It is being billed as the project that will usher in a new era of passenger services in India. Signing the deal for the introduction of Japanese Shinkansen bullet train on the Ahmedabad-Mumbai route, Prime Minister Narendra Modi said, “This project will launch a revolution in Indian Railways (IR) and become an engine for the economic transformation of India.”
On the face of it, the terms of the High Speed Rail (HSR) deal are attractive. Japan has agreed to fund 80% of the project cost through a soft loan of Rs 79,000 crore that comes at an interest rate of 0.1%, with a tenure stretching over 50 years and a moratorium period of 15 years.
But the razzmatazz of a train covering the 508-km distance between Ahmedabad and Mumbai in 2.07 hrs (at 320 kmph) apart, two vital questions remain. One, is an expenditure of Rs 1,00,000 crore for a rail project that aims to transport 36,000 passengers a day to begin with (best case scenario) economically viable? Two, can a poor country like India afford it?
FE spoke to experts and found that like the rest of India, their opinion is divided. “The argument of such investment helping the existing rail network holds no merit, because the assistance is only for the bullet train project,” says a Railway Board member on condition of anonymity. “Indian Railways should be investing its money on expanding and improving its existing infrastructure rather than on one show- piece project,” says a market source.
In the feasibility report prepared by Japan International Cooperation Agency (JICA)—the report is yet to be put in the public domain—the total construction cost is pegged at Rs 97,636 crore. It has projected the Internal Rate of Return to be 4% and the Economic Rate of Return at around 11.8%.
While railway officials are confident of the project being completed by 2022, market analysts are skeptical. “Keeping in mind the experience of the DFC and unavoidable land acquisition delays, the project will take 10 years to materialise,” says Abhay Krishna Agarwal, Partner Infrastructure & PPP at Ernst & Young LLP. This aspect is important since delays in execution lead to cost overruns and could make the project unviable.
Raghvan Sivadasan, former Railway Board member, says it was a mistake to have diverged from Modi’s original plan of a Diamond Quadrilateral connecting the four metros (see graphic). “The Ahmedabad-Mumbai stretch is going to get sandwiched between the existing conventional speed rail corridor (which will get upgraded) and the Dedicated Freight Corridor,” he says.
With the cost of a ticket pegged in the Rs 2,800-3,000 range, Indian Railways expects a lot of air traffic on the route to shift to HSR. It hopes to ferry 36,000 persons per day in 2023. This remains uncertain. Incidentally, ridership is critical for the operational viability of bullet trains round the world. The Taiwan bullet train project is in trouble on this count, as are most lines in China. However, Agarwal says, “The gestation period of the bullet train is going to be short. In the next 10 years our demographic dividend will start playing out in a big way” .
Railway officials take pains to stress the ‘Make In India’ aspect of the project, highlighting that civil contracts worth Rs 50,000-60,000 crore would be floated for domestic participation and only core technological components worth Rs 12,000 crore would be sourced from Japan. The ministry is confident that with comprehensive MoUs signed between the two sides, India will also benefit from transfer of technology. Sivadasan disagrees.“Not more than 10% of the technology would get transferred,” he says. “The core component of HSR technology they will not give away easily.”
On the issue of the viability of the project, however, studies say—PM Modi seems to be banking on this—that building a HSR corridor spurs economic growth through the areas through which it passes and such collateral gains matter more in the long run than the financial returns from the project. “All the areas through which the bullet train passes will witness an appreciation of the value of land and increased development,” says AK Mittal, Chairman, Railway Board. While this may be true India would have to wait for some years for a concrete answer to that question.
As for the issue of whether India, with its rail infrastructure in dire need of upgrade, can afford such investment, it is difficult to silence the naysayers. The Anil Kakodkar committee, set up to review rail safety, had sought investment worth Rs 1,00,000 crore to make railway tracks safe but the measures it recommended remain largely unimplemented—it is only this year that Indian Railways took the first steps towards creating a Special Safety Fund.
For a global perspective, consider that in the United States, state funding for the Los Angeles-San Francisco HSR link was approved with a wafer-thin public vote on account of the humongous investment it would entail. And that is the largest economy in the world.