[<<Seen as highlight of Indo-Japan bilateral ties, the project is almost free for New Delhi. “Ek prakar se muft mein, (in a way just free)” PM Modi said after the bullet train launch ceremony.>> (Source: < http://www.dnaindia.com/india/report-rs-1-lakh-crore-for-508-km-5-facts-about-india-s-almost-free-bullet-train-project-2545606 >.)
<<Bullet Train Money Story : Assuming a ticket price equal to the average Mumbai-Ahmedabad airfare of Rs. 2,000 and that ticket prices will keep pace with inflation, the Railways will have to sell 55 crore tickets to recover it's investment. Currently, 15,000 tickets are sold on the Mumbai-Ahmedabad sector. Even if half of those passengers cough up the Rs. 2,000 @7,500 tickets a day, the Railways would need 70,000 days = 200 years to recover the capital cost. I haven't even added the operational expenses.>> (Source: From the FB.)] I/III. https://thewire.in/177815/mumbai-ahmedabad-bullet-train-many-things-not-free/ The Mumbai-Ahmedabad Bullet Train Is Many Things, But It’s Not Free BY M.K. VENU ON 15/09/2017 Over 50 years, the loan repayment value will be much higher based on the inflation differential, which is bound to persist between Japan and India. narendra modi, bullet train, shinzo abe Despite what our prime minister says, the train isn’t virtually free of cost. Credit: Reuters Prime Minister Narendra Modi has claimed the bullet train offered to India by Japan is virtually free of cost. A 50-year yen loan amounting to Rs 88,000 crore at 0.1 % interest is being described by the prime minister as free of cost. This is patently absurd. India can have as many bullet trains as it wants on these terms from the Japanese, but nobody should be misled into believing they are free. For one, India may have to repay much more than Rs 88,000 crore over a 50-year period because the rupee will most likely depreciate against the Japanese yen over a long period. Why is this? Simply put, it’s because the exchange rate between the currencies of two countries is determined by their inflation differential. If India’s inflation rate is average 3% over the next two decades and Japan’s inflation rate is zero, as is widely anticipated, then it stands to reason that the rupee must depreciate 3% every year because the rupee’s value is eroding by 3% as against no erosion in the yen. So, the rupee is bound to weaken by over 60% in two decades. This means that on a loan of Rs 88,000 crore, the repayment, in rupee terms, goes up to more than Rs 1,50,000 crore at the end of 20 years. Also Read: Modi, Abe Lay Foundation Stone for India’s First Bullet Train Project Over 50 years, the repayment value will be much higher based on the inflation differential, which is bound to persist between Japan and India because the latter is a rising economy with a sizeable poor population and is striving to become a middle to high income country over the next few decades. India, therefore, could end up paying a much higher value of rupee debt over 50 years. If this happens then we are not being fair to the successive generations, which will be saddled with this high debt component. Inter-generational equity is an important aspect of national debt accumulation even if it is a yen loan coming at 0.1% interest rate. Prime Minister Narendra Modi with his Japanese counterpart, Shinzo Abe, at an exhibition in Gandhinagar, Gujarat. Photo courtesy: PMO India Therefore, Modi must be careful while describing the 50-year yen loan as “in a way, free”. I remember some Indian corporate houses had shown similar enthusiasm two decades ago by raising international debt via 50-year dollar bonds using the same logic that such money need not be repaid over a long period. Subsequently when the rupee weakened against the dollar – by 50% – over 15 years, the same family-owned business houses got wise and prepaid large portions of the money. Perhaps they did not want to saddle their next generations with such risky loans. This logic holds even truer for countries. This loan is just for a short route – Ahmedabad to Mumbai. As is being anticipated, if the Japanese build three more such projects connecting other cities in the south, north or east, one can well imagine the total foreign debt burden that will arise. After all, the loans will have to be paid back with the exchange risk built into it. The yen is considered the most volatile currency among all the hard currencies today. Another factor to be considered is that while an interest rate of 0.1% may appear free from an Indian perspective, it is not so in Japan. Japanese short term interest rates (Tokyo Inter Bank Offer Rate) is 0.06%. The interest rate offered by ten-year Japanese government bonds is 0.04%. India’s ten-year government bond offers 6.5%. The gap between Japan’s 0.04% and India’s 6.5% is explained by the inflation expectations in the two countries. This perspective cannot be lost sight of. So what you pay back to Japan in rupee terms will be way