The Cabinet note has already been sent to the Cabinet Secretariat and a decision on the proposal is likely this week, sources said.
The Department of Industrial Policy and Promotion has proposed to permit 100 per cent FDI in areas such as high- speed train systems, suburban corridors and dedicated freight line projects implemented in PPP mode.
Besides, there is also a proposal to amend the definition of 'infrastructure' for industrial parks to include railway line/sidings.
By including railway line/sidings in the definition, the proposals will be eligible for priority financing from banks and financial institutions.
Sources said that foreign companies could be allowed to pick up 100 per cent stake in the special purpose vehicle that will construct and maintain rail lines connecting ports, mines and industrial hubs with the existing rail network.
The FDI liberalisation would help in modernisation and expansion of the sector. According to estimates, the sector is facing a cash-crunch of Rs 26,000 crore.
However, FDI will not be allowed in train operations and safety.
At present, there is a complete ban on any kind of FDI in the railways sector except mass rapid transport systems.
The move will also help in development of infrastructure for industrial purposes. The Indian Railways is facing a cash problem.
Industrial development and exports have been suffering on account of poor infrastructure which hampers output and raises the cost of production.
It is felt that railways can play an important role in providing a reliable transport facility necessary for promoting industrial growth.
Players setting up sea ports and large mines need efficient railway connectivity.
However, the home ministry has raised objections in allowing foreign direct investment in highly-sensitive areas of the railways, saying such a move may compromise security of the country's largest transportation network.