The Indian Cabinet has approved plans to open its defense and railways industries to foreign investment as Indian Prime Minister Narendra Modi’s right-wing administration moves to reform and revive the ailing economy.
Cabinet agreed on Wednesday to increase the limit on foreign direct investment (FDI) in defense to 49 percent from 26 percent, and to allow unlimited investment in railway infrastructure, the Press Trust of India news agency reported.
The government, which unveiled both plans in the budget last month, is attempting to push ahead with reforms after sweeping to power at elections in May with the largest mandate in 30 years.
However, its efforts hit a major hurdle this week, when the opposition blocked its efforts to introduce legislation aimed at lifting investment in the insurance sector.
The Indian Cabinet approval comes as US Secretary of Defense Chuck Hagel was due to arrive in India yesterday with the goals of strengthening ties between the two militaries and drumming up defense deals.
Hagel is expected to meet with top government ministers during the three-day visit.
“The US recognizes the immense potential for its companies in the Indian arms market [with the lifting of the investment cap],” analyst Sameer Patil from Mumbai-based thinktank Gateway House said this week.
Modi’s government wants to speed up the modernization of its Soviet-era military after years of slow procurement and the collapse of deals over allegations of corruption.
India, the world’s biggest arms importer, traditionally relied on Russia but has turned to the US in recent years for equipment and other technology.
Investment in India’s vast and crumbling state-run railway network, which carries 23 million passengers a day, is desperately needed after years of neglect. India struggles to fund upgrades of the network, partly developed under British colonial rule, because most of its revenues are spent on operating costs.
Railway company shares were up yesterday on the approval, with Texmaco Rail & Engineering Ltd gaining 9.41 percent on the Bombay Stock Exchange. Kalindee Rail Nirman Engineers Ltd was up 5 percent, while Titagarh Wagons Ltd and Kernex Microsystems India Ltd were also trading almost 5 percent higher.
“The increase in FDI for railways ... will have a positive impact on the economy and growth,” Deloitte India director Vishwas Udgirkar said.
However, investment was not expected to increase overnight, with foreign companies first needing to form joint ventures with Indian firms before taking cautious steps, he said.
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