With Prime Minister Shinzo Abe’s visit underway, Japan’s engagement with India on the infrastructure front is expected to broaden and deepen with a focus on connectivity and renewable energy.
Apart from the marque projects such as the high-speed rail, popularly known as the bullet train, and the western dedicated freight corridor, Japan has also joined hands with India to aggressively develop infrastructure projects in India’s north-eastern states as part of the strategy to contain China.
To take this engagement forward in a structured manner, an India-Japan coordination forum for development of North East has been set up to focus on strategic projects such as connectivity and road network development, electricity and disaster management, Mint reported on 3 August.
“This forum is an important engagement for us, given the immense strategic importance of the region,” said an Indian government official, requesting anonymity.
The development also assumes importance given that several multilateral lending agencies, including the World Bank, have been unwilling to fund projects in the so-called disputed border states in India’s northeastern region—seen as sensitive as parts of the region are claimed by China.
Analysts say that there are strong synergies between the two nations.
“With an aim to consolidate its clout within Asia and beyond, Japan has been aggressively pursuing the Partnership for Quality Infrastructure in Asia (PQI) initiative. This was essentially meant as a counter to China’s One Belt, One Road (OBOR) initiative. There are strong synergies between PQI and India’s Act-East policy,” said Kannan Sivasubramanian, co-chief executive officer at Aranca, a research and advisory firm.
India has been critical of China developing the China-Pakistan Economic Corridor (CPEC), part of the OBOR infrastructure initiative cutting through Gilgit and Baltistan areas of Pakistan-occupied Kashmir (PoK). OBOR, first unveiled by Chinese president Xi Jinping in 2013, aims to put billions of dollars in infrastructure projects, including railways, ports and power grids across Asia, Africa and Europe.
The two countries are also leveraging their association to set up large infrastructure projects in India’s neighbourhood with state-run Petronet LNG Ltd’s plan of setting up a liquefied natural gas (LNG) terminal in Sri Lanka with Indian and Japanese firms.
Japan is also expected to help India strengthen its role in the proposed transportation architecture in the region and beyond in projects such as the Great Asian Highway, connecting 32 Asian countries, the South Asian Sub-regional Economic Cooperation (SASEC) road connectivity programme and the Asia-Africa Growth Corridor.
“Such improving bilateral ties between India and Japan are likely to help both countries achieve their economic goals and strategic aims in the Asian region,” added Sivasubramanian.
India needs funds and technology to push its new integrated infrastructure programme which involves building of roads, railways, waterways and airports.
A case in point being its Sagarmala and Bharatmala programme with an investment requirement of Rs10 trillion and Rs8 trillion respectively.
With Indian state government entities recently allowed to directly tap bilateral agencies for resources, Mumbai Metropolitan Region Development Authority is availing a Rs15,109 crore loan directly from the Japan International Cooperation Agency for the Mumbai trans-harbour link project.
Apart from cheap finance, Japanese technology is also an added attraction.
“The rate of interest given by the Japanese financial institutions is frightfully attractive. Even with the tied loans, the technology they are bringing in adds to the advantage,” said Sanjay Garg, partner and leader, capital projects, at PwC.
Japanese investment has also played an important role in India’s clean energy industry, given the focus on so-called patient capital, which seeks modest yields over time.
A raft of Japanese firms have been investing in India’s clean energy sector. While JERA Co. Inc bought a 10% stake in ReNew Power Ventures Pvt. Ltd for $200 million, SBG Cleantech, a joint venture between Japan’s SoftBank Group Corp., India’s Bharti Enterprises Ltd and Taiwan’s Foxconn Technology Group, has also been placing aggressive solar power bids, helping bring down solar tariffs in India.