Agenda behind the bullet train?
On September 14, Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe formally launched the project to introduce bullet trains in India starting off with Mumbai-Ahmedabad corridor. A plan to have a Diamond Quadrilateral network of high speed railway connecting major metros and growth centers is also in talks.
The Mumbai- Ahmedabad project for the 508-kilometre line is expected to cost Rs.1,10,000 crore—at the rate of Rs.217 crore per km. 80% of this cost is to be covered by a loan from Japan International Cooperation Agency (JICA) with an interest rate of 0.1% with a repayment period of 50 years. A moratorium of 15 years has been granted. The remaining 19% is to be borne by the Union, and the State Governments of Gujarat and Maharashtra. With the huge amount of allocation of resources in this project we conduct a PEST (Political, Economic, Social and Technological) analysis to examine the viability of this project.
The political game
In an interview by frontline, K. Balakesari, former member(staff) of the railway board explains how bullet trains are to showcase development, deliver a feel-good perception and project an ‘improved’ image of the system. With the Prime Minister insisting on completing the project by 2022(75th anniversary of Indian Independence) it seems like the government wants India to be seen as a country that has reached the “bullet train age” and is capable of running something like this. The other aspect is the government trying to showcase the regime’s image to fulfill its political propaganda. Taking majority funding from JICA without any competitive bidding also invites skepticism or shows carelessness.
Raghunandan, Director of Centre for technology and development explains how only a few high-income countries have high speed rail, by giving examples of countries like Argentina, Japan, South Korea and USA. Many like Argentina have abandoned the project after studying it and in most of the others it is supported by the government due to the huge costs involved and are still not achieving proper utilization. In South Korea, for example, even though the Seoul-Busan HSR caters to about 70% of the population, it is not economically viable. The HSR in France and Taiwan have received subsidies periodically, still leading to the latter going almost bankrupt after losses accounting more than a billion dollars.
To avoid such a situation proper feasibility studies and a building a road map is required, which seems to be lacking in case of India. To ensure economic viability the effective utilization of train need to be checked. A report by Indian Institute of Management Ahmedabad shows how the proposed train will need to take at least 100 trips daily and ferry 88,000-1,18,000 passengers a day for it to be financially viable and repay the loans with interest without any delay. Considering 750 seats to be the capacity of each train, more than 120 fully loaded trips are required, which seems like a bizarre idea for such a short distance considering the frequent travelers shall be of the business class commuting in the morning or evening hours.
Another economic aspect that begs attention is the competitiveness of the bullet train fares with airlines. The fares are estimated to be around Rs. 3000 which is not really competitive when compared to airline fares ranging from Rs. 1900-Rs. 2500. If the passengers get flights at a lower or even the same price allowing them to reach early, they would choose air travel over train. If the fares are not driven by market forces, a subsidy by the Government would be necessary. While looking at disinvestment of Air India, bullet train might be the new white elephant created in the country.
Along with the cost of construction and maintenance, land acquisition also poses a worry. As they go close to an urban growth area to provide access, the problem will intensify and may lead to pulling down buildings, heritage sights and huge costs of land acquisition. In Mumbai, the specific location of the terminal is still a controversy as 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. (G. Raghuram, Mint)
There have been multiple debates about muddled priorities of the government in the allocation of resources. On one hand, considering the merging of railway budget with the aggregate government budget, it is going to affect the finances at the macro scale and thus comparison of allocation of resources should also be done with all sectors. As per World Bank estimates, India spends 1.2% of its GDP as public expenditure on health and only 3.7% on education and ranks 134 in World Bank’s global ranking, with per capita GDP of $1709. (The Wire) In all these aspects, the countries that have introduced bullet trains like France, Japan, etc. or aspire to do so like Singapore, Malaysia, etc. are better off than India. At this time, investment in education and health becomes much more important for long term and sustained economic growth than in something which only caters to the business class and is unviable.
