fdi in indian railways
TRANSCRIPT
FDI-FOREIGN DIRECT INVESTMENT
Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country.
Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans".[1] In a narrow sense, foreign direct investment refers just to building new facilities
FDI AND FII
FDI
. FDI is an investment that a parent company makes in a foreign country.
FDI is quite different from it as they invest in a foreign nation
FDI, this is not possible.
FII
FII or Foreign Institutional Investor is an investment made by an investor in the markets o
In FII, the companies only need to get registered in the stock exchange to make investments f a foreign nation.
The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it and take it back
.
FDI only targets a
specific enterprise. It
aims to increase the
enterprises capacity or
productivity or change
its management
control.
The FII investment flows
only into the secondary
market. It helps in
increasing capital
availability in general
rather than enhancing
the capital of a specific
enterprise
Low cost BUT Qualified, Educated/skilled labor pool.
Long-term market potential OR yields greater than can be achieved Domestically.
Access to natural Resources.
Geography.
Stability of the economic and political Environment.
Size of the market.
Legal and regulatory Framework.
Access to basic inputs.
Cost Factors.
Market Factors.
Infrastructure and technological Factors.
Political and legal factors.
Social and cultural factor.
Raising the level of Investment
Up gradation of Technology
Improvement in export Competitiveness
Employment Generation
Benefits to consumers
Revenue Generation
Economic Growth
Improved consumer welfare through reduced costs, wider choice and improved quality
Access to new market/distribution channel for products
Competitive advantage and innovation.
FDI TREND IN INDIA
Actual Previous Highest Lowest Dates Unit Frequency
2203.00 2133.00 3290 -60.00 2013 -
2014
USD
Million
Monthly
FDI – The Need
Railway finances are stressed, and it needs massive investment to
modernise, improve safety and play a role in globalising India’s transport
infrastructure. Allowing foreign investment for building and maintaining, say,
new rail lines, will help speed up such projects. The government already
allows 100% foreign investment in metro rail projects and there is no
reason why this should not be extended to the Railways. FDI must be
welcomed in most sectors, though it’s not the key to solving all problems of
the Indian economy.
That role has to be played by domestic investment. Projects must be
cleared fast, and public investment stepped up to revive the economy. So
far, the private sector has been chary of investing in long-gestation railway
projects. The Railways should engage with them. But investors need clarity
on the scope and terms of the contracts in public-private partnership
projects. It will make compliance easier.
According to information available, rail wagons are designed to carry a load of pre-
defined capacity plus nine tonnes with leeway to load one more tonne without any
overload penalty across the entire railway network, as per the interim budget,
presented recently.
The average load carried per wagon is about 62 tonnes though some wagons
carry about 67 tonnes. As per a railway official, as reported in the press, a capacity
creation of 15 million tonnes (mt) will account for about 30% of the 50 mt
incremental loading that the railways aim to move during 2014-15. They have set
a target to achieve 1,101 mt of cargo to be moved in this fiscal year.
However, in order to carry higher load per wagon, the Railways need to invest in
wagons, improve rail tracks and bridges. For this purpose, Railways propose a
market borrowing of Rs12,800 crore against Rs14,000 crore last year, to procure
rolling stocks, including wagons, locomotives and coaches. Should the need arise,
they will revise the target and borrowing accordingly.
FDI – The Need
FDI – The Need
One of the biggest problems that Railways have faced continuously is the issue
relating to extension of rail-track laying, for which there are no indigenous technology
or capacity. In fact, worldwide, there are only a few companies who can do this job
meticulously and who are in great demand. The three principal companies are
reported to be Harsco Corporation of the US, ETF of France and China Railway
Shanghai Design Institute Group Company. The railway track laying machines are
manufactured by the above three major companies, who, on obtaining overseas
contracts, bring in their equipment, lay the track, complete their job on schedule, and
take back the equipment, to another location for a new assignment!
