Aam Admi atop a Bullet Train

With much fanfare and hype, India’s Prime Minister Narendra Modi announced the approval of building a high-speed rail line connecting Ahmedabad and Mumbai in 2015. But in a country where the Aam Admi still faces long queues at ticket counters and travels in shoddily maintained general and sleeper class coaches, is this Bullet Train dream a realistic one? And do we have enough funds to spare for this futuristic project when there are numerous other avenues to focus on? For example India spends one of the lowest amounts (as a % of GDP) on healthcare across the world. So, shouldn’t we focus on these areas first?

Background

The Mumbai-Ahmedabad high-speed rail corridor is an approved project and if built, it will be the India’s first high-speed rail line. The corridor is proposed to have 12 stations on a track length of 508 km and the trains are expected to run (or rather fly) at the speed of 280 km/h.

Unlike popular opinion of this bullet train being the gift of the Modi-government to India, it was one of the 6 high-speed rail corridors that were proposed for a feasibility study in the 2009-2010 Railway Budget. After a series of studies by various agencies, the project was finally approved by the Prime Minister Narendra Modi in May 2014. On 20 July 2015, a joint Japanese-Indian survey team recommended a Shinkansenstyle system for the Mumbai-Ahmedabad line.

The project is estimated to cost INR 97,636 crore, of which Japan agreed to fund 81% of the total project cost through a 50-year loan at an interest level of 0.1% and a moratorium on repayments up to 15 years. Indian Railways is expected to invest INR 9,800 crore in the project and the balance amount will be borne by the state governments of Maharashtra and Gujarat. The work is expected to start by late 2017 and get completed by 2023-24.

Japan’s Perspective:

Using the lending rates of International Bank for Reconstruction and Development (IBRD), one of the five member institutions that compose the World Bank Group, as a benchmark for loans to middle-income developing countries, one can easily point out that the Japanese offer of 0.1% interest rate is extraordinarily low. So, what motivated Japan to offer such terms to India?

After the collapse of asset bubble in the late 1980s to early 1990s, Japanese economy entered into stagnation. This poor state of affairs continues even till now with the period of 1991-2000 referred to as the Lost Decade, which is often extended to 2010 and called the Lost Score, or the Lost 20 years. An Economist article- The Incredible Shrinking Economy, describes the issue in much detail. Faced with failure to spur growth in the economy, the Japanese Central Bank recently entered in to the negative interest rate regime with the hope to push the banks to increase their lending to the customers.

Against this backdrop and with the hope of strengthening ties with India, the Japanese funding of India’s high-speed rail corridor can be viewed as an effort by the Japanese policymakers to secure a long-term investment project that could boost its own companies.

India’s Need

There is one common misconception regarding infrastructure projects. Unlike others, infrastructure projects lead demand i.e. these projects are often envisioned at a time when there is a minuscule demand but are expected to spur growth and productivity (and hence the demand) in the future. Take the case of the bus system in the state of Tamil Nadu. The Tamil Nadu State Transport Corporation (TNSTC) was founded in 1972 and is now the largest bus corporation in the world with a fleet of over 21,500 buses. When it started offering road transport facility to its remotest of the villages at low fares, there was too little demand to justify economic viability of the project. But slowly, as villagers got accustomed to the connectivity with major cities, demand picked up. The project not only helped in promoting development across the state but also helped in reducing the potential influx of migrant workers to major cities. The latter phenomenon is important from the perspective of the State Government in the sense that it reduced the burden of developing infrastructure in the cities at a frenzied pace during the time of resource crunch.

Developing high-speed rail corridor network across the country could be looked in the same light. It is possible that an Aam Admi might not be able to afford the high fare of a bullet train. But India does not consist of only the Aam Admi, an image projected merrily by most of the media houses. This high speed rail corridor will cater to the needs of upper middle class and upper class citizens, who not only have the willingness to pay for a faster mode of transportation but also the ability to pay. If the demand from these classes, which are growing at a healthy pace, can be successfully diverted to the costlier modes of transportation, then the burden and congestion on the remaining modes of transportation would be greatly reduced.

However, all this is good only in theory. The problem what India faces is a slightly different one. There are numerous areas which require government intervention and monetary infusion. Improving the state of public healthcare and education and providing affordable electricity 24×7 and drinking water to its citizens are a few of the most urgent ones. In such a situation, should India go for spending its scarce resources on something that only caters to the elite few? The answer to this question would have been NO had the Japanese government not offered such lucrative terms. But now, the project “could” be financially and socially viable.

But what about improving the condition of the rail infrastructure instead? Unlawful trespassing, train derailments, frequent delays because of fog, and an overloaded rail infrastructure plague the Indian Railways even today. All these factors make a strong case for modernization of the current infrastructure and which will cost money.

In summary, there are no easy answers. On one hand, developing an alternate and faster mode of transportation will require years of investment and hence cannot be pushed too far in to the future considering the fast growth of population, the other areas require immediate investments too. In this case, there are no correct answers. The government can only chose the less painful one and move ahead.

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