The government is targeting up to $1 billion of private investment by 2017 to build rail lines linking ports and national networks to ease growing congestion, which has delayed coal imports for power plants and contributed to a power supply crisis.
Such investment would more than double the $400 million that railways have attracted in the decade since they allowed limited private participation and help fund crucial "last mile" links to ports.
The cash-starved rail system has added just 11,000 kilometres of track in the 67 years since independence, and the network has come to symbolise the poor state of country's infrastructure. China has managed 14,000 km of new lines in the five years to 2011.
Over-crowding at ports has been delaying much-needed coal deliveries to power plants and supplies of iron ore for steelmakers at a time when there is already a shortfall.
Prime Minister Narendra Modi wants private companies, which have held back from investing in freight lines because of the struggle to win the necessary approvals, to build more of the last mile links where bottlenecks bite the most.
Companies will now be allowed to part-own new rail lines for variable periods of time rather than a fixed number of years, said Mukul Saran Mathur, an executive director at the Ministry of Railways. The railways will also take on more of a project's financial risk, Mathur said, without giving further details.
"We have put in place the appropriate policy. Demand is rising," he said, adding that the government had given approval to domestic infrastructure companies such as Navayuga and Balaji Infra to build up to 316 km of lines within two years.
The ministry also wants foreign operators which own stakes in Indian ports, like Denmark's Maersk, to invest but so far none had shown any interest.
WHERE ARE THE WAGONS?
The government estimates port operators will spend $8 billion over the next two years to expand capacity to meet rising imports.
That rapid expansion worries port operators, who say the government's proposed $1 billion worth of last mile railway links won't help with bottlenecks on the wider network.
On a critical line between the eastern coast and the capital Delhi, demand exceeds capacity on four of every 10 kilometres. That forces cargo onto clogged roads and raises transport losses, which consultancy McKinsey says could cost India $140 billion in 2020.
Essar Ports, a large port operator, wants to build new rail lines to help meet an expected doubling of its cargo handling capacity to 200 million tonne in the next few years.
But the state-owned railways, which have a monopoly on the provision of goods wagons, are failing to provide sufficient wagons to service the extra cargo, said Essar Ports CEO Rajiv Agarwal.
"We can build our own rail lines but there is this major shortage of wagons," he said.
Wagons are largely made by domestic companies Texmaco Rail & Engineering and Titagarh Wagons, who would benefit if the railways' finances improve and more wagons are bought.
Most Indian ports only have access to two-thirds of the wagons they need, and the shortage is one reason why ships have to wait for two days more to get berthed and unload than the international average, according to Deutsche Bank.
"Most of the time we face a shortage," said G.P. Biswal, deputy conservator at the busy eastern port of Paradip, where in September a surge in coal imports left twice as many vessels waiting than there were available berths. "We're taking up the case with railways to increase their capacity."