The decisions taken at the Cabinet meeting headed by Prime Minister Narendra Modi here came barely two weeks after the one to raise the cap of FDI in insurance sector from 26 per cent to 49 per cent.
FDI ceiling in the sensitive defence sector has been hiked to 49 per cent from current 26 per cent, with the condition that of the control in joint venture manufacturing defence equipment will remain Indian hands.
The move is aimed at boosting domestic industry of a country which imports up to 70 per cent of its military hardware.
The proposal had been pending for several years as it was first mooted by the Commerce Ministry during the previos UPA government. However, the then Defence Minister A K Antony had blocked it, citing national security concerns.
The NDA government has been arguing that the FDI limit needs to be hiked in defence to help expand the domestic industrial base in the sector.
The Cabinet also approved a proposal to open up cash-strapped railways to foreign investment by allowing 100 per cent FDI in areas such as high-speed train systems, suburban corridors and dedicated freight line projects implemented in PPP mode.
The FDI liberalisation in the sector would help in modernisation and expansion of the railway projects. However, FDI will not be allowed in train operations and safety.
According to estimates, the sector is facing a cash crunch of around Rs 29,000 crore and allowing of FDI will help mop up resources.
The FDI liberalisation in the sector is expected to help in modernisation and expansion of the railways.
At present, there is a ban on any kind of FDI in railways sector except mass rapid transport systems. The move will also help in development of its infrastructure for industrial purposes.
With the FDI nod, the proposed Mumbai-Ahmedabad high speed rail corridor is expected to get a push. The construction of exclusive rail corridor for freight movement is also likely to be boosted.
However, FDI is not allowed in train operations and safety.
The FDI proposal for railways was pending for some time with the Home Ministry resisting it, citing concerns with regard to rail infrastructure in border areas.
Finance Minister Arun Jaitley had in his budget speech for 2014-15 announced plans to increase FDI in defence sector while Railways Minister D V Sadananda Gowda had mentioned opening up of cash-starved railways for foreign investment.
The Cabinet also cleared a proposal to set up Mahatma Gandhi Central University in Motihari in Bihar.