certain areas of
suburban rail networks.

11. FDI was so far allowed only in Mass Rapid Transit
(MRT) systems of railways. It will now be permitted
in construction, operation and maintenance of
suburban corridor projects based on Public Private
Partnership (PPP), High Speed Trains, Dedicated
Freight lines, rolling stock and coach
manufacturing facilities, electrification and
signaling.
However, FDI will not be allowed in areas related to
train operations and safety. It is felt railways can play a
role in providing reliable transport facility necessary for
promoting industrial growth.

12. JAPAN AGREED TO INVEST IN RAILWAYS AND
READY TO HELP IN SPEEDY TRAINS ESPECIALY
BULLET TRAINS.

13. • The government has notified foreign direct investment
(FDI) norms for the railways a day after it did the same for
the defence sector.
• The two notifications come just before Prime Minister
Narendra Modi embarks for a visit to Japan after which he
is scheduled to interact with the leaderships of the U.S. and
China. India is expecting a substantial chunk of foreign
investment in the defence and railways sectors to come
from the U.S. and in railways from China and Japan.
• The notification permits 100 per cent foreign direct
investment through automatic route in several areas,
including high speed trains. The first high speed train is
expected to run between Ahmedabad and Mumbai at an
estimated cost of Rs. 60,000 crores to 70,000 crores.

14. ADVANTAGES OF FDI IN INDIAN RAILWAYS
The government can also work to improve the Indian Railways. Infrastructure in
Indian Railways, safety and introduction of new technologies need to be looked
into.
Foreign companies would like to join as partners with us in implementing Collision
Avoidance System.
Joint ventures stocks and funds are very promising for Indian companies at
present. There are lots of technologies needed for upgradation of the infrastructure
in India, especially with respect to high-speed trains.
It will give boost to infrastructure development and generate jobs. It is to be
noted that the growth of the sector relies heavily on capital investment. Opening
gates to FDI will provide necessary impetus to the sector and encourage private
participation.
 The development of Dedicated Freight Corridor has a direct positive influence on
the creation of more industrial corridors. Importantly, it will also help railways add
capacity and help flourish business.
There is an immediate need to improve the railway infrastructure and FDI will only
help in speeding up the process. Once the issue of infrastructure is tackled it
immediately has a direct impact on operations and safety. Fast decisions on
implementation of projects would also help in improving operations and safety

15. • We should be very cautioned the government regarding relaxing
the Foreign Direct Investment (FDI) norms in the Indian Railways.
• The security is concerns, said Chinese investments in such a
sensitive sector should be viewed with caution.
• China is India's main rival on the economic front and the two
countries have unresolved border disputes. Sources said keeping
this in mind FDI from the neigh bouring country in a core sector, like
the railways, may pose a danger to national security. The ministry
also clearly stated that Chinese investments should not be allowed
in border areas such as Jammu & Kashmir and the North Eastern
states.
• Railway Unions that represent lakhs of employees at the lower
level. In fact, some railway union leaders are of the view that FDI
will lead railways into privatisation mode. Sources said there are
even discussions over calling a strike to protest against FDI in
SOME OF THE DRAW BACKS TO BE NOTED: FDI IN INDIAN
RAILWAYS

16. FDI IN INDIAN DEFENCE

17. OUR INDIAN DEFENCE FORCE

19. The FDI ceiling in the sensitive defence
sector has been hiked to 49 per cent from
current 26 per cent, with the condition that
control in joint ventures for manufacturing of
defence equipment will remain in Indian
hands. The move is aimed at boosting the
domestic industry, which imports up to 70 per
cent of its military hardware.

20. Peculiarities of FDI in Defence
FDI in defence industry is indeed essential because most
defence products involve a relatively high level of
technology and this technology gets transferred only if
the foreign partner has a long term stake in the company.
The aim of seeking FDI by India in its defence sector may
be to get both funds and technology. But given the
present comfortable economic environment, it is primarily
defence technology that India needs desperately. Hence, a
different approach is required.

21. Some of the major factors that influence FDI in
defence industry are
 Rapid obsolescence of defence technology.
 Modern defence systems are highly complex and are not
available from a single source.
 Due to heavy initial investment, the number of defence
equipment manufacturers is limited in the world.
 Market for defence equipment is extremely competitive
and restricted. Most of the countries give preference to
their indigenous manufacturers.

22. Significance of FDI in Defence
For sectors such as infrastructure, insurance and
retail trade, FDI means infusion of foreign funds.
Control of the venture is of lesser importance.
However, for the defence sector, FDI is sought both
for funds and technologies. A foreign company is
expected to share its closely guarded technologies
and proprietary know-how with the local partner.
Hence, all foreign investors want to have a controlling
stake.

23. In our country which imports up to 70 per cent of its military hardware, the
Defence industry is still struggling to achieve self-sufficiency. India is
dependent to a large extent on foreign sources for meeting its Defence
requirements. There is also a lack of technology in our Defence production and
only FDI can ensure quality weapons for our soldiers. However, critics argue
that this will make India more dependent on foreign countries for its Defence
and research needs and will eventually wipe out our Defence industry. But
there are different opinions and ideologies as far allowing 100 per cent FDI in
Defence is concerned. The Government have started the initial task of hiking
the Foreign Direct Investment in Defence to 49% from 26 % initially but raising
it further to 100 % would bring into debate on India's battling Defence sector.
"We are importing 70 per cent equipment from foreign sources. The question is
that those who oppose the idea of 49 per cent FDI in defence sector, you can
buy 100 per cent equipment from foreign sources but oppose our own...I think
the 49 per cent (FDI limit) approach in is larger national interest," said Finance

24. Will 100% FDI compromise national security
With proposal of 100% FDI in Defence coming into light, the
questions are also being raised whether such move will
compromise the security of the nation. If India is importing 70
per cent of its military equipment, the Defence ministry has to
ensure that these technology transfers are secure as sharing
of information with a foreign nation which is not aligned
towards India can prove dangerous. In order to maintain
security, the appropriate agencies will have to monitor their
production once their production unit is set up in India.
Former Defence Minister had severely criticized the Narendra
Modi Government's move of raising FDI and cited that it will
harm the national security of the nation. "The proposal to
increase FDI from 26 per cent to 49 per cent in Defence
production will harm our national security. Hitherto, India
was following an independent foreign policy and strategic
independence and we scrupulously avoided joining any of
the military blocks even though we are friendly with almost

25. FDI in Defence best option in current scenario
The opinion on allowing FDI in Defence is varying from person to
person, from one ideology to another but seeing the current
Defence scenario, FDI is best option available. With weak
Defence observed in the last decade and escalating tensions with
neighbouring countries like Pakistan and China a strong Defence
production can play a pivotal role in our foreign policy.
Today our jawans are sacrificing their lives at LoC(Line of Control)
with continuous ceasefire violations and we have only become a
mute spectators to Chinas aggression and Pakistan's belligerent
behaviour. Due to lack of technology in our Defence production,
India has always depicted itself as a weak territory. The opinions
may vary but FDI may not immediately help in making a deterrent
nation but in the current scenario it is the best option. It will also
upgrade India's military prowess in little time and with less money.