Why India can afford Multiple Bullet Trains?

Attractive terms by Japan to build Bullet train lines in India makes them affordable

June 29, 2016

Diamond Quadrilateral is an ambitious project to connect the four metropolitan cities of India viz., Delhi, Mumbai, Chennai and Kolkata with high speed railway.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he first in the series was the proposal for Mumbai – Ahmedabad Bullet Train with Japanese collaboration. The next is the Delhi – Lucknow – Kanpur – Varanasi – Howrah High Speed Bullet Train project. According to this report in the Economic Times, the 1513 km Delhi – Howrah (Kolkata) Bullet Train project will cost around Rs. 84,000 crores $12.39 billion) according to the feasibility report prepared by a Spanish consultancy firm.

Much has been speculated and written about the financial viability of bullet train projects and the ability of the Union and State Governments to finance such large-scale projects with large gestation periods.

The financial terms of the deal offered by Japan are such that India will be able to afford the proposed Mumbai – Ahmadabad Bullet Train. According to the Times of India, Japan is offering a Rs. 90,000 crore loan at 0.1% interest rate over a 50-year period. At 0.1% interest rate, the annual interest charge is Rs. 90 crores ($13.28 million) and the equated annual installment towards repayment of principal will be Rs. 1800 crores($266 million). So the annual burden on the Railway Budget will be around Rs. 1890 crores ($279 million) – over an extended 50 year period.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]F[/dropcap]urther taking into account the cost of land acquisition, India’s own contribution to the project will be around Rs. 20,000 crores. So over a four year period between 2016-2019, India will be spending at most 20,000 crores on this project because repayments of Japan Loan will only start after commissioning of the project in 2023. Now compare this with Indian Railways Medium Term Investment plan for the period 2015-2019 as per Railway Budget 2015 which is around Rs.8,56,020 crores ($126.3 billion) and includes a provision for around Rs.65,000 crores ($9.6 billion) for High Speed Rail & Elevated corridor. Expenditure on High speed Rail is only 7.59% of Indian Railways Capital Outlay for the period 2015-19 and the proposed Mumbai-Ahmadabad Bullet Train will use only 30% of the outlay for the High Speed Rail leaving scope for further projects.

Note:
1. The conversion rate used in this article is 1 USD = 67.78 Rupees.
2. Text in Blue points to additional data on the topic.