Tue Jul 8, 2014 6:33am EDT
* Modi's government to seek approval for FDI in sector
* Government expects $1 bln private-public investment this fiscal year
* India's giant railway system is slow, congested (Recasts with expenditure details, adds market reaction)
By Tommy Wilkes
NEW DELHI, July 8 (Reuters) - Prime Minister Narendra Modi's new government has nudged up spending on India's wobbly railways and will seek private funding for new projects, the rail minister said without giving details on how he will attract investors.
Indian markets reacted negatively to the railways budget presented on Tuesday, after high expectations that Modi's government would use its first major economic policy statement to detail widespread reform.
India's state-owned railway, the world's fourth-largest, has suffered from years of low investment and populist policies that have kept fares low. This has turned a once-mighty system into a slow, badly-congested network that crimps economic growth.
The railway costs the government's public finances around 300 billion rupees ($5 billion) a year in subsidies.
"The bulk of our future projects will be... by the PPP model," Railway Minister Sadananda Gowda told India's parliament in his first budget, referring to public-private partnerships.
Gowda's speech promised to get the railway's finances in order, complete long-delayed projects and jumpstart ambitious plans for high-speed rail, but was short on details of how these goals would be met and how foreign direct investment (FDI) would be attracted.
The government revised up planned spending to 654.45 billion Indian rupees ($10.95 billion) for the year ending in March 2015, up 1.8 percent from an interim budget made in February by the last government.
It calculates investment in the network through public-private partnerships in 2014/15 to total 60.05 billion rupees, more than in the interim budget, but a fraction of the cash needed to overhaul the network.
RELIC FROM BRITISH RULE
India's use of a railway budget separate from the national one is a relic of British rule, when the network was the country's major industrial asset and a major revenue earner. Finance Minister Arun Jaitley presents the full federal budget on Thursday.
"There is nothing in this entire budget which tells you how they will make it attractive for private sector," said Manish R. Sharma, executive director of capital projects and infrastructure at PwC India.
"Given that in the past PPP has not taken off in railways...it would be very important to see how they come up with implementable mechanisms which the private sector will buy," he said.
Stock investors also expressed doubts about the prospects for PPPs, with shares in India's railway-related stocks falling after the speech. Texmaco Rail & Engineering fell 8 percent and was down 20 percent by 0940 GMT while Titagarh Wagons dropped 5 percent.
"Budgeted outlay is looking below expectations as the government is looking for more private partnerships now than in previous occasions," said Deven Choksey, managing director at KR Choksey securities.
Reform of India's railways has long proven politically sensitive. Successive governments have backed away from modernization, preferring instead to use the system to provide cheap transport for voters, and jobs for 1.3 million people. ($1 = 59.7400 Indian Rupees) (Additional reporting by Malini Menon, Manoj Kumar, Aditya Kalra, Suvashree Dey Choudhury and Abhishek Vishnoi; Editing by Frank Jack Daniel and Richard Borsuk)
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