India selected Japan to help build its first high-speed rail link in a coup for Japanese Prime Minister Shinzo Abe and a defeat for China, which had also bid for the signature project.
The US$15 billion deal clinches three years of negotiations and reflects the deepening relationship between India and Japan stemming from Indian Prime Minister Narendra Modi and Abe’s personal friendship. Shared investment objectives and a mutual apprehension about China’s intentions are pushing the two nations closer together.
The proposed 505km railway would link Mumbai with Ahmedabad, a major economic and industrial hub in Modi’s home state of Gujarat.
Japan is offering “easy terms” for US$12 billion of the 980 billion rupee (US$14.59 billion) cost, Modi said at a press conference in New Delhi yesterday.
The deal comes after Japan lost out to China on a US$5 billion rail deal in Indonesia in October. Along with the rail agreement, Modi and Abe signed agreements on nuclear energy cooperation and defense equipment transfers.
“Japan didn’t want to lose this deal,” University of Adelaide Centre for Asian Studies academic Purnendra Jain said by e-mail. “It’s also a statement for Modi that India is modernizing.”
Indian Minister of State for Railways Manoj Sinha told the nation’s parliament on Dec. 2 that no other country offered as much financial support for the project as Japan.
China was pushing hard for the Mumbai-Ahmedabad project after signing an agreement with Modi in May to cooperate on railways. For the Indonesian project, China Development Bank (國家開發銀行) provided three quarters of the required US$5.5 billion funding.
Ahead of the announcement, Chinese Ministry of Foreign Affairs spokeswoman Hua Chunying (華春瑩) was asked if China might lose because its loans were too costly.
“All countries have the right to make their own decisions about who they want to cooperate with,” she told reporters in Beijing, adding that China expected to cooperate on other railway projects with India in the future.
China was in talks with India to jointly build a 1,754km track from New Delhi to Chennai that could cost 200 billion yuan (US$29.78 billion), the China Daily reported in November last year.
The project would see bullet trains traveling as fast as 300kph on the line between India’s capital and the southern commercial and industrial city.
Despite the current setback, China still dominates trade with both nations. Japan’s trade with India is about 5 percent of its commerce with China, and less than 25 percent of India-China trade.
However, Abe’s administration has outpaced China in investment pledges to India, promising to funnel about 3.5 trillion yen in infrastructure loans, financing and public and private investment into India — the most of any country except for the United Arab Emirates.
Modi’s government has set up an office to promote inward investment from Japan and the two leaders last year vowed to double direct investment within five years.
“In just about every area outside of defense, Indo-Japanese cooperation has been unprecedented,” Eurasia Group Washington-based associate Sasha Riser-Kositsky said. “In terms of putting up cold hard cash for the signature programs of the Modi government, it’s the Japanese companies and government. They have the institutional mechanisms for long-term concessional infrastructure financing.”
The pact over nuclear energy could ease the participation of companies such as General Electric Co and Westinghouse Electric Co which have Japanese partners in India, Indian Foreign secretary S. Jaishankar told reporters in Delhi.
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