higher than what you borrow. There is no free lunch, as the saying goes. Also Read: What Explains the High Number of Railway Accidents? One last point that needs to be emphasised is the bullet train project covering just Ahmedabad and Mumbai will cost Rs 1,10,000 crore. Just compare this with former rail minister Suresh Prabhu’s first Budget which projected a five year expenditure of a similar amount for network expansion in the entire country. Or a similar amount for strengthening safety over five years. What would be your priority? After all, there should be something called sequencing of expenditure in a nation as poor as ours. II/III. http://indiatoday.intoday.in/story/bullet-train-will-need-100-trips-daily-to-be-financially-viable-iim-ahmedabad-study/1/645171.html Bullet train will need 100 trips daily to be financially viable: IIM Ahmedabad study The paper has been jointly authored by faculty members G Raghuram, professor of the institute's Public Systems Group, and Prashanth Udayakumar. PTI | Posted by Badsha Ray Ahmedabad, April 18, 2016 | UPDATED 13:56 IST Bullet Train Japan has offered a concessional loan of Rs 97,636 crore to fund about 80 per cent of the project cost with a repayment period of 50 years beginning from the 16th year of operation at an interest rate of 0.1 per cent. (Photo: Reuters) The proposed bullet train between Mumbai and Ahmedabad will have to ferry 88,000-118,000 passengers per day, or undertake 100 trips daily, for the Railways to keep it financially viable, says a report by Indian Institute of Management Ahmedabad (IIM-A). The report is titled, "Dedicated High Speed Railway (HSR) Networks in India: Issues in Development,". Report states that if the Railways set the ticket price at Rs 1500 per person for 300-km drive, then fifteen years after the operation it will have to ferry between 88,000 and 110,000 passengers every day to ensure that it repays the loans with interest on time. Japan has offered a concessional loan of Rs 97,636 crore to fund about 80 per cent of the project cost with a repayment period of 50 years beginning from the 16th year of operation at an interest rate of 0.1 per cent. For the remaining 20 per cent loan, the authors assume 8 per cent average rate of interest (on Rs 20,000 crore to be funded by Centre). Japan has offered a 15-year moratorium on loan, so revenue concerns for the Indian Railways will arise from the 16th year of operation, the authors stated in the paper. The total distance covered by the train will be 534 kilometres. The paper has been jointly authored by faculty members G Raghuram, professor of the institute's Public Systems Group, and Prashanth Udayakumar. While the actual operating cost fifteen years after the bullet train becomes operational, is not known, the paper assumes two scenarios by pegging operating cost at 20 per cent and 40 per cent of revenue. "So if the Railways earn Rs 100 revenue, Rs 20 or Rs 40 will go for maintenance, and remaining surplus money will go for cash payment of loan with interest. Now, to cover the loan with operating cost in two scenarios, we consider passengers travelling an average distance of 300 kilometres. In this case, we will need 88,000-118,000 passengers respectively for both the scenarios," Raghuram said. "Typically one train carries 800 passengers, so to carry 88,000 passengers daily, you will need to take a total of 100 trips, or 50 trips each way. So, we need three trains every hour in each direction," he said. As per the paper, "there are many positive benefits and externalities of the HSR which would be useful in India's overall aspirational development." III. http://www.livemint.com/Opinion/iYrc3BoeBceG4uxR0ZzX9O/Five-challenges-in-the-AhmedabadMumbai-bullet-train-project.html Last Published: Thu, Sep 14 2017. 08 24 AM IST Five challenges in the Ahmedabad-Mumbai bullet train project While it is of great value that India has Japan’s support for building the Ahmedabad-Mumbai bullet train, there are multiple challenges that need to be overcome G. Raghuram Japan PM Shinzo Abe and PM Narendra Modi will inaugurate the Ahmedabad-Mumbai bullet train project in the Gujarat city on Thursday. Photo: Reuters It is indeed a great beginning for India that the ground-breaking for the construction of the first bullet train between Ahmedabad and Mumbai is happening on 14 September at a function attended by Narendra Modi and Shinzo Abe, prime ministers of India and Japan respectively. Apart from being a major leap in infrastructure development in India, this project signifies the friendship and collaboration between the two countries. The 534-km Rs1 trillion high-speed rail project that will operate trains with average speeds of 200-250kmph will be a game-changer in terms of inter-urban connectivity and establish India as a market for such technologies. Japan, which has matured in evolving such technologies and is seeking opportunities for investments, is providing a loan that