Business Today

Give And Take

The Japanese have been helping India get several large projects off the ground on reasonable terms
twitter-logoJoe C Mathew | Print Edition: August 11, 2019
Give And Take

Japan International Cooperation Agency (JICA), the government body that coordinates the official development assistance (ODA) given by Japan to other nations, has an illustrative map to provide a glimpse of projects in India that it is supporting. One glance is enough to make you realise the extent of its help. Of the 29 states in India, 25 have projects that have got financial assistance, almost all soft loans, from Japan. With accumulated soft loan commitment of Rs 3,00,000 crore (till 2017/18), India is JICA's largest development partner in the world. "India was the biggest recipient of Japanese ODA last year (2018). We have provided 420 billion Japanese yen (Rs 26,400 crore) and have been increasing our support to the metro and other infrastructure projects. We have more Japanese technologies coming here, more companies coming here," says Kenji Hiramatsu, the Ambassador of Japan to India.

Japan has been extending ODA in the form of loans, grant-in-aid and technical assistance since 1958. Under the existing terms and conditions, the loan carries an annual interest rate of 1.5 per cent, with a repayment period of 30 years (including a 10-year grace period). In certain areas, such as consultancy services, the interest rate is even lower at 0.1 per cent, and repayment period 40 years, including a 12-year grace period.

JICA's support is not only well-spread geographically but cuts across different areas and sectors such as transport, power, irrigation, environment and investment promotion. Taking note of the Japanese assistance in development projects in India, Union Budget 2019/20, presented by Finance Minister Nirmala Sitharaman on July 5, highlighted some major ongoing JICA-funded projects. These included the Delhi Mass Rapid Transport System, the Dedicated Freight Corridor, the Kolkata East-West Metro, the Chennai Metro, the Bengaluru Water Supply & Sewerage project, the Bengaluru Metro Rail project, the Ahmedabad Metro project and the Tamil Nadu Transmission System Improvement project. JICA's commitment to India for financial year 2017/18 was Rs 25,000 crore, of which Rs 16,000 crore was disbursed. The government of Japan is also partnering with India to finance and support Indian projects in friendly countries. Such collaborations are visible in development of LNG (liquefied natural gas) infrastructure in Sri Lanka, housing, education and electrification projects in Myanmar, road projects in Bangladesh and development projects in Africa.

The focus of Japan's official development assistance, though, is India. In terms of sectors, it is transport. Between 2008/09 and 2017/18, 64 per cent of Japanese ODA went to transport projects, with Metro rail (33 per cent) and dedicated freight corridor (14 per cent) cornering most funds.

Metro Projects, DFCI

The most shining example of India-Japan collaboration is the Delhi Metro project. In the last 20 years, the Delhi Metro Rail Corporation has built a massive network of about 373 km with 271 stations in Delhi and neighbouring territories. DMRC has made it clear that "timely availability of funds was a key factor for the successful implementation of the project". Of the Rs 10,571 crore, the total cost for Phase 1, about 60 per cent was financed by the government of Japan. For the second phase, JICA loans accounted for 54.47 per cent of the project cost of Rs 18,783 crore. Of the estimated expenditure of Rs 41,079 crore for Phase III, which is almost complete, JICA contribution is known to be 48.57 per cent.

Similarly, JICA's debt funding for Dedicated Freight Corporation of India is Rs 6,606 crore (as on March 31, 2018). In this case, the tenure of the loan is 40 years and the rate of interest is 7 per cent, with a moratorium period of 10 years. In case of Chennai Metro Rail Ltd., JICA sanctioned loans in four tranches. While the first tranche, sanctioned in November 2008, carried an annual interest of 1.2 per cent, the second, third and fourth tranches, sanctioned between April 2010 and March 2016, are repayable in half-yearly instalments over 30 years (10-year moratorium from the date of the agreement and repayment of 20 years).

These soft loans serve another purpose for the Japanese. They have clauses to ensure that at least some of the project work is awarded to Japanese companies or joint ventures. For instance, Japanese firms Kumagai Gumi Co. Ltd, Itochu Corporation, Shimizu Corporation, Mitsubishi Corporation and Sumitomo Corporation have bagged major DMRC contracts as a consortium. Kumagai Gumi Co was part of the consortium that designed and built civil works and ventilation & air conditioning for the Vishwavidyalaya-ISBT section. The Mitsubishi Corporation-led consortium bagged the contract for design, manufacture, supply and commissioning of rolling stock for metro and rail corridors.

In some states, the Japanese government is funding multiple projects. In Tamil Nadu, this includes, in addition to the Chennai Metro project, the Hogenakkal Water Supply and Fluorosis Mitigation project, the Tamil Nadu Biodiversity Conservation and Greening project, the Tamil Nadu Transmission System Improvement project, the Tamil Nadu Urban Health Care project and the Tamil Nadu Investment Promotion Program. The agency is also supporting the national highway improvement project in Bihar, the water supply project in Guwahati, Assam, the Biodiversity Conservation and Forest Management project in Sikkim and the Horticulture Intensification by Micro Drip Irrigation programme in Jharkhand. The list is long. It is supporting or has lent support in India to around 60 projects. What needs to be watched out for now is the Mumbai-Ahmedabad High Speed Rail (MAHSR) bullet train project. The project will see Japanese high speed rail technologies (SHINKANSEN system) being introduced in India. While the National High Speed Rail Corporation Ltd, the implementation agency, has commenced the construction of a training institute in Vadodara, Japan has already announced a provision for a soft ODA loan amounting to JPY 100 billion. The project, which starts from the Bandra Kurla Complex in Mumbai and ends near the Sabarmati railway station in Ahmedabad, will cover 508.17 kilometre. It will open a new chapter in India-Japan cooperation.


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