Unless they start a ferry service to Sri Lanka, I don't see any major commercial benefits from this line. Dhanushkodi is a ghost town now and even tourists will be staying at Rameswaram only.
If they are really insisting on a laying a railway line for promoting tourism, they can revive the old MG lines and run heritage specials using the MG stock that is being put out of use now due to Gauge conversion.
The expenditure will be much lesser, and there will not be too much impact on the region.