Japan to Invest US$15 billion in Indian High-Speed Rail Line

9 August 2017 Wilson Bell, Research Assistant, Indian Ocean Research Programme

Background

In a continuation of the trend of growing Japanese investment in India, Prime Ministers Shinzo Abe and Narendra Modi have agreed upon the terms for the construction of India’s first-ever High Speed Rail (HSR) line, linking the cities of Mumbai and Ahmedabad. Japanese investment in India is not uncommon, with a total of over US$25 billion ($31.5 billion) invested between 2000 and 2017, including US$4.7 billion ($5.9 billion) during the 2016-17 period. The HSR link is estimated to have a cost of approximately US$15 billion ($18.9 billion) with the Japanese International Co-operation Agency (JICA) pledging to invest 81 per cent of that amount in the form of a long-term low-interest loan to aid construction of the project. When completed, the HSR line will cut the travel time between the main centres of two of India’s most economically-developed states from seven hours to two hours due to the ability of the Japanese E5 Series Shinkansen trains to travel at speeds of up to 320 kilometres per hour. The project was sanctioned for feasibility in 2009-10 and is currently in the soil testing stage. Construction is due to begin in 2018 with Abe and Modi to lay the foundation stone in September 2017. The line is estimated to be completed by 2023 and also has a planned future extension to Delhi.

Analysis

The current transport links between Mumbai and Ahmedabad are insufficient, according to analyst and investment advisor Arun Kejriwal, who notes that, ‘we have premium trains running between the two cities in the morning, afternoon and late at night and invariably all of them are packed. So there is plenty of demand for it.’ He also believes that the bullet train makes a statement by both countries, creating the opportunity for Japan to show the world that its influence extends beyond domestic policy. For India, the train acts as a platform to showcase its capabilities and what it can achieve. Kejriwal states:

… It’s not just a train; it’s about demonstrating to everyone that India has the capability of putting something as modern as a bullet train in place. India is trying to show that it has the capability and the talent. As we grow, the aspirations of the country are widening and I believe the bullet train signifies this.

That ambition is abundantly clear due to the need for the train to run along an elevated track. It will also run underwater for a total of seven kilometres between Mumbai and Thane, requiring the construction of an undersea tunnel.

There is controversy surrounding the bullet train, however, due to the expensive nature of the project. The train will cost more than India’s annual education budget and will be three times higher than its health budget. The high costs may be reduced by the potential multiplier effect that the project could have on the Indian economy, as the railway will help to encourage development in the rural areas that it passes through, providing possibilities for long-term growth.

For Japan, the project also has the potential of longer term economic growth from the trading relationship with India. The trains are manufactured in Japan and, if the railway extends to Delhi, or even Kolkata, creating the “Diamond Quadrilateral Project” (which the ruling Bharatiya Janata Party promised prior to taking office), Japan will have successfully gained a long-term, high-value customer. Although the end result of the HSR project is still unclear, the Indo-Japanese relationship will be strengthened if the project is successfully completed.

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