There are so many economic factors to consider to attain success in railways. The struggle starts right from ruling out competitive bidding to going against low-cost airlines.
Around $3.2 billion could have been saved if India had invited bids for the construction of Mumbai-Ahmedabad bullet train system. Instead, it has awarded the project on a nominal basis to Japan. When a similar comparison is made with the High- speed rail or HSR, this is what we can infer.
The estimated cost of Mumbai-Ahmedabad HSR project was $17 billion. But, the construction cost finally came up to $27.44 million per km.
A 50- year loan of 88,000 crores is to be given by Japan to fund the project at 0.1% interest rate. However, the Japanese yen is projected to have an inflation difference against the Indian rupee. This potentially wipes out the gain of low-interest rates.
For instance, the Yen has been appreciated by 64% when compared to Indian rupee in the past decade. In 2007, the yen-rupee exchange rate was 0.3517 but in 2017 it is trading for 0.5786 against the rupee.
India needed source equipment exclusively from Japanese vendors and hence to make up for the loss on account of interest rates, the possibility of overcharging has occurred. Japan has made it so clear that India doesn’t find out this tactic.
Actually, Indian railway has to avail equity to finance the HSR project in Rs. 22,000 crore from the Rs. 88,000 crore loan that is rendered by Japan.