China may not be allowed to invest in India's railway projects

The proposal to allow 100% FDI in the construction and maintenance segments of the railway network was floated in August last year.

Even as the government readies to open some segments of the railways to 100 per cent foreign equity participation, in an unprecedented move, it might incorporate in the enabling policy a clause cautioning against investment from Chinese companies. 

It is even opposed to Chinese labourers working in areas near India’s borders with China and Pakistan.

The proposal to allow 100 per cent foreign direct investment (FDI) in the construction and maintenance segments of the railway network was floated by the Department of Industrial Policy and Promotion (DIPP) in August last year. 

On this, the department had prepared a Cabinet note on December 26 but was awaiting a final go-ahead from the home ministry.

It seems, the ministry had “strong objections over allowing the participation of Chinese companies in the Indian railway network”, according to a top official who did not want to be named.

...

China, according to the home ministry, is perceived as India’s main rival - in the economic field as well as militarily - especially with unresolved border disputes between the two countries.

On that basis, the ministry is learnt to have told DIPP that investments made by Chinese firms, particularly in the core and sensitive areas, should be viewed with caution. It has said Chinese investments should also not be allowed in Jammu and Kashmir, the Northeast and Sikkim.

From the security point of view, the ministry has added, Chinese workers or technicians should not be allowed to work near the areas along the international borders India shares with China and Pakistan. They might be allowed to work in such cases but only after the government’s permission.

...

Also, it is learnt, the home ministry has said that the overall security aspect, quality control, signalling and telecommunications for the entire railway network should be under the Indian Railways.

DIPP has incorporated these changes and floated a revised draft Cabinet note — the reason why the matter was stuck and the Cabinet secretariat was not able to take it up as originally decided.

Under the proposed FDI policy, the railways plan to earn around Rs 1 lakh crore through public-private partnership (PPP) projects in the 12th Five-Year Plan. Chinese firms are believed to be keenly watching the development, as they want to heavily invest here.

Under the policy, the government wants to open the doors to foreign investment in areas like rail corridor projects, station development, locomotive manufacturing units, power plants related to railways, dedicated freight lines, high-speed train systems, logistics parks and freight terminals, as well as suburban corridors.

...

Some of the Chinese names in the fray are CSR Corp and China CNR Corp. Japanese and German firms have also shown interest to invest heavily in the world’s fifth-largest railway network. 

At present, FDI is prohibited in railway transport, except in Mass-Rapid Transport System and component manufacturing. FDI in railway-related components from April 2000 to September 2013 stood at $368.28 million, according to official statistics. 

While the government had earlier raised questions on the presence of Chinese companies in the telecom sector, no restrictions in the FDI policy were put in place.

However, while clearing a proposal by telecom major Telenor to increase its stake in its Indian venture, the Foreign Investment Promotion Board (FIPB) had come up with an unusual rider that “officials who have worked in Pakistan should not be allowed to work in India”.

...

The contentious clause was added because the home ministry and the Department of Telecommunications (DoT) wanted such a restriction.

In its deliberations, the home ministry had said it would give security clearance to the company only if it was incorporated in the licensing condition that “no person who has worked in Pakistan, including at Telenor Pakistan, shall be allowed to work in India”. DoT, too, had said officials who had worked in Pakistan should not be allowed to work in India.

The decision by the government to put a stop on the movement of executives working in Pakistan is significant, as there are many strategic sectors in which multinational companies are present or have equity stakes in both India and Pakistan.

...

Caveat on cards: Railway FDI policy to have a special caveat on Chinese firms; the home ministry has supported FDI in railways’ construction and maintenance segments but cautioned against investment by Chinese firms

Rationale: Ministry says China is considered India’s rival in the economic and military fields and there are unresolved border disputes with it

Out of bounds: Chinese investment may not be allowed in sensitive and core areas because that might pose danger to national security; so, J&K, the Northeast and Sikkim could be out of bounds for these companies

Limited labour: Chinese labourers and technicians may be barred from working in areas along India’s border with China and Pakistan. Permission likely only after government’s approval and proper visa procedures.