India and Japan Strike a Strategic Deal

Last week, India’s Prime Minister Modi and Japan's Prime Minister Shinzo Abe formally kicked off a plan to build the 316-mile bullet train line from Ahmedabad to Mumbai. The 750-seat train is scheduled to run from August 2022. The Japanese government has also agreed to fund (as a soft loan) about 80 percent of the $17 billion needed for the project that will become part of Asia's oldest railway network. Financing by Japan also means business farmed out to companies such as Kawasaki Heavy Industries Ltd., Hitachi Ltd. and East Japan Railway Co. and an opportunity lost for China's CRRC Corp Ltd. and European manufacturers including Alstom SA. Kawasaki Heavy and India’s BHEL (Bharat Heavy Electricals) will collaborate on the rolling stock, said Japan’s PM. For Japan, which is locked in a strategic rivalry with China for commercial contracts abroad, the Indian project marks a hard-fought victory. Analysts say building the high-speed train will give a boost to infrastructure development in India's fast-growing western industrial region, contribute to economic growth and decongest crowded cities.

The Backdrop: India and Japan
India's railway system carries more than 22 million passengers a day and much of the equipment is out of date, leading to frequent accidents and chronic delays. Supporters of the project say high speed trains will lead to improved commuter convenience, reduced congestion in big cities, more business, and improved infrastructure along the route. However, one key concern will have to be addressed by the railways – the price factor. Japan has a very high per capita income. In Japan, an average ticket on the bullet train is priced at USD 130. This roughly translates into Rs. 8,334. So, will the common man in India be able to afford this?

Japan is a pioneer in high-speed rail transport and some of their trains are ranked among the fastest in the world. In 1964, Japan opened its first bullet train route connecting Tokyo and Osaka. The launch of bullet trains revolutionized the way Japan transacted its business. Shinkasen (bullet train) provided an efficient solution to the Japanese industries and workforce. The bullet trains allowed workers to stay at their places with lower cost of living and work at economic hubs and earn better; and travel time was reduced from seven hours to four. Since then, bullet trains in Japan have carried more than 10 billion passengers with zero fatal mishaps and an average annual delay time of 36 seconds. According to a study done by University of Oslo, and Japan's Research Institute of Economy, Trade, and Industry, one of the major transformative contributions of the bullet trains has been its ability to unite industry, suppliers and consumers. Another benefit of bullet trains in Japan has been the boost to tourism as far flung areas came within a few hours reach. Japan is now preparing for next generation bullet trains.

Benefits Expected
This project is likely to spur a manufacturing and employment boom; it is likely to create 20,000 construction jobs, besides 4000 direct and 20,000 indirect jobs for operations. Local companies, such as Larsen & Toubro, Gammon India, GMR Infrastructure etc. are also trying to win some project-related contracts. India is reviewing prospects for at least six more potential bullet-train corridors, including one that would connect Mumbai to New Delhi.

Keywords: India, Japan, Bullet Train, Shinkasen, Manufacturing, Employment, ARC Advisory Group.