The Eastern Railway Freight Corridor, according to information available, there are
16 bidders, both Indian and foreign, but most of whom have taken supporting bids
from two of the above named specialists in the field. This corridor is likely to be
completed in four years' time after the award.
According to an official of the Railways, as reported in the media, there are 35,000
route Kms that cover 70% of rail lines engaged in carrying freight allow for higher
carrying capacity. The load per wagon will increase only by about 2 tonnes, as the
routes currently permit 2 tonnes less loads per wagon. But to do so, Railways will
have to make an incremental investment of Rs2,000 crore to replace old tracks and
engage in upgrades in some areas.
The Advantages
The Railways’ plan is to allow foreign investors to hold stakes in the special
purpose vehicles for constructing port connectivity projects .a
IT would help faster evacuation of raw materials. The private sector should be
involved, in a big way, to augment investment and step up freight volume and
revenue.
Private entrepreneurship must also be roped in for projects such as high-speed
trains, modernizing stations and freight terminals.
Railways owns large portions of the land on which it wants to build new lines or
install modern electronic signaling for high-speed operations.
Increasing the capacity of the Railways will help lower India’s imports.
Increased productive efficiency
More Employment
Consumer Benefits
Increase in savings and investments
The Disadvantages
Will affect current tariff and increased tariffs will lead to increase in overall cost of
living
Profit distribution, investment ratios are not fixed
Inflation may be increased
Again India become slaves because of FDI
critics have also raised concerns over the efficacy of purported benefits of direct
investments.
While the levels of FDI tend to be resilient during periods of economic uncertainty,
it has the potential of adversely affecting the net capital flow of a developing
economy.
FDIs generate negative externalities in the labor market of the host economy.
Why so?
The Disadvantages
Evidence shows that multinational companies do pay a slight premium over local-
term wages, but does this really benefit the host economy? Paying a premium for
the price of labour may improve the consumption power of workers, but it also has
the detrimental ability of disrupting the local employment market. When prices rise,
supply increases while demand falls. Similarly, when the price of labour increase,
wage premiums in this case, this creates a distortion and creates a disequilibrium
in the labour market. Job matching stops being efficient and may even create
unemployment.
FDI – The Way Forward
With these data in the background, it is hoped, that when the final directives are
outlined for the FDI in Railways, the following factors will also play a vital role in the
development:
a) to engage in serious joint venture discussions to actually start manufacturing the
track laying machinery in India itself - need and scope for continuous exists for a
few decades to come;
b) to have a separate joint venture with the same FDI (or the second company) to
take contracts for fresh track laying and to renew the old and worn out ones that
need to be replaced for improvement and safety;
c) to have a separate organisation only for maintenance and repairs of all railway
tracks in the country
d) current passenger coaches are mostly (almost 95-98%) in single decks only;
double-decker passenger coaches area novelty; since in many areas the traffic is
high, double-deckers would help faster movement
e) if Railways do not have a separate division for procurement of land in the
proposed areas for laying tracks and stations, this should be established as a
separate entity
FDI IN RAILWAYS
The government is moving swiftly to allow foreign direct
investment in railways to upgrade infrastructure for freight
and high-speed trains.
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.
FDI IN RAILWAYS
Currently, there is a complete ban on any kind of FDI in
railways, except mass rapid transport systems.
High-speed trains and dedicated corridors are top agenda
items for the BJP government and the intention to upgrade
infrastructure was officially announced by president Pranab
Mukherjee in his address to the joint sitting of both Houses
of Parliament.
FDI IN RAILWAYS
Railway minister Sadananda Gowda has said on it needs
Rs 5 lakh crore for modernization, a large chunk of which
will come from the private sector.
Sources said the draft note is for discussion and a final
proposal will be moved after consultation with other
ministries, led by the Railways.
In its election manifesto, the BJP has committed to
modernize and upgrade railways and launch Diamond
Quadrilateral project of high-speed train network.
