BULLET TRAINS AND BEYOND
PRIME MINISTERS NARENDRA MODI AND SHINZO ABE ARE BETTING ON HIGH-SPEED TRAINS TO BOOST THE INDIA-JAPAN ECONOMIC RELATIONSHIP
INPICTURESQUE KYOTO—an urban landscape of skyscrapers, centuries-old temples, geisha houses and verdant greens—Prime Minister Narendra Modi is possibly one of the best recognised world leaders. Even the taxi driver refers to an india today reporter as a “visitor from Modi’s land”. In Kobe, the shop floor of Kawasaki Heavy Industries, which manufactures rail cars, has pictures of Japanese Prime Minister Shinzo Abe and Prime Minister Modi during their visit to the plant in November last year.
In Tokyo, state officials in the transport department, academicians and corporates, all refer to Modi as a man with a vision and the determination to get things done. “I see that Abe and Modi have a relationship of trust, and also that Japanese policy is now very much focused on India,” says Masafumi Shukuri, chairman of the International High-speed Rail Association (IHRA), as he shows pictures of Indian leaders who visited Japan to discuss the high-speed rail project connecting Ahmedabad and Mumbai. The mutual admiration between the leaders of India and Japan is a well-known fact, as is the fact that Modi has been a vociferous admirer of Abenomics ever since he was chief minister of Gujarat.
Trade relations between the two countries have also been growing steadily. Japanese exports to India rose from about Rs 22,900 crore (¥388 billion) in 2005 to Rs 57,800 crore (¥981 billion) in 2015. Currently, about 1,305 Japanese companies have branches or divisions in India. Japan has been at the forefront of India’s small car revolution and has also played a significant role in the establishment of the Delhi Metro. Today, it is working towards helping India build a dedicated freight corridor and bring high-speed rail to the country.
Those in the know say that the leaders of the two Asian economies see far-reaching benefits in the two countries engaging with each other. India, looking to upgrade its industries and infrastructure, wants to import and make use of advanced Japanese technology. Japan, dealing with the economic consequences of an ageing population, is enthused by the enormous market and plentiful human resources India has to offer. This is one of the reasons an India-Japan comprehensive economic partnership agreement was signed in 2011. The agreement covered goods
and services, the free movement of visitors and workers, investments, intellectual property rights and even customs procedures. It also sought to abolish tariffs on over 94 per cent of goods India and Japan were trading in, over a period of 10 years. The visa-on-arrival facility that has since been introduced by India for Japanese nationals has also made it far easier for businesses from that country to work in India.
During Prime Minister Modi’s visit to Japan in 2015, the two leaders had agreed to the goal of doubling Japan’s direct investment, as well as the number of Japanese companies working in India, by 2019. Abe stated a target of Rs 2.1 lakh crore (¥3.5 trillion) of public and private investment and financing to India, including funds under official development assistance. To satisfy the Japanese expectation of an easy business environment, India has since set up a ‘Japan plus’ office at the ministry of commerce and industry to serve as a one-stop window to resolve problems faced by Japanese companies.
While trade relations have so far focused on Indian exports of petroleum products, clothing and accessories, iron and steel products and textile yarn to Japan (as well as imports from Japan of machine tools, transport equipment and electronic goods), the next big push to this partnership is expected to come as a result of the Mumbai-Ahmedabad high-speed rail project. On his upcoming visit to India in mid-September, Japanese Prime Minister Shinzo Abe is expected to travel first to Ahmedabad, for a ceremony to open a training centre for workers on the high-speed rail project. Though the centre is in Vadodara, Modi and Abe will preside over it via video link from Ahmedabad.
This project has enthused a slew of Japanese companies, both big and small—though their enthusiasm is tempered with caution. Despite the camaraderie between Modi and Abe, and the fact that every meeting between the two leaders is followed by a bevy of official announcements from both sides, officials say that the actual progress of the high-speed rail project has been slow.
