The bullet trains and the high-speed trains are in the news for the last few weeks. After taking charge as the Chief Minister of Maharashtra, Uddhav Thackeray announced that the bullet train project worth Rs 1 lakh-crore investment, connecting Ahmedabad and Mumbai, needs a review on the viability of the project and has no plan to shelve it.
The Kerala Budget 2020 proposes to build a Rs 66,079 crore rail line that will enable semi-high speed trains to ply between upstate Kasaragod and the capital city of Thiruvananthapuram. On February 11, Britain’s Prime Minister Boris Johnson pushed for high-speed rail project linking the middle and north of England connecting cities like London, Leeds and Birmingham with a projected investment of Rs 7.8 lakh-crore much to the opposition of his Conservative Party colleagues.
All the projects mentioned have raked up debates mainly on the viability and sustainability of such big-ticket investments and the liability of the State in the long run.
The Mumbai-Ahmedabad bullet train project is on a slow track as there has been a ground protest against the acquisition of agricultural land, mostly on the Maharashtra side of the project, and the Supreme Court currently hearing the petitions filed by the farmers. The land acquisition is more or less a challenge in Kerala as well as in England bringing debates around loss of livelihoods and the rates at which the land is acquired for the project.
Mostly, these projects are driven by debt financing. The Mumbai-Ahmedabad bullet train project is financed by Japan with a soft loan of Rs 79,000 crore at an interest rate of 0.1 percent, with a tenure stretching over 50 years and a moratorium period of 15 years.
Though this loan arrangement may look very attractive, the structure of the loan and the tenure calculation would show that the loan is not soft as the total repayment with interest would come around a significant amount of Rs 1.5 lakh crore for the given period.
The government of Kerala is also looking for international financial assistance to operationalise its semi-high speed railway corridor which would be almost a new line, a few kilometres east of the Indian Railway corridor which is in operation now.
The viability of these projects is discussed in the context of the alternative provisions proposed by experts. The fare is always calculated on the basis of the daily expected number of passengers on board. A back-of-the-envelope estimation of the ticket fare ranges between Rs 3,000-5,000 for 100,000 commuters daily for the bullet train. The case for Kerala’s semi-speed train projects also banks upon the commuters’ volume of around 70,000 per day to keep the fare at a lower rate. Here lies the biggest challenge of estimating future ridership.
In India, there is a poor track record of forecasting the volume of commuters and vehicles while developing the airports, national highways and flyovers. As a result, it is found that the developed properties are choked and often congested as they reach optimal usage within a few years of inauguration, unlike what was predicted at the time of the project development.
In cases such as the Metro, the commuting population has never reached the projected numbers in the majority of the cases, leading to the bleeding of the government exchequer to sustain operations. Many factors influence the decisions of a consumer, especially from a utilitarian theoretical framework. Accessibility, availability, affordability and competition in the segment are some key points that should be taken into account in an emerging market when any public good project is proposed.
In most of the pre-feasibility study surveys, opinions of uninformed laymen having no exposure to proposed projects are sought. Thus, a populist and welfarist State always drives the respondents to answer affirmatively in a competitive political economy. Across the globe, most of these bullet train and high-speed train projects are shelved as they lead to long-term liability for the state governments by setting aside a considerable subsidy bill to sustain the capital invested.
As the average speed of Indian Railways is still clocking less than 100 km/hr, the priority should be to improve the infrastructure to augment average speed. Instead of focusing on the segments of 500 km of reach, the Indian Railways should focus on the majority of the high dense corridors of its 67,000 km-network to improve the speed by another 50 km/hr, and not fall into the trap of bullet train debates.
This article was published in Money Control on February 14, 2020 click to read
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.