On the other hand, if we see allocation of resources in the sector of transportation, specifically railways which carry about 22 million passengers a day, much of the equipment is out of date leading to frequent accidents, delays, much of what has been seen in the last few months, with 193 deaths in year ending March 2017. The present infrastructure needs extensive overhaul and repair. With lack of basic infrastructure, decay of the existing assets and the large number of accidents accounting to it, investing in bullet trains is ironical.
The next economic aspect that needs to be evaluated is the funding of the train. 80% of the project is being funded by Japan International Cooperation Agency (JICA). While, the 0.1% interest loan has been touted as ‘almost free’ by the current government, many business and financial analysts have pointed out that due to exchange rate and comparative inflation it can turn out to be expensive. The Bank of Japan has been battling deflation for the last two decades and has adopted negative interest rates in 2016 to boost consumer prices which have been stagnant for years. As the majority of the Rs 80,000 crore loan money will go back to Japanese companies, it will help the struggling Japanese economy. (Karan Dhar, Business today). The Wire, after conducting a cost comparison of similar HSR projects in other countries says that India could have saved as much as $3.2 billion on construction of the Mumbai-Ahmedabad bullet train system if it had invited bids instead of awarding the project to Japan on a nomination basis. In comparison to average construction cost per km in China which is $17-21 million per km, India’s cost works out to be $27.44 million per km, which is a huge gap. It is at least $3.2 billion higher when compared to similar infrastructure built in Europe.
With 90% of railway passengers in India travelling by sleeper or lower classes travel with constant fear of a mishap or an accident due to outdated technology and low maintenance, the government is blowing billions of dollars on a capital guzzling project which may only serve the capitalists in the so called ‘smart cities’ and can afford to pay such high-ticket prices. The government needs to decide what their idea of development is, how are they going to achieve it and which group should they target to do the same.
With almost all Indian Institutes of Technology offering prestigious courses on transport development, why did the government choose to get the technology from an outside country instead of enabling these students to come up with plans to improve the transport system at large and implement those ideas. Also, no feasibility studies or road map preparation was conducted either, with the help of these reputed institutes for ensuring viability of the project.
Thus, even though, owning and operating a High Speed Network system has become a status symbol or the hallmark for development in many countries, almost all of them have proved themselves in other areas and in railways itself, before taking up the system. With the increasing number of accidents and casualties, the policy makers need to decide what their main agenda is and how they want to achieve it.
Reference List –
- 19th September, 2017. Mumbai-Ahmedabad bullet train will need 100 trips daily to be financially viable: IIM Ahmedabad study – PTI. Retrieved from: http://www.timesnownews.com/business-economy/article/mumbai-ahmedabad-bullet-train-will-need-100-trips-daily-to-be-financially-viable-iim-ahmedabad-study/92862
- Raghunandan, 6th October, 2017. Does India need a bullet train, The Hindu. Retrieved from: http://www.thehindu.com/opinion/op-ed/does-india-need-a-bullet-train/article19803252.ece
- Raghuram, 14th September, 2017. Five challenges in the Ahmedabad-Mumbai bullet train project, Mint. Retrieved from: http://www.livemint.com/Opinion/iYrc3BoeBceG4uxR0ZzX9O/Five-challenges-in-the-AhmedabadMumbai-bullet-train-project.html
- Karan Dhar, 15th September, 2017. Is the Mumbai-Ahmedabad bullet train worth the cost? Business Today. Retrieved from: http://www.businesstoday.in/current/economy-politics/mumbai-ahmedabad-bullet-train-cost-japan-india/story/260280.html
- Noor Mohammad, 18th September, 2017. Long and short of India’s bullet trains. The Wire. Retrieved from: https://thewire.in/178568/india-bullet-train-economics-finances/
- Sridhar, 13th October, 2017. Viable bullet train is an oxymoron, Frontline. Retrieved from: http://www.frontline.in/cover-story/viable-bullet-train-is-an-oxymoron/article9873359.ece
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