FDI IN RAILWAYS
In her first interview to any newspaper, commerce & industry minister Nirmala Sitharaman had backed the move. "Railways is desperate for investment. It needs money for expansion. It needs money for safety. It needs money for modernization and for railways the quantum of investment that you need India cannot suffice, so FDI would be a very good opportunity.”
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. Then you would require high-speed infrastructure corridors as the new railway engines are of high capacity.
IMPACT OF FDI IN RAILWAYS
IMPACT OF FDI IN RAILWAYS
Then in railway engine manufacturing and safety
equipment, there are very few companies in India. With
foreign players coming in, there will be a flood of
technology into India.
Railways are very important for the country; they are the
economy mover. If the railways are not able to move the
economy, I do not think India can make good progress.
All these and more and innovative ideas will take at least a decade or more to
accomplish, but it is time we set the goals right and focus to reach those
objectives. Just in passing reference may be made that a few years ago, these
track laying machines cost between Rs10 crore and Rs30 crore, and why these
were not purchased by the Ministry of Railways is a serious issue that they can
only answer, since these would be more expensive now. But it is never too late to
buy the latest and most modern equipment available, to get the job done!
FDI – The Way Forward
Prospective buyers in railways
General Electric Co, the world's largest maker of diesel locomotives, said it would prefer a public-private partnership to make locomotives with Indian Railways for new projects, but despite a lot of discussion, "progress has been very slow".
The US company said it would welcome any steps to open India's railways to foreign investment.
"Any fresh impetus to expedite private sector participation on existing project plans, as well as new areas, would be a welcome step in the right direction," said Nalin Jain, South Asian business leader for GE's transportation unit.
GE, which has operated in India since 1902 and has nearly 15,000 employees there, said it has submitted a formal proposal to manufacture locomotives in India and was also trying to sell its train signalling and speed control products for various subway projects around the nation.
Companies such as Canada’s Bombardier, General Electric of the US and Germany’s Siemens have already shown interest in investing in India. Chinese companies such as CSR Corp Ltd and Japanese manufacturers that already supply hi-tech equipment to the railways are other potential investors.
Railway ministry officials expect interest from Chinese firms such as CSR Corp Ltd (601766.SS), Germany's Siemens, as well as Japanese manufacturers that already work in India as contractors and suppliers to the railways.
The proposal was greeted enthusiastically by Canada's Bombardier, which in 2008 set up a 33 million euros factory in Gujarat state to build trains for Delhi Metro and plans exports to other Asian markets.
WHY FDI ? Railways have been running short of cash as the
populist polices of the government do not permit any increase in passenger fares while the number of loss-making passenger trains is increased every year to win votes. For 2012- 13, railways posted a loss of about 26,000 crore.
Main earnings of the railways come from its freight operations which crosssubsidise the losses on running passenger trains.
However, goods trains are made to wait to let passenger trains pass as there are not enough tracks to accommodate such a large number of trains. As a result, the average speed of a goods train has come down to 25 km per hour.
While the railways had a market share of 65 per cent in the goods movement of the country in 1986- 87, this has now come down to 30 per cent while that of the road sector has gone up from 34 per cent to 60 per cent during this period. A mere 25 per cent of the investment in the railway budget is financed through internal revenues of the vast organisation. The rest of the investment comes from government handouts and loans.
The vast network of railways is therefore, in desperate need of more funds.
India has the world's fifth largest rail network, after US, Russia, Canada and China. However, it is lagging behind the others and has deteriorated over the years due to heavy congestion of the tracks and the failure to modernise.
HOW FDI CAN RESCUE RAILWAYS
?? RESCUE PLAN
RESCUE POLICIES
FRAMEWORK OF POLICIES
VARIATION ACCORDING TO
TIME
PASSING OF PROJECT
PROPOSAL
APPROVAL FROM
GOVERNMENT
SEEKING INTEREST OF
COMPANIES
SOME INTERESTED
COMPANIES
RESCUE PLAN