Political Economy

Modi Is Meeting Abe Under the Shadow of Delayed Japanese-Funded Infra Projects

Experts say it is unlikely that Indian projects will be able to absorb Japan's promised $35 billion infra investment, given the slow implementation progress.

New Delhi: Mega projects funded by Japanese agencies in India are being delayed due to land acquisition and other hurdles, triggering fears amongst Indian government officials that the much-talked-about investment promised by Japan’s Prime Minister Shinzo Abe back in 2014 may not fructify on time.

During Prime Minister Narendra Modi’s visit to Japan in September 2014, Abe had promised $35 billion in investment and financing for Indian infrastructure projects over a period of five years.

However, the way large Japanese-funded projects – such as the Delhi-Mumbai Industrial Corridor, the Western Dedicated Freight Corridor and various metro rail projects are moving – there is little hope that India will be able to absorb the committed Japanese investment within the specified time-frame, say experts.

This is the political economy context to Modi’s second visit to Japan, which will start on Sunday (October 28).

Take, for example, the $100 billion Delhi-Mumbai Industrial Corridor, India’s biggest infrastructure project, which is being funded by the Japan International Cooperation Agency (JICA) and Japan Bank of International Cooperation (JBIC), along with the Indian government.

The mega project, conceived in 2007, was to be completed by the end of 2016 but has hit land acquisition hurdles and is not expected to be ready before 2020.

When asked, a spokesperson from the Japanese embassy in New Delhi  maintained that large projects involve multiple stakeholders and thus involve complexities that can result in implementation delays.

“Official development assistance (ODA) projects involve wide-ranging stakeholders from the recipient central government to state governments, executing agencies, constructors and local residents. Their implementation is complex and can take some time,” the spokesperson told The Wire.

JICA offers soft loans as ODA for infrastructure projects in developing countries.

Land acquisition hurdles

The corridor project has been caught in land acquisition problems in various investment regions. This problem has been more acute in Gujarat’s Dholera, the ancient port city which is proposed to be converted into a smart city.

In December 2015, the Gujarat government’s land acquisition plan for the proposed Dholera-Ahmedabad special investment region, part of the DMIC, was stayed by the Gujarat high court on the back of a petition filed by a local farmers body.

Sources involved with the project told The Wire that the Gujarat government has given just 290 square km of land for the project against the requirement of more than 900 square km.

Also read: In MP’s Chhatarpur, Farmers’ Land Is Being Seized Without Notice or Compensation

Similarly, land acquisition in the Khushkhera-Bhiwadi-Neemrana investment region and the Jodhpur-Pali-Marwar industrial area in Rajasthan has faced delays. Since required land for the two industrial centres has not been acquired, cost of the projects cannot be ascertained.

Industry sources say that JICA, which had committed $4.5 billion for the DMIC, seems to have changed its mind now and has not made the committed investment so far.

Project scope curtailed

Moreover, the project scope has been curtailed by dropping the plan for six gas-fired power projects, with combined capacity of 10,000 MW, due to domestic fuel shortage.

These plants were to be set up in MP, Maharashtra and Gujarat