Officials with the Japanese government say that while initial communication issues have been resolved and some companies have expressed interest in developing a high-speed rail system in India on the lines of the Shinkansen system, several Japanese firms remain hesitant to get involved. They cite the prevalence of redtape and bureaucratic delays and the difficulty of finding good business partners in India, as well as the fact that India’s land and labour laws are both byzantine and an impediment for business owners. Another note of worry is that several high-profile partnership agreements between Japanese and Indian companies have ended rather abruptly and acrimoniously.
When it comes to the high-speed rail project, there also appears to be some resistance to change among Indian officials. When asked about the project, comparisons are often drawn between the amounts that governments spend on high-speed rail and railway safety. Officials say there was a palpable sense of worry among Japanese officials after the train crash in Uttar Pradesh on August 20, which killed 23 passengers. One of their concerns— aside from those who lost their lives or were injured as a result of the tragedy—was that the accident would once again inflame the debate over spending on high-speed rail versus spending on railway safety. “When your prime minister has decided [to go ahead with the project], then why keep going back to the debate?” asks an official who wished to remain anonymous.
In June this year, Japan’s Kawasaki Heavy Industries entered into an agreement with Bharat Heavy Electricals for technical collaboration on the manufacture of steel metro coaches. For the moment, discussions are ongoing about how to transfer technology and knowledge training. Officials at Kawasaki say that jumping right into high-speed commuter trains is probably not the best idea. “We need to [begin with] commuter trains and the metro. After that, we will work on high-speed railways. We need time. We cannot do this instantly. We have to train people, give them proper instructions. We have just signed the contract—now we are discussing how to do it,” says an official with Kawasaki Heavy Industries’ rolling stock company.
IHRA officials are also concerned with the Indian government’s focus on only three aspects of the project: on time, Make in India and technology transfers. They stress that the most important aspect of high-speed rail is not its production—it is crash avoidance.
The Shinkansen network, which opened in 1964, has a glorious safety record—not a single accident in the 53 years it has been in operation. At the time, Japan took a deliberate decision to boost its domestic economy by developing a high-speed rail corridor rather than a network of expressways. The Japanese are justifiably proud of their ‘total system’ approach to safety and reliability, with equal focus on hardware and software-including operations, maintenance, personnel training and the development of a mindset focused on safety, healthy management and technical innovation. “All these things have to be in place,
Shinzo Abe has stated a target of Rs 2.1 lakh crore of investment in India by Japan
and then we have to evolve from there. We call this a ‘total system approach’. If we were missing even one of these elements, we wouldn’t have established this wonderful record—53 years without any fatalities,” says an IHRA official. “Build high-speed rail first, and then let ‘Make in India’ happen. The Indian intention [appears to be aimed at making] ‘Make in India’ happen. It is hard to strike a balance between ‘on-time’ and ‘Make in India’. This is an issue that needs to be dealt with.”
In India, a national High Speed Rail Corporation (HSRC) has been set up for the smooth development and implementation of this project. The managing director, Achal Khare, is known as a quick decision-maker who sticks to deadlines. However, delays in land acquisition and objections raised by state development authorities pose formidable challenges. Construction is currently slated to commence in 2018, with operations beginning in 2023. Nearly 80 per cent of the project’s total cost has been funded by a loan of Rs 1 lakh crore (¥1.8 trillion) from the Japan International Cooperation Agency (JICA), to be repaid over 50 years at 0.1 per cent interest.
This is not outright altruism—Japanese companies stand to benefit significantly from the long tenure of this loan, as well as the long timeframe of the project itself. “Japanese companies hope [that this will lead to increased sales],” says Tomoyuki Nakano, director, International Engineering Affairs (Railway Bureau) of Japan’s ministry of land, infrastructure, transport and tourism. “For the entire system to be functional, several dozen companies will [need to be involved].”
