India’s need to improve connectivity for economic and social development has been paramount and this formed the basis for the high-speed rail project.
By Rohit Berry
Indo-Japan ties, recognised as Asia’s fastest-growing bilateral relationship, go back a long way, starting with building cars and having come a long way with both the countries collaborating to build the first bullet train in India. The number of Japanese companies in India has seen a steady rise over the years, and will only strengthen with India aiming to become a $5-trillion economy in the next five years. Japan has played an important role in India’s economic development, and with this Rs 1-trillion high-speed rail project between Mumbai and Ahmedabad, this relationship is set to strengthen. Ensuring sizeable investments and technological expertise from Japan is likely to have a multiplier effect on the Indian economy.
FDI from Japan forms up to 8% of India’s total FDI (2000 to 2017). The number of Japanese companies operating in India went up to nearly 1,370 in 2017 from a mere 550 in 2008. Japanese investments have grown from $266 million in 2005 to $4,709 million in 2017.
India’s growing economic prosperity and Japan’s investment-friendly policies have led to several projects being financed by Japanese organisations. In terms of investment, the auto sector has seen maximum contribution by Japanese investors, followed by pharmaceuticals, and both sectors have witnessed significant investments over the years.
India’s need to improve connectivity for economic and social development has been paramount and this formed the basis for the high-speed rail project. In terms of adaptation, Japan’s Shinkansen has transformed the way its citizens perceive commuter rail network, and India will benefit greatly from this technology.
A strategic collaboration is critical to the success of the project. The technology behind high-speed rail is new to India, and Japanese companies can play a major role in filling this gap. The required assets, from rolling stocks, other small and meticulous parts to electrical signalling, are expected to come from Japan. Large manufacturing companies as well as multinational trading houses, which will lead the consortium of medium and small manufacturing companies, are expected to be involved in delivering the technology. Training on operations of high-speed rail will be facilitated by Japanese experts.
To meet tech requirements, it is expected that the products will initially be manufactured in Japan and then brought to India, while local companies are expected to play a role in India-level requirements such as fitting the tracks. Going forward, Japanese companies may even consider setting up manufacturing facilities for bullet trains in India. This would give an impetus to the ‘Make in India’ initiative.
The high-speed rail project can spur growth and create many employment opportunities, with up to 20,000 construction jobs, 4,000 direct employment for operations, and 20,000 indirect jobs. More than 80% of the project is funded by Japan through a loan at 0.1% per annum for a period of 50 years. With speeds over 300-kph, this project is likely to bring about a paradigm shift for the Indian Railways. In fact, there are six more high-speed rail corridors in the offing.
Such rail projects have been implemented in more than 20 countries, including China, Japan, South Korea, the UK and France. India has the fourth-largest rail network in the world after the US, China and Russia. This, combined with growing population, a significant section of which depends on the Indian Railways for public transport, makes India a lucrative investment market for high-speed rail.
High-speed rail has several economic benefits, but there are challenges, too, including land acquisition, which need to be addressed by the government on an urgent basis. As of now, only 40% of the required land has been acquired. A strong economic partnership, buttressed by the high-speed rail network, between India and Japan will prove beneficial for both the economies in an uncertain global environment.
The author is partner & head, Deal Advisory, KPMG in India.