Nickeled & Dimed

Penny for your thoughts?

We are accepting articles on our new email:

Bullet Trains: A Risky Gamble For India?

By Yuvaraj Mandal

In 2017, Indian Prime Minister Narendra Modi with his Japanese counterpart Shinzo Abe launched the Mumbai-Ahmedabad HSR Project worth $17 billion or 1.08 lakh crores. The 508 km long rail link will connect tier-2 cities like Surat, Vadodara, Anand, Thane, and Vapi. The Japanese government is funding 80 percent of the project outlay through a soft loan carrying a 0.1 percent interest rate with a 50 year repayment period. This loan also comes with an appealing moratorium period of 15 years i.e. India will start repaying the loan only after completing 15 years of HSR operations. Therefore, Modi termed this project as “Ek prakar se muft mein (In a way it is free).” However, this project soon came under severe criticism from the opposition and the media. Is it free as PM Modi claims? Will the ambitious bullet train project ever be economically viable and environment-friendly?  

Is it free?

“In international relations, no country is a permanent ally or enemy of another country.” This logic applies equally well for Japan when it gave India an 88,000 crore rupees loan at a partly 0.1 percent interest rate. This deal serves the Japanese interests more than those of India because of various economic reasons: 

  1. Negative Interest Rates of Japanese Central Bank 

From 2016 onwards, the Bank of Japan had maintained the short-term interest rate at minus 0.1 percent. This implies that the Japanese commercial banks will suffer if they do not invest their funds and keep them with the central bank. Since India is a profitable and stable investment destination, Japanese banks are profiting by even lending at 0.1 percent interest rate. Therefore, India which probably accepted this deal due to its negligible interest rates may have unfortunately overlooked the larger picture of currency depreciation.

  1. Depreciation of Rupee against Yen

Although it is difficult to predict future exchange rates of the Indian rupee and Japanese yen, historic trends have shown that the rupee has continuously depreciated against the yen. 



In the above example, it can be seen that the Japanese yen has strengthened against the Indian rupee, moving upwards from 0.1422 rupee/yen to 0.6455 rupee/yen over the last 29 years. Hence, if  India borrowed 79,000 crores rupees in yen from Japan in 1991, it would increase to a principal amount of 3,58,611 crores rupees in 2021. Therefore, it can be a huge financial risk for India to borrow from Japan, whose currency is regarded as volatile. Also, it is most likely that the rupee will further depreciate against the yen soon because of the difference in the inflation rates between the two countries. While Japan has been experiencing deflation for a long time, India, on the other hand, had a 5.59 percent retail inflation in July 2021.

  1.  Indian Companies are less involved 

India is spending a mammoth $17 billion  on this bullet train route and yet, it seems that Japanese companies will benefit the most. Japanese corporates are going to provide at least 70 percent of the core components of the rail line. The Indian government had included and focussed on two clauses of the bullet train agreement- ‘Make in India’ and ‘Transfer of Technology’. Yet, it is reported that the Japanese authorities have asked for more corridors and contracts before actually transferring the technology. This puts the Indian companies at a disadvantage as they were expected to obtain the transfer of critical technology. After all, since Japan is funding the project, Japan will get a major say in the construction of the corridor. 

For example, Nippon Steel, a Japanese steel company, flagged quality concerns of Jindal Steel and Power Limited, and hence, the efforts made to form a joint venture for manufacturing rails fell through. So, the economic benefit during the construction phase of the Mumbai- Ahmedabad bullet corridor will largely flow into the hands of large Japanese conglomerates, even though Indian companies like L&T are regularly securing mammoth contracts and others such as BHEL will be producing the rolling stocks jointly with Kawasaki Heavy Industries of Japan. 

Is there enough demand for Bullet trains?

As per some railway officials, the Mumbai-Ahmedabad segment of the Western Railway operates at least 20 trains daily and approximately 10 flights are planned between the cities, indicating the heavy passenger demand in the region. Indian media focussed on this aspect of passenger demand for justifying the Mumbai-Ahmedabad alignment of India’s first bullet train corridor. However, an RTI query revealed that in a single quarter, Western Railway suffered a loss of 30 crore rupees due to vacant train seats, and roughly 40-44 percent of seats of the route remain unoccupied. According to Achal Khare, the Managing Director of NHSRCL, about 4700 passengers travel by flights daily, roughly 5000 passengers by trains per day, and around 15,000 use vehicular transportation for commuting between Mumbai and Ahmedabad regularly.

