Easier foreign investment rules, cleared by the Cabinet last month, will open rolling stock and the railway network to private players.
The foreign direct investment (FDI) policy of 2013, which has railway transport in a no-go list, will now only keep railway operations off limits.
Only railway operations, and not rolling or fixed stock, will remain a government monopoly in the Industries Development and Regulation Act, 1951.
These changes will be done through notifications issued by the department of industrial policy and promotion (DIPP), according to a recent Cabinet order.
Rail transport is a broad term encompassing rolling stock, the rail network and operations.
Once replaced by railway operations, the other areas will be out of their current restrictions.
The government will also list pieces of railway operations that can be handed over to private players like freight corridors and high-speed trains.
Once the notifications are issued, the FDI policy and Industries Act will be in line with a 2012 policy of Indian Railways.
The policy, also approved by the Cabinet, spelt out participative models for rail connectivity.
Private companies, including foreign ones, were allowed to invest in railway infrastructure and connectivity projects after approval from Cabinet.
Railway officials said the policy clashed with the restrictions of the Industries Act. Despite an ambiguous legal position, the railways ministry floated a feasibility study on port connectivity.
Also, proposed locomotive factories in Madhepura and Marhowra attracted interest from GE, Alstom, Bombardier, Siemens, besides China's CNR Corp and SR Corp.
Officials said the Cabinet note on foreign direct investment was initiated by the DIPP and promotion to end the legal uncertainty over private investment in the railways.
Despite public-private partnership projects announced in several rail budgets, the investment since 2000 has been merely Rs 3,000 crore (Rs 30 billion), of which less than 10 per cent has come from private firms, according to a report by the Comptroller and Auditor General.
Cabinet identifies areas - FDI policy of 2013 and Industries Act, 1951 - where FDI will be permitted in Railway operations
Areas identified include high-speed railway systems, elevated rail corridors, dedicated freight corridors
Other areas like railway infrastructure, locomotives, rolling stock will be open to private sector investment
Sensitive border rail infrastructure projects with more than 49 per cent private investment will need Cabinet approval