How the Japanese Loan for India’s Bullet Train Is a Rip Off

by Guest Wed Nov 01, 2017 12:23 am

Now that the hype over the bullet train has subsided, it is time to do some cold calculations. India will borrow Japanese yen 150,000 crores [equal to Rs 88,000 crores today], bearing 0.1% interest, with a 15 year lock-in period, repayable in 50-60 years. Looks attractive indeed. Prime Minister Narendra Modi is reported to have commented: the loan is “in a way free”. The prime minister was evidently not briefed properly, as the following analysis will indicate.

Today Re 1 buys 1.72 yen, ten years ago Re 1 could buy 2.80 yen and, 32 years ago, say on February 26, 1985, Re 1 could buy 19.77 yen. On February 26, 1985, the exchange rate of dollar/yen was 261 and that of dollar/rupee was 13.20. Divide 261 with 13.20, you get 19.77. So, had India borrowed 150,000 crores yen on February 26, 1985, today, that is after 32 years, the principal amount of loan (without interest) would have swelled 11.49 times (divide 19.77 by 1.72). Depending on repayment schedule and lock-in period of loan, the multiplication factor could have reduced from 11.49 to 6 or 7 on a conservative estimate. This is simple arithmetic and no rocket science.

So, can we not predict what fraction of a yen, Re 1 would buy after 50 years? If the rupee’s purchasing power has dipped from 19.77 yen in 1985 to 1.72 yen today, then after 50 years can a rupee buy anything more than just a fraction of a yen? Unlikely, unless yen interest rate shoots up and rupee rate becomes close to zero, which is highly improbable. Therefore, this 50-year yen loan, with a 15 years lock-in period, is anything but free. It is in fact a rip off. By the time the loan is repaid in 50 years, India would have shelled out Rs 300,000 crores at least, or even more, depending on how quickly the loan is extinguished. This excludes interest of 0.1% on yen loan which would add to the cost. Yen is a dangerous currency and it would be imprudent to ignore its track record...

Overall, the yen loan is a rip off, the project’s economic viability is suspect and India is unlikely to receive technology. Why commit Rs 110,000 crores of public funds then? Obviously, mediocrity is ruling the roost and experts with domain knowledge are not being utilised – a tragedy for India.

https://thewire.in/192863/india-japan-yen-loan-mumbai-ahmedabad-bullet-train/

by silvermani Wed Nov 01, 2017 10:08 am

I was wondering "what's the catch in this "generous" loan?". Now I understand.

How the Japanese Loan for India’s Bullet Train Is a Rip Off

How the Japanese Loan for India’s Bullet Train Is a Rip Off

Re: How the Japanese Loan for India’s Bullet Train Is a Rip Off