1. Japan steps in, bullet train on track

Japan steps in, bullet train on track

Aid agency to provide the bulk of the funding for the project via soft loan

By: and | New Delhi | Published: December 9, 2015 1:43 AM
china bullet train

The deal on the bullet train project, which would reduce the travel time between the two cities to two hours from over seven by existing express trains, would be inked during Japanese Prime Minister Shinzo Abe’s three-day visit to India starting Friday, official sources confirmed. (Representative image: Reuters)

India’s ambitious plan to have world-class super-speed trains plying between its major cities have moved a “step” closer to fruition, with Japan agreeing to fund the proposed R1-lakh-crore Mumbai-Ahmedabad bullet train project by up to 81%. With the low-cost Japanese STEP (Special Terms of Economic Partnership) loan being available, the government’s job will be limited to acquiring the required land for the 505-km linear stretch between the two highly industrialised cities and bearing the cost of the tax concessions.

The deal on the bullet train project, which would reduce the travel time between the two cities to two hours from over seven by existing express trains, would be inked during Japanese Prime Minister Shinzo Abe’s three-day visit to India starting Friday, official sources confirmed.

The loan from Japan’s government-owned Japan International Cooperation Agency (JICA), the sources said, would carry a nominal interest of 0.1% with the relevant conditions likely to be far more lenient than what was initially for JICA assistance to the Delhi-Mumbai Industrial Corridor (DMIC) project.

The prime contractor implementing the bullet train projects could be a joint venture between Japanese and Indian firms (in the case of DMIC, JICA had initially said the prime contractor must be a Japanese firm, and this was later relaxed with Indian firms also allowed to be the main contractors for some of the DMIC projects). As in the case of JICA’s overseas development assistance to DMIC, the funding of the bullet train project will also be subject to the condition that a portion of the goods and services should be procured from Japanese firms, although the exact quantum of the reservation could not be immediately ascertained. In such projects, the maximum procurement from abroad usually doesn’t cross 20%, an official said.

The 40-year JICA soft loan could be extended by another 10 years. An Indian Railways and JICA feasibility study had estimated the project cost to be Rs 98,000 crore and said the project could take six years to complete.

“As the travel time is reduced to two hours, the economic integration between the cities becomes stronger and also spreads out urbanisation,” said Manish Agarwal, partner and leader, infrastructure, PwC India, who was part of the team that prepared the feasibility report. “In such an infrastructure project capital cannot be serviced out of fare-box revenue, hence long-term, low-interest rate is critical. The project would also contribute to economic growth and thereby to tax revenue,” he added.

The deal would mark the first big infrastructure investment push by Japan after Prime Minister Narendra Modi and Abe, known to have a good bonding, elevated the relationship between the two countries to ‘Special Strategic and Global Partnership’ at their last summit meeting held in Tokyo in August 2014.

The success of this project would decide whether Japanese Shinkansen technology would be repeated elsewhere in the country as India has plans for similar tracks to reduce travel time between major cities. The cost of travelling by bullet train between Mumbai and Ahmedabad would be slightly less than travel by air, giving an alternative to frequent fliers who spend a lot of time travelling to airports two hours in advance to catch a flight.

A deal with India could be the second successful case of Japan exporting its Shinkansen bullet train technology to a foreign market, following a deal with Taiwan in 2007.

India’s massive rail network runs 12,000 trains a day, carrying 230 lakh people and connecting about 8,000 stations.

However, it has suffered decades of neglect at a time of rapid economic growth during which car ownership has surged and low-cost airlines have mushroomed. In 2014, the Modi government opened up several areas of the railways to foreign investment up to 100% in a bid to attract technology to modernise the national carrier, expand networks and increase access to capital to win back freight traffic from roads.

A passenger train in India can achieve a maximum speed of 160 km per hour, half of the speed of a Japanese Shinkansen.

Besides the Mumbai-Ahmedabad high-speed corridor, India has also awarded to various consortia for feasibility study for three other such corridors as part of the railways’ plan to build such infrastructure, connecting the ‘Golden Quadrilateral’ spanning over 10,000 km that will connect Delhi, Chennai, Mumbai and Kolkata.

India is the biggest recipient of JICA funding with commitments totalling Rs 1.26 lakh crore between FY04 and FY15. It is the main funding agency for a host of big-ticket infrastructure projects in the country including the successful Delhi Metro project and industrial corridors under development.

Express intent

* JICA to fund up to 81% of the R1 lakh crore bullet train project
* 40-year STEP loan, with easier conditions, could be extended by another 10 years
* Mumbai-Ahmedabad travel time by train to reduce to 2 hrs from not less than 7 hrs now
* Speed of Shinkansen at 320 kmph to be double the maximum speed of India passenger trains

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