Development, Economics and finance, Government and governance, Trade and industry | Asia, South Asia

25 February 2020

With India planning a railway revitalisation of enormous scale, it must not take the naive path of trying to go alone. Foreign direct investment will be crucial to developing India’s railways, Chitresh Srivastva writes.

Foreign assistance is not new to Indian development, it has been part of India’s growth since independence. The first time India sought foreign investment in its railway network was in 1955, when Switzerland participated in helping India establish its first rolling stock production unit. This trend has continued until today, and is becoming ever more relevant as India pursues an extensive high-speed rail network.

As India’s economy has liberalised, foreign direct investment has become more important. The role of that investment has also changed over time, increasingly diversifying to include technical expertise, something crucial to India’s railway modernisation program.

It can be easy to imagine foreign direct investment as simply the exchange of materials, finance, and technology, but this would be a mistake. Foreign direct investment has many forms, and India’s railway network is a strong example of this.

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For India’s railway project, expertise is one of the most important types of foreign direct investment. This is because to make good decisions, Indian policymakers need an understanding of the long-term effects, both in socio-economic and technical terms, of infrastructure spending in developing countries. Without that, they will simply be guessing when it comes to important rail decisions. Often, this expertise must come from other countries.

Expertise investment is also beneficial to the country providing it. In this case, India’s rail modernisation presents an interesting opportunity to learn more about tackling congestion in developing countries. With effort, it could attract the attention of expertise investors across the globe.

Two prominent projects which have gained traction in helping India realise its potential as an emerging hub of railway investment are the development of both a high-speed rail corridor and a dedicated freight corridor.

India is currently pursuing its ambitious Mission Raftaar, with the objective of improving the speed of its current premium and long-distance train segments, in both passenger and freight.

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The scale of Mission Raftaar, which envisages a high-speed rail network connecting nearly all of India’s major cities, demands technical resources India cannot provide alone. For India to achieve its objective, it must collaborate with investors in an exchange of information and resources.

When compared to the global standards in high-speed rail, India is yet to catch up. Arguably, this is because it is has failed to collaborate well with international partners. While India should strive to improve its infrastructure with some domestic involvement, any attempt at flying solo attempt will yield negative results.

In some promising news, as part of achieving Mission Raftaar, India has attracted significant foreign investment in the project.

In doing so, it has actively involved foreign players such as France, Spain, Japan, Italy, and the UK to participate in various railway projects across the country.

Investments from external financing institutions such as the Japan International Cooperation Agency, World Bank, and Asian Development Bank, will also help supplement government efforts in the railway modernisation program.

While the material resources these organisations and countries bring do matter, this is primarily an opportunity to bring in international railway expertise to help with the execution of the program. Money alone cannot provide the technical know-how India will need to make Mission Raftaar a true success.

While achieving transport modernisation is crucial, it is not the only benefit of bringing in foreign expertise on the Indian rail project. By investing expertise into these projects, partners across the region and the world can help India attain self-sufficiency in the long-term when it comes to executing large-scale development initiatives, to the benefit of the whole region.

As a developing rail hub and emerging superpower, India would be foolish to attempt to power its development alone. Harnessing the benefits of foreign direct investment, especially when it comes to expertise, is the need of the hour and a crucial element of India’s future.

If Indian policymakers can make the right decisions and harness investment wisely, railway modernisation could be a major frontier of that future, and pave the way for Indian development for years to come.

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