A Revolution in store for Indian Railways

03-Mar-2016 # ActEast Source: India Inc

by Rajaram Panda

Japan’s high speed train, with its promise of speed, reliability and safety, to be created on the Mumbai-Ahmedabad route over the next seven years is a significant milestone in India-Japan ties, says Japan expert Dr Rajaram Panda.

India-Japan bilateral relations scaled new heights following a slew of agreements in the economic and defence fields reached by Prime Minister Narendra Modi and Japanese Prime Minister Abe Shinzo during the latter’s visit to India in December 2015.

Over a dozen agreements were inked of which three stand out: introduction of Japan’s High Speed Railways (HSR) technologies (the Shinkansen system or the Bullet train) to the Mumbai-Ahmedabad route, civil nuclear cooperation and transfer of defence equipment and technology cooperation. Among the other concrete outcomes was a reaffirmation of the commitment made by Abe in 2014 during Modi’s visit to Japan to inject a massive $34 billion over the next five years. But for the Japanese firms to follow through with the investment commitment made by Abe, they need a predictable tax and regulatory regime to which Modi is committed. Like most businesses in the West, the Japanese seek certainty and predictability.

The Goods and Services Tax legislation stuck in parliamentary logjam at the moment shall facilitate a smooth entry for Japanese firms, if passed soon.

The introduction of Japan’s high speed train known for its speed, reliability and safety on the 508 km Mumbai-Ahmedabad route, to be completed over the next seven years, is a significant milestone in India- Japan ties. Japan made a commitment for an extraordinary package of approximately $12 billion and technical assistance on easy terms.

Modi observed: “This enterprise will launch a revolution in Indian railways and speed up India’s journey into the future. It will become an engine of economic transformation in India.” A bullet train between the two cities will cut travel time from eight hours to around three.

The project received the approval of the Cabinet and will be executed under the provisions of the existing Railway Act, 1989. This excuses Railways from having to go to Parliament to enact a law for high-speed trains and saves the project from possible delays due to parliamentary procedures.

Moreover, it has been recognized that giving states a stake in the project was essential for its success. A new organisation, created out of a Centre-state joint venture like the DMRC, will implement the project with Japan’s assistance.

A three-member empowered committee comprising chairman of the Railway Board and secretaries of the Department of Industrial Policy and Promotion, and Department of Expenditure, will take the necessary decisions after discussions with the Japanese. This model of execution is going to set the template to be followed by all subsequent bullet-train corridors in the Diamond Quadrilateral. Not only is Japan giving 81 per cent of the $18 billion project at just 0.1 per cent, negotiators from the railways have ensured that the deal is much sweeter than it had in the case of Dedicated Freight Corridor, which had many restrictive strings attached for India.

Besides being cheaper, the bullet train loan gives India freedom to carry out civil construction sans Japanese participation — a crucial change to ensure speedy award of tenders and fast execution unlike in the DFC. For the first time, Japan has agreed to distinguish between civil and system contracts.

System contracts are those involving installation of signaling system, key safety apparatus, rolling stock etc. India will buy the entire rolling stock from Japan — the new version of the Shinkansen — while Japan insisted that certain “prime contractors” from Japan are a must in the system contracts which are crucial for safety features like the Shinkansen.

These features of the assistance significantly lower the monetary impact of the clause that 30 per cent of the sourcing should be done from Japan. The grace period of the 50-year loan is 15 years and Japan has agreed to partner in areas like setting up technical training centres for skills upgrade. Around $13 billion is the cost of construction, while around $1 million has been worked out as eventual cost of rolling stock (the trains).


Rajaram-PandaDr Rajaram Panda is a leading expert on Japan and India-Japan relations. He is a former Senior Fellow at the Institute of Defence Studies & Analysis, New Delhi, and a former Japan Foundation Fellow at Reitaku University in Japan.

 

 

Views expressed in this article are the author’s and do not necessarily reflect the views of India Inc.

Above Article was first published in India Inc.’s India Investment Journal

 

 

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