Shinzo Abe in Gujarat: Bullet train will be worth the pain only if the project can stand on its own

New Delhi: A random search on travel portals throws up fares under Rs 2,500 for a one-way Mumbai-Ahmedabad air journey later this month, with flying time of only about 70 minutes. The end of September marks the start of the busiest domestic air travel season, so the fares available for this period would rank among the highest in the year. Will a bullet train, which will cost India an arm and a leg as far as project finances are concerned, be a more attractive option for passengers between the Maximum City and the Gujarat capital, when it starts functioning five years down the line? The Prime Ministers of India and Japan will be present during the ground breaking ceremony of the bullet train project in Ahmedabad tomorrow. Such a train, fastest on rails anywhere in India, promises passengers a journey of two to three hours against 7-8 hours at present and a fare 1.5 times that of the train AC fares today. The first train should start in 2022.

So, does India need bullet trains at all? Perhaps the question should not be whether we need the latest technology but rather, would it be viable and will it attract traffic back to the Railways network – remember, while air traffic has been growing leaps and bounds, it has been falling on the Railways network. Then, perhaps a closer look at financing of this project, its viability given the ambitious initial traffic projections, is required. That the operating ratio, average train speed and finances of the Indian Railways need massive improvement is no secret – but the argument that it is an ‘either or’ situation is flawed. Bullet trains will surely strain the exchequer and create their own set of issues but linking their arrival to the Railways’ performance makes little sense.

Though the fare structure of the bullet train is yet to be finalised, it will be 1.5 times the first class AC fare of trains running on the Mumbai-Ahmedabad route, Hindustan Times report said quoting unnamed officials the National High Speed Rail Corporation (NHSRC). The fare of a first class ticket between Mumbai to Ahmedabad at present is anywhere between Rs 1,800-3,000. Thus, the fares on the bullet train would be between Rs 3,000-5,000. The report went on to add that the fare could be close to what airlines charge for flights between the two cities. If this indeed is true, then at least the affordability aspect of a bullet train journey is taken care of.



It is also pertinent to remember that ground realities have changed since the bullet train project was first envisaged. The Railway Budget was merged with the Union Budget from this fiscal, which means funding, interest repayment and repaying the principal amount is now the headache of the Union government, it should no longer affect the finances of the Railways Ministry.

Second, though there are mixed views on the desirability of a high speed rail project, the key in its success is its smart commercialisation.  The Railways Ministry has been bandying about 1.6 crore figure – passengers who are expected to begin using bullet trains between these two cities annually and this number should become even better, around 1.6 lakh commuters daily by 2050. These numbers need closer scrutiny. Because they are critical to the project breaking even, critical to servicing the huge loan on which this entire project is based. If the traffic projections fall short, so will the Indian government’s ability to repay the interest and the principal, never mind the attractive terms of the loan from Japan.

As of now, the project cost is estimated at Rs 1,08,000 crore, 81 percent of which is being borne by Japanese soft loan at 0.1 percent per annum. The loan has a 15-year moratorium with total repayment period of 50 years. Veterans associated with the Railways bureaucracy point out that the project cost has already escalated by Rs 14,000-16,000 crore and could well escalate further; anyway about Rs 20,000 crore (the unfunded portion of the project cost) will have to come from the Union Budget. They also point out that back-of-envelope calculations show an annual principal+interest repayment of about Rs 2,500 crore – which should ideally be covered through profits made by these bullet trains. Will this math work for the ambitious project?

The Railways ministry has been at pains to emphasise the wonderful terms of the loan being  taken for the bullet train project. In a statement earlier this week, the ministry noted that major portions of large scale infrastructure projects are financed by debt and the cost of debt is a significant portion of the total costs. “As a part of cooperation agreement between India and Japan, Government of Japan will provide a soft loan of about Rs 88,000 crore at minuscule interest rate of 0.1 percent. The repayment period of the loan is 50 years. Repayment of loan is to begin after 15 years of receiving the loan, making it practically free since, this loan interest works out to roughly Rs. 7-8 crore per month. Generally, any such loan even from World Bank or such other agencies costs about 5-7 percent with a repayment period of 25-35 years, thus India is getting loan for the High-Speed Rail Project at almost zero cost without putting any strain on existing financial resources available with the country, as more than 80% of the project cost is being funded by Government of Japan. Clearly Peter is not paying for Paul.”

A bullet train (like Japan’s Shinkansen) can, on an average, carry 1,600 passengers but costs a lot more than, say, seven Airbus 320neo aircraft— Rs 6,000 crore (considering one such aircraft costs Rs 700 crore)—required to transport the same number of passengers by air, The Financial Express report said. Plus, the cost of the Mumbai-Ahmedabad corridor is more than 75 percent of the total capex of the Railways—Rs1.31 lakh crore—for FY18. These numbers pose serious questions about the feasibility of such a project.

As we have said earlier, questions should be raised on the viability of this project, its expansion in future and whether this will run on its own steam instead of bleeding the exchequer dry. If it does stand on its own, the project seems well worth the effort.

Updated Date: Sep 13, 2017 15:27 PM

Also Watch

Social Media Star: Abhishek Bachchan, Varun Grover reveal how they handle selfies, trolls and broccoli
  • Monday, July 16, 2018 It's a Wrap: Soorma star Diljit Dosanjh and Hockey legend Sandeep Singh in conversation with Parul Sharma
  • Monday, July 16, 2018 Watch: Dalit man in Uttar Pradesh defies decades of prejudice by taking out baraat in Thakur-dominated Nizampur village
  • Monday, July 16, 2018 India's water crisis: After govt apathy, Odisha farmer carves out 3-km canal from hills to tackle scarcity in village
  • Sunday, July 15, 2018 Maurizio Sarri, named as new Chelsea manager, is owner Roman Abramovich's latest gamble in quest for 'perfect football'

Also See