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Published on: Aug. 12, 2020, 2:35 p.m.
Bullet train hits a hurdle
  • Bullet train: on a slow track

By Rakesh Joshi. Executive Editor, Business India

The widening gap between the Indian rupee and the Japanese yen is throwing a wrench in the Mumbai-Ahmedabad bullet train project. This has led to concerns in the Union finance ministry of cost escalation of the project. As it is, the financial health of Indian Railways due to the Covid-19 outbreak which crippled its operations has deteriorated to an extent that it does not have money to pay pensions to its retired employees. The railway ministry had recently written to the finance ministry to seek help so that pension can be given to retired railway workers.

But there is no move yet to negotiate the terms and conditions of the 50-year loan with the Japanese agency, Japanese International Cooperation Agency (JICA), which is funding 81 per cent of the total project cost.

The estimated cost of the project is Rs1.1 lakh crore. The JICA loan works out to Rs88,000 crore. Though the Japanese loan comes at just 0.1 per cent interest, Japan’s overseas lending mostly comes “tied”, implying that the funds are used to procure materials and services from the donor country. Even in projects like the Delhi Metro, a large number of contracts were awarded to Japanese companies. Such is the case for the bullet train project as well. The cost of the high speed rail network includes the purchase of 24 train sets, interest during construction and import duties.

Recently, railway minister Piyush Goyal indicated that the financial aspect of the ambitious bullet train project was being reviewed as the post-Covid world will entail “a lot of tightening of the belt”. Speaking at the India Global Week, he said, “Certainly Covid-19 has been a little bit of spanner in terms of the ambitions that we had around the bullet train project and we are relooking at all the projects in terms of the post-Covid world that will entail a lot of tightening of the belt, a lot of cost cutting and improving our efficiencies and aligning ourselves to how travel and transport will work in the after Covid world. I really think that it’s going to be a before-Covid and after-Covid affair.” Goyal affirmed that the Railways was “committed to these projects” and “we are at the stage of finalising plans and costing” for them.

Talks are said to be underway with Japan to explore if Indian companies can take on some of the highly specialised engineering jobs to bring down the cost and make the project more ‘Make in India’. The National High Speed Rail Corporation Limited, the implementing agency for the project, has reached out to the Indian industry to assess the requirement and capability of domestic players.

Since the start of 2020 till the end of July, the USD/JPY pair has lost value by 2.74 per cent while JPY/INR has depreciated by around 7.05 per cent. The appreciation in Yen is on account of safe haven demand still there among investors due to rising Covid-19 cases in major parts of the globe and possibility of a slower trajectory of global growth recovery going forward. Japan was the initial few countries to get the daily new cases of Covid-19 patients under control. However, a second wave of the virus emerged within the country by the end of June 2020 and now the daily new cases were back at its peak. Since 17 July, the country has been recording an average of 700 cases per day similar to its peak in April 2020. But the total number of cases in Japan is still less compared to other countries across the world.

Sources in the external affairs ministry point out that one of the reasons why Japan may not be agreeable to renegotiating the terms and conditions of the loan is because its economy is currently in its worst post-war recession on account of this health crisis which has taken on the country’s business activity and consumption. According to a Reuter’s poll, Japan’s economy is expected to shrink by 5.3 per cent in the current fiscal year and is expected to bounce back by 3.3 per cent only in 2021.

In an online media interaction recently, Railway Board chairman V.K. Yadav agreed that there will be a rise in the cost of the project but denied that there was any renegotiation on the loan with JICA. “Yes, there is cost escalation, but this is not the right time to review costs. That will be done when we finalise tenders. As in any project, we finalise the estimated cost based on historic cost. But the actual cost is known only when tenders are invited. That is the time when we come to know what the project cost is shaping up,” he said.

“As far as cost escalation is concerned, in any project whatever the estimated cost may be, when the work is being executed and when work is completed there is bound to be some increase in the cost either due to cost escalation, due to inflation or due to change in design,” he said.

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