NEW DELHI (REUTERS) - India will soon invite foreign businesses to help expand its once-mighty but now outdated railways, government sources said, in a move that would mark the opening up of one of the country's last great state-controlled industries.

Foreign investors will be allowed to fully own new services in suburban areas, high speed tracks, and connections to ports, mines and power installations, said two senior officials involved in the deliberations.

Existing passenger and freight network operations will not be open to foreign investors under the initiative, which seeks to ease bottlenecks that slow travel on the world's fourth-largest rail system.

"The plan is to allow 100 per cent foreign direct investment in suburban corridors, high-speed train systems, freight line projects implemented through public-private partnership," said an official at the Department of Industrial Policy & Promotion.

The government officials said the move could attract up to US$10 billion (S$12.7 billion) of foreign investment over the next five years.

Previous targets to attract private investment to build India's infrastructure have been missed by a wide margin, but there were positive initial responses from potential investors such as General Electric Co and Bombardier.

Established under British colonial rule, India's vast train network has been overtaken by China's rapid rail expansion over the past two decades.

Indian train travel is very cheap, and transports some 25 million passengers daily. But years of underinvestment mean the service is slow and plagued by frequent accidents, most recently a fire that killed nine people this week.

Freight charges are pegged far higher to subsidise the passenger services, driving much cargo transport onto clogged roads.

In the 66 years since independence, India has added 13,000 km of new railway lines bringing the total size to about 64,000 kms.

Only 1,750 km of new lines were added by India from 2006 to 2011, compared with 14,000 kms by China, according to a report by the Ernst & Young.

Consequently, road transport as a share of freight traffic has gone up to about 60 per cent in India compared with about 44 per cent in the United States and 22 per cent in China, government and industry data shows.

The reform, which does not need parliamentary approval, has been agreed by the railways, industry and finance ministries and has been submitted for consideration by the cabinet, which could sign off on it as soon as next week, said one official.