would cover 80% of the estimated project cost at 0.5% interest, with a 15-year moratorium followed by a 35-year payback period. While it is of great value that we have both financial and technological support from Japan for building this line, there are multiple challenges that need to be overcome. I speak of at least five: ■ Route design which would include questions like: a) Detailed alignment choice, especially when it is over ground, keeping in view land acquisition challenges versus providing access to the population along the corridor. If the alignment goes closer to urban growth areas to provide access, there would be issues of land acquisition, pulling down buildings, possibility of destroying heritage structures etc. b) Location of stations: whether they should be the city centre connecting existing railway stations, or in an adjacent station, or periphery of an urban node. The trade-offs are providing better access and connectivity versus costs due to land and structures. >From a long-term point of view, being in the periphery of an urban node, apart from reducing costs, could help generate urban growth around the station, and even in shifting the centre of gravity of the urban area. In the short run, however, traffic ramp-up will take time. This needs to be mitigated through excellent feeder services. The specific location of the terminal station in Mumbai is still courting controversies. The Maharashtra government does not seem to be willing to give land in a major commercial growth node, as has been requested. Instead, it is suggesting that the station could be located in the land that belongs to the railways. This could have implications on the catchment at the Mumbai end. c) Number of stations: In general, there would be a demand for more stations. While this will increase the catchment, it could reduce the average speed due to higher number of stops. One way around this would be to have different service categories like fast (stopping at all stations) and super-fast (only at major cities). It should be noted that the bigger catchment will be from the smaller cities that may not have access to airports. For example, while an Ahmedabad-Mumbai passenger may still consider air as a viable option, for the Anand-Mumbai or Ahmedabad-Vapi passenger, the high-speed train is a great boon. Having stations with connectivity to airports like at Ahmedabad, Vadodara and Mumbai will increase catchment of long distance air passengers who could then connect to the cities in this corridor and vice-versa. ■ Evacuation facilitation: At each station, it would be important to have fast and multiple means of evacuation, to increase the catchment and propensity to travel. a) To begin with, efficient bus services as well as accessible parking lots for private vehicles should be provided. b) In Mumbai and Ahmedabad, where metros are under construction, it would be important to provide seamless metro connectivity. c) At major stations, where passengers could move to other trains, the transfer must be seamless. ■ Land acquisition: This will be a critical issue, especially where the alignment would veer off from existing railway lands. The challenges would be best addressed by the line going over ground, where the actual acquisition would be limited to the footprint of the pillars. Designs would have to [be] developed in such a way that the footprint is minimized. Experience from land acquisition for transmission lines and metro corridors would come in handy. ■ Human resource development: It would be important to train a large number of Indian engineers and managers for design, construction and operations at standards that would be essential for high speed rail, including for stringent safety standards. It would also be important to train Japanese senior management, who need to spend considerable time in India to train and oversee the required activity. The Japanese managers would need to be oriented towards Indian conditions and the prevalent professional culture. In recognition of this, as part of the project, a large training centre is being put up. Along the same lines, IIM Bangalore is setting up an India-Japan Study Center with the mission of improving India-Japan mutual understanding and complementary skill building in the domain of management including for infrastructure. ■ Future expansion: It would be useful to have a perspective on how the expansion of this line would happen. Once the proof of concept of High Speed Rail is established, there would be demands for expansion. In an earlier proposal, the line was actually to go beyond Mumbai to Pune, but was not found to be viable initially. Such visioning would be useful in bringing greater support from the government of Maharashtra. G. Raghuram is director of Indian Institute of Management Bangalore. -- Peace Is Doable -- You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. 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