As people celebrate and Twitter trends on #BulletTrain, I find the idea very good, but wonder how useful will this new idea be? I am not getting into the financial aspects of the proposed 508 km-long Mumbai to Ahmedabad High Speed Rail (MAHSR) project. Going by available data, the project cost is estimated to be Rs 1.1 lakh crore, for which the Indian government will be borrowing Rs 88,000 crore from Japan at an interest of 0.1 per cent per annum. Importantly, the loan will be repaid in 50 years with a 15 year grace period.
The project will be completed by December 2023, which going by past track record of the Japanese working on projects in India, will no doubt be achieved. The proposition is very tempting, given the kind of projections on passenger traffic on this route over the next several decades, and more importantly, the time saved when travelling in this train. But, all of this will come at a cost, which could be steep, given the increasing railway fare prices. I don’t want this project to be a financial dud like several other projects.
There are several instances of masterstroke plans failing. For instance, by doing away the toll collection on DND, Noida Toll Bridge as a company is today making loss. Here was a company that built a road stretch to connect Delhi and Noida to reduce travel time and weathered protests and government interventions to fix the toll price and more years after it came into operation. One fine day, when the government decided to do away with the toll, the company lost its primary revenue stream, and makes losses today.
It was a similar case with the airport link metro line in Delhi, when it was operated by Reliance Infrastructure – the pricing and traffic was unviable. Yes, the DMRC (Delhi Metro Rail Corporation) runs the metro in this line, but it was forced to reduce the fare and have continued operating this line as an obligation rather than profitability. Legislative and environmental changes could lead to the project not being viable and this is something that needs to be taken into consideration.
What holds well today, may not hold good tomorrow. There is every bit of possibility that there may not be a pressing need to travel between destinations that the bullet train is planned to service. The assumed ticket pricing today, may turn out to be too expensive for most people to travel. Changing technology may do away with the need to meet in person. These days, several companies get on with video conferencing, Skype, FaceTime and the likes. To take a loan to construct a bullet train corridor is akin to someone in their mid 40s with two teenage children buying a 4-bedroom house on a loan, only to realise that they will soon be empty-nesters and would not be needing a big house.
Expanding existing highways or starting new trains on existing routes is like sticking to fixed-return investments, which have predictable outcomes. Just the way mandatory spends on financial education by SEBI, has resulted in mutual funds finding money flow from smaller towns, starting train services in sectors and geographies where connectivity is a cause of concern is desired. The Konkan railway project is one such example, which bridged the connectivity on the West coast by saving money, travel time and several lives which were otherwise being lost due to accidents.
In the absence of such drastic measures, the bullet train will be one more project which will have everything interesting going for it, but may not find enough takers. Investors who hear the pros and cons of the NPS (National Pension System) will be able to empathise on the virtues of this low cost pension plan, which is so good on paper and for what it promises to deliver, that the number of takers are so few. I don’t want the fate of the Bullet Train to go the NPS way.