An IIM Ahmedabad report states that if the railways fix the tickets at 1500 rupees per person, then after 15 years of operation, the high speed rail corridor needs to be used by 88,000-1,10,000 people every day for meeting the financial obligations on time. For transporting such an enormous number of passengers, 100 trips are needed daily with 50 in each way. Achieving these numbers is a far-fetched reality with the current statistics stated by Mr. Khare. 

If the tickets are charged at higher prices, it is doubtful how many Indians will be willing to shift from conventional modes of transportation. Booking an AC chair seat in Shatabdi Express costs partly 955 rupees including catering charges and other surcharges. Middle-income classes can alternately avail the services of the overnight Duronto express and hence, may not prefer spending more to reduce their travel time during the day. Therefore, it can be inferred that the probability of Mumbai-Ahmedabad turning out as loss-making is quite high. Khare rightly said, “These projects should not be seen from a financial return point of view.” 

High Speed Rail Failures across the world

India isn’t the only country in which Japan has helped or is presently helping to build a bullet train line. Taiwan started its bullet train operations in 2007 based on the same Shinkansen technology. The total investment made was $14.3 billion, slightly less than what India is making at the current moment. Within seven years, the project was on the verge of bankruptcy and the government had to bail it out by injecting around $1.5 billion. Although the Indian bullet train project will not face the burden of high interest payments, a crucial factor behind the Taiwanese bankruptcy- the ridership estimates, may turn out to be misleading. It was forecasted that Taiwanese high speed rail would serve 2,40,000 passengers daily in 2008, but it still served less than 1,40,000 in 2015. Similarly, even though the IIM Ahmedabad report suggests that the project will be financially viable based on passenger estimates, it may suffer the same fate as the Taiwanese high speed rail and the Mumbai monorail. 

It is also necessary to note the profitability of other high speed rail corridors across the world. In 2013, there were only two HSR lines in the world that were profitable- Tokyo-Osaka in Japan and Paris-Lyon in France. Apart from these, the remaining HSR lines in Japan incurred heavy losses, except the Hakata-Osaka line which came close to break-even. This led to the privatisation of the state-owned Japan National Railway. Moreover, the Tokyo-Osaka and Paris-Lyon high speed rail lines share a common attribute. They both have the two lowest construction costs per mile, Tokyo-Osaka at $2.6 m/mile and Paris-Lyon at $3.3 m/mile. Compared to these figures, India is executing its bullet train corridor at $ 27.44 m/km or 44.15 m/mile. Such high costs imply that India will find it difficult to attain the break-even point.

Is the Mumbai-Ahmedabad bullet train project eco-friendly?

The NHSRCL website boldly claims – ‘High Speed Rail is a proven eco-friendly transport option worldwide and according to a study by International Union of Railways, Co2 emission for a 600 km trip per passenger by high speed rail is 8.1 Kg as compared to 67.4 kg for car travel and 93 kg for airplane travel’. Although it is widely believed that bullet trains are being introduced in India to reduce travel time and bring economic development, it is necessary to address the environmental point of view. It cannot be denied that during the operational lifetime of a bullet train, pollution is caused less due to usage of electricity, preferably generated from clean sources, as compared to fuel used in vehicles and airplanes. However, is environmental balance compromised while constructing the high speed rail line?

It is officially claimed that 32044 mangroves will be affected while constructing the high speed corridor, which shall be compensated by undertaking afforestation and planting 160,000 new mangroves. Moreover, NHSRCL has already awarded tenders for transplanting a few mangroves and has decided to build an underground tunnel for ensuring minimal interference with the sensitive Thane Creek region. Nevertheless, these decisions seem good only on paper. According to experts, the survival rate of manually planted mangroves is not more than 30 percent and at least 15 years will be required to compensate for the loss. Even before debating whether the new mangrove saplings are capable of recreating the destroyed ecosystem in the long run, people should question the afforestation ability of the government at large. AK Mohanty, former Inspector General of Forest of India, had reported that roughly 70 percent of compensatory afforestation data is either incorrect or incomplete. This is quite ironic for a country that promotes sustainability and environment-friendly solutions in international forums.


It is normal for the Indian government to push for high speed rail as a means for modernising its old inter-city railway network and imitating China’s success story. Even though it has held several feasibility studies in the past decade, such capital-intensive high speed rail projects need more review and deliberations. After all, with the Covid-19 pandemic and 5G network, permanent work-from-home is becoming a reality. While the world is steadily moving towards futuristic modes of travel like maglev and hyperloop, India has the perfect opportunity to directly shift to these. Furthermore, government schemes like UDAN have made air travel among tier-2 cities more economical, and in near future, the entire aviation industry will be achieving a net-zero carbon emission target.

Yuvaraj Mandal is a first-year undergraduate student at Ashoka University.

Image credits – BBC

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: