In its comment on the proposal of the Department of Industrial Policy and Promotion (DIPP), the Home Ministry said Chinese investments in such a sensitive sector should be viewed with caution, sources said.
The Home Ministry, they said, has pointed out that China is India's main rival on the economic and military fronts, with unresolved border disputes between the two nations.
On account of this, sources said, investments from the neighbouring country in this core sector may pose a danger to national security and should be viewed with caution.
The ministry clearly stated that Chinese investments should not be allowed in border areas such as Jammu & Kashmir, the North East and Sikkim.
It suggested the DIPP and the Ministry of Railways set up a core group with technical and security experts to evaluate proposals in the sector.
The Department of Economic Affairs (DEA) has stated that the railway ministry should keep in mind the strategic and security sensitivity of remote locations while framing specific projects in those areas, they added.
The DIPP has circulated a final note for consideration of the Cabinet for allowing foreign direct investment in suburban corridors, high-speed tracks and freight lines connecting ports, mines and power installations. The proposal will be taken up by the Cabinet soon.
However, existing passenger and freight network operations will not be opened to foreign investors.