The government has taken steps to increase the speed of passenger trains. (File)

The government will allow private companies to set passenger fares once they start operating train services in the country, a move aimed at luring investors, as Prime Minister Narendra Modi-led administration opens up the railway network.

“Private players have been given the freedom to fix fares in their own way,” VK Yadav, chairman of Railway Board, said. But, “air-conditioned buses and planes also operate on those routes, and they have to keep that in mind before setting fares.”

Railway fares are politically sensitive in India, where trains carry as many passengers as Australia’s population every single day, and a chunk of the nation’s poor depend on the sprawling network for their transportation. While the network has been beset by decades of negligence and inefficient bureaucracy, PM Modi’s administration has invited private companies to participate in everything from modernising stations to operating trains.

Moreover, the decision to partly open up the railway sector comes as PM Modi finds himself with limited fiscal room to support Asia’s third-largest economy, which is struggling with its first contraction in over four decades.

Alstom SA, Bombardier Inc, GMR Infrastructure Ltd and Adani Enterprises Ltd are among companies that have expressed interest in these projects, Mr Yadav said. These projects can bring in investments of more than $7.5 billion in the next five years, according to estimates from Ministry of Railways.

Modernising the railways is crucial for PM Modi, who is betting on low-cost loans from Japan to build the country’s first bullet train by 2023. The government has taken steps to increase the speed of passenger trains which can sometimes crawl at walking pace.

The government asked companies to submit their interest to run passenger trains over 109 origin-destination routes via 151 trains in July, and has sought investor interest to modernise railway stations including in New Delhi and Mumbai. The current railway network is both congested and aging, dating back to British colonial rule in 1853.