Key Sectors of FDI in India: Roads and Railways

By Dezan Shira & Associates

Posted: 1st May 2013 09:33

The Indian government has clearly indicated that infrastructure development remains the nation’s top priority. Recognizing that a steady supply of power along with efficient transport infrastructure will help revive the Indian economy and boost productivity, the government has set up plans to increase gross capital in infrastructure over the next several years to over US$500 billion worth of investments. Given that the agriculture sector is well protected under current governmental policy regulations, and that the services sector is already well established through IT, business processing offices (BPO) and banking, infrastructure development is a critical area for opportunity.
 
The government plans to fund these projects through public private partnership (PPP) investments. Infrastructure projects in the power and road sectors will be major beneficiaries of this arrangement. Road and railway components have a high potential to attract foreign investment, and there are a large number of state-level PPP projects in the government’s pipeline that have already been awarded.
 
This article will take a close look at foreign direct investment (FDI) in road and railway infrastructure development in India. As the government encourages greater participation of international investors in India, both of these areas are presented as valuable investment opportunities.
 
Roads
 
Roads are the dominant mode of transportation within India, with the country having one of the largest networks of roads in the world. It totals 4.2 million kilometers and carries almost 90 percent of the country’s customer traffic and 65 percent of its freight.
 
The density of India’s highway network, at 0.66 kilometers of highway per square kilometer of land, is similar to that of the United States (0.65) and is much greater than that of China (0.16) or Brazil (0.20). However, most Indian highways are narrow, of poor surface quality and are heavily congested. Furthermore, 33 percent of India’s villages do not have access to all-weather roads.
 
Indian road construction projects have become a lucrative and emerging investment opportunity for numerous international giants. Projects include:
 
 
These projects will collectively add about 13,000 kilometers of four-lane highways to India’s roadways. By 2016, in conjunction with other projects, India will increase its total road network by 66,590 kilometers.
 
Several multinationals have taken the lead in assisting the growth and reform of India’s highway infrastructure, and various international companies such as Berhad (Malaysia), Deutsche Bank (Germany), Emirates Trading Agency (Dubai), the Isolux Corsan Group (Spain), Italthai (Thailand), Baelim (Korea), Dyckerhoff (Russia), Widmann AG (Germany), IJM Corporation, Road Builders (Malaysia), Kajima and Taisei (Japan) have already invested. These companies have acquired equity stakes of anywhere between 10-51 percent of various highway projects floated by the National Highway Authority of India (NHAI) and other state governments. For toll roads, 100 percent FDI is permitted and income tax breaks for periods of up to 10 years are available, making this sector highly attractive for foreign investment
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Facts and Figures:
 
 
Investment Incentives:
 
 
Investment Opportunities:
 
 
FDI Policy:
 
 
Key Indian Players:
 
 
Railway
 
Investments are needed to improve India’s railway tracks, rolling stock and delivery times. At present, passenger trains can manage an average speed of 50 km/h, while freight trains average just 22 km/h. The country has the world’s fourth largest rail network, which is Asia’s second largest (behind China), and it has long been regarded as the backbone of India’s socioeconomic growth.
 
The government intends to add 25,000 kilometers to its railway network by 2020 by way of PPP. Despite current low PPP participation, the government has recently announced a new initiative to facilitate and increase such financing and investments.
 
Previously, containerization was operated under a state monopoly, CONCOR. Facing the increasing containerization of cargo and freight, this sector has now been liberalized and is open to competition. Private sector entities may now either partner with or compete with CONCOR.
 
Government-owned Indian Railways has identified the following initiatives to help transform the viability of Indian rail into a commercially acceptable and operational model:
 
 
Facts and Figures:
 
 
This article was first published on India Briefing.
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
 
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.

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