The earthquake-cum-tsunami in Japan could result in slowing of funds flow from the world?s third-largest economy to India?s infrastructure sector which is in need of massive investments. Reconstruction of Japan would entail an expenditure of around $250 billion and this could include a substantial amount of debt and equity investments that would have otherwise flown to emerging economies.
India is implementing two major infrastructure projects, namely dedicated freight corridor and Delhi-Mumbai industrial corridor ? both to be executed with the financial cooperation of Japanese firms. Officials with the special purpose vehicles (SPVs) that are implementing these projects say Japanese firms would have to concentrate on building infrastructure in their own country rather than investing in emerging economies like India, at least in the short term. According to preliminary estimates by World Bank, Japan will take at least five years to rebuild itself.
Japan International Cooperation Agency (JICA) ? which is a leading financial institution in Japan for funding international projects ? is financing a part of dedicated freight corridor project of Indian Railways, while Delhi-Mumbai Industrial Corridor (DMIC) has planned development of 24 new industrial cities between Delhi and Mumbai with technical and financial participation of Japanese firms.
JICA has committed 405 billion yen or R22,437 crore for the first phase of the project and 260 billion yen or R14,404 crore is under negotiation, senior officials in Dedicated Freight Corridor Corporation of India (DFCCIL), the special purpose vehicle formed to implement the project, told FE. ?With billion of dollars required for its own economy, Japan may not be able to contribute more funds for Indian projects, at least in the short term,? said DFCCIL officials.
However, the officials said JICA cannot go back on the amount already committed considering that 30% of it will flow back to Japan in the form of business opportunities for Japanese companies. JICA is the lead financing partner for eastern dedicated freight corridor. The cost of the project is R41,000 crore at current prices but it may increase by the time the corridor is commissioned in 2016-17.
Besides DFC, JICA is also involved in other sectors including power and energy, agriculture, transportation and urban environment management.
DMIC, on the other hand, is pegged to receive 11.11% of its total fund requirement of $90 billion or R4 lakh crore from Japan. ?The funds are still not tied but Japanese companies were planned to participate in the project. Of the total cost, they were likely to contribute $10 billion,? Delhi-Mumbai Industrial Corridor Development Corporation?s managing director and chief executive officer Amitabh Kant said.
?I think there is enough time for Japanese companies to invest in the project even if they don?t do that in short term. It?s a 30-year project and Japanese companies will start investing once they reconstruct properties back home,? he hoped.