A task force has also been set up to facilitate private sector participation in this project. It includes representatives from the Japan External Trade Organization, the Japanese ministry of economy, trade and industry, India’s railway ministry and the Department of Industrial Policy and Promotion. Sub-groups have been established to deal with procurement issues pertaining to rolling stock and railways tracks, as well as to facilitate the civil engineering aspects of this project. But there is still much to be done. A specifically tricky aspect of large-scale projects such as these is land acquisition. Japan started constructing its own high-speed rail network via an aggressive privatisation programme. Japan’s National Railways was privatised in 1987, and then broken into 11 smaller regional railway companies. The decision had required great political courage as it led to massive job losses.
Even so, the Japanese consider the Shinkansen network as one of their most transformative policy decisions. “It changed people’s lives,” says IHRA chairman Shukuri. “Earlier, it took six-and-a-half hours [to travel from Tokyo to Osaka, Japan’s largest cities], even on the fastest train. If you wanted to make a round trip, it took two days at least. With Shinkansen, a [single day] round trip became possible, and the economic benefits became obvious.”
The rail network proved to be a stimulus for the development of satellite towns, alleviating migratory pressure on city populations and creating important centres for business along the route. It also created a new class of passengers, diverted passengers from road and air and easing pressure on both those networks. Additionally, with the maximum operating speed of around 320 kmph, the highspeed rail network helped bring towns and cities closer together, making it possible for even a 600 km journey to be completed in a matter of less than two hours.
However, for the Maharashtra government, its ambitious project to set up an International Finance Service Centre (IFSC) in the Bandra-Kurla Complex (BKC), is a
priority instead of the bullet train. The railways have sought 0.9 hectares in the BKC to construct an underground terminal as the starting point for the Mumbai-Ahmedabad bullet train. The state government has refused to hand over the land as it has been earmarked for the IFSC project.
An official in Chief Minister Devendra Fadnavis’s office claims the refusal to part with the land is a bargaining chip. The government wants JICA to fund the Mumbai-Nagpur bullet train as well. Fadnavis wants to take the bullet train to Nagpur, his home city. A Spanish company has been roped in to prepare a feasibility report for the proposed route, which will also have stations at Nashik and Aurangabad.
Collaboration with the Japanese on building infrastructure in India, including energy, electricity and roadways, is the most obvious synergy between the two countries. JICA has also been working with state governments on urbanisation and smart city projects. It is taking up a ‘Comprehensive Traffic and Transportation Study’ for the Andhra Pradesh Capital Region and has approved a loan of Rs 4,200 crore for the Amaravati metro project. The India-Japan civil nuclear cooperation deal, which provides for collaboration between their industries, came into effect in July. It allows US and French nuclear firms, which have alliances with Japanese companies, to do nuclear commerce with India.
Trade economist Biswajit Dhar says the Japanese economy has been powered by small and medium enterprises, and India should tap into it to propel its manufacturing sector. Another idea that has failed to gather momentum is the Delhi-Mumbai industrial corridor. Battling infrastructure and connectivity issues, India had everything to gain from the corridor, but the government failed to prevail upon Japanese investors to give funds. “The trade deficit has gone up because of the inability of Indian companies to leverage the market opportunities offered by the Japanese,” says Dhar. “The investment climate is very good in terms of policies, but the situation on the ground is very poor.”
From the standpoint of reforms, the Indian side has delivered on most counts—Goods and Services Tax, bankruptcy code, greater focus on urbanisation, low inflation—barring the slow land and labour reforms. “State engagements with JICA have gone up, while the Centre is playing more of a facilitator’s role,” says Professor N.R. Bhanumurthy of the National Institute of Public Finance and Policy. “With a falling global demand, the big challenge for India is to find markets for its products and make its manufacturing sector grow. We should negotiate with Japan for its larger involvement in infrastructure.” There is much that an India-Japan partnership can achieve. In view of the threat from North Korea, there is no doubt Japan needs all the friends it can get. If nothing else, the missiles recently deployed in the garden of Japan’s defense ministry send a strong message that Tokyo means business.
—with Kiran D. Tare
Infrastructure development in India offers the most obvious scope for synergy between the two countries