After the Andhra Pradesh debacle, the last thing nervous investors need is another blow.
For foreign investors spooked by the vagaries of doing business in India, from the UPA’s infamous retrospective tax to October’s Supreme Court’s Rs 133,000 crore AGR-blow to telecom companies, the recent events in Maharashtra have to be deeply disturbing since, apart from the Rs 120,000 crore bullet train, several other large infrastructure projects worth lakhs of crore rupees are likely to be reviewed. And while there is always a danger of a new government wanting to review a project or change a policy – when the BJP came into power in 2014, it changed the retail-FDI policy and refused to double natural gas prices that the UPA had all but done – no one even expected a regime change in Maharashtra since, as expected, the BJP-Shiv Sena did very well in the assembly elections; indeed, once the two fought the election together, it was assumed that all tensions between them had been resolved or put on hold. So, most were taken aback when, after an odd BJP-Ajit Pawar dalliance, the Sena-NCP-Congress formed a government.
With the Shiv Sena always opposed to the bullet train, the same (incorrect) questions are once again being asked. Given how the Railways is badly strapped for cash – the latest CAG report underscores this – and how it needs over Rs 1 lakh crore for upgradation, why not spend this money on doing that instead of an elitist bullet train that will be used by a small fraction of those using trains? Appealing as the logic is, it is completely flawed since the Japan International Cooperation Agency (Jaica) loan – at a 0.1% and payable over 50 years – is for the bullet train; since Jaica is not going to sanction the same loan for the Indian Railways, the one is not a substitute for the other. Interestingly, most of those who argue the bullet train is elitist never tire of praising China’s bullet-train rollout; also, keep in mind that when construction first began – December 1, 2003 – of the 2,078-km Shanghai-Wuhan-Chengdu line, China’s per capita income was under $1,300; today, when India starts construction of the Ahmedabad-Mumbai stretch, its per capita income is over $1,800.
Also, if the Jaica feasibility report is anything to go by, the bullet train will be viable at 1.5-2 times the current 2AC fares. While this was based on traffic volumes that look quite high, it is also true that in several cases, supply creates its own demand; the explosion in air travel after low-cost carriers expanded is testimony to this. In any case, like the metros in Delhi and other parts of the country, the fare is not only determined by the cost of the project or the projected number of passengers, it is largely influenced by the real estate that is bundled in; give the bullet train more real estate – to sell, rent or use for advertising – and its tariffs will come down. Once that happens, and it is more affordable, people will be able to live in Ahmedabad or Surat or Vadodara or somewhere along the route and commute to/from Mumbai every day. The increase in convenience, the rise in land prices away from big cities and reduced congestion in big cities is the payback that the bullet train has to be measured against – a lower carbon footprint as more renewables are used to power it is another externality.
Since the Shiv Sena government has not banned the bullet train project – it has asked for a review – but has halted work on the Rs 15,000 crore metro shed – it is clear the Narendra Modi-led central government has some room for manoeuvre; whether this means more central aid to the state, assistance with farmer loan waivers or less strict action against cooperative banks that the state’s ruling politicians have an interest in is not clear. But while negotiating with Maharashtra chief minister Uddhav Thackeray, Modi would do well to keep in mind that, after the project cancellations in Andhra Pradesh – the capital city was cancelled and various renewable power projects are in all manner of trouble – and the plethora of problems investors have with the central government, the last thing he wants is another blow to shaky investor confidence.