The Department of Industrial Policy and Promotion (DIPP) under the Commerce and Industry Ministry has circulated a draft cabinet note on the matter for inter-ministerial consultation, sources said.
"The department is looking at all the areas in railways where FDI can be permitted. It will help in growth of railways. Railway is a critical sector for driving India's economic growth and it has the potential to raise GDP by over one per cent," sources added.
Besides high-speed train systems and dedicated freight lines, there is also a proposal to allow foreign investment in sub-urban corridors and freight lines connecting ports, mines and power installations.
However, existing passenger and freight network operations will not be opened to foreign investors.
According to sources, an urgent need was felt to modernise, strengthen and expand the Indian railway network which would require very large capital investments.
At present, there is a complete ban on any kind of FDI in the railways sector except mass rapid transport systems.
After obtaining comments from different ministries, the note will be placed before the Union Cabinet for approval.
In its election manifesto, the BJP has committed to modernise and upgrade the railways and launch Diamond Quadrilateral project of high-speed train network.
The UPA government had also tried to relax FDI norms in railways but could not push the proposal because of the general elections.
The BJP-led government has already circulated a cabinet note allowing 100 per cent FDI in defence sector.