Japanese Loan for India’s bullet train

In Economic Times of 24th Oct 2015, I saw a news item that Japan has offered a soft loan at 1% interest to finance India’s first bullet train proposed between Mumbai- Ahmedabad (505 km ) at an estimated cost of US$15b, roughly one lakh crore. It seems that Ministry of railways is ready to jump at this offer, but I feel that it will be a disaster for Indian Railways or Govt of India (depending upon who foots the final bill) because

1% interest may look attractive, but with a long history of appreciation of Yen and devaluation of Rupee, as between 2007 to 2012 yen appreciated from 35p to 70p, the effective interest rate would be much higher.

Japanese Loan, like most of the bilateral loans, usually comes tied up with lot of conditions, like vetting of tender conditions to suit the interests of Japanese industry, and with major spending in yen (may be 70 %age or more), the actual cost may even exceed estimation of 200 crores per km.

With such high import content the gain to Indian industry and R&D will be negligible.

Unlike Metro, High Speed Railway (HSR) projects do not add value to land or real estate, rather they lower it because of NIMBY (as everybody wants HSR but ‘Not In My BackYard)

High Speed Railways in most of the rich countries is losing its shine, in France TGV traffic and profit margins are much below its peak (Ref Economist- 15 Jan 2015)

Even with a typical HSR train fare of Euro11/ 100 km in Europe, the latest HSR- Sud Europe Atlantique between Tours and Bordeaux (302 km long) is coming under PPP with 51% viability gap funding by public on a budget of 7.5 b Euros which means less Rs 180 crores per km.. (Ref Rly Gazette international- March 2015)

Since India’s proposed bullet train will be more expensive to build, and India cannot keep comparable fares (say Rs 3960 for chair car for Mumbai- Ahmedabad bullet train) and can’t have matching traffic, the ultimate subsidy to be borne by Indian public can be anybody’s guess. Moreover, the beneficiary will be a miniscule of Indian population. But surprisingly, both- the Indian media which is generally against subsidies (specially in food and all other meant for poor), and the Govt of India which had gone for major cut on subsidies in healthcare and education in this budget, seem delighted with the prospect of bullet train in India.

I think that if in India we really want to go for HSR, the complete economics of the project must be brought forward for public debate. Even a rich country like USA, after two decades of discussions, has recently started construction of Californian HSR, but many are dubbing it as a ‘Monster’. Probably we must try with indigenous efforts, first for speeds between 200-250 kmph and then go to 250-300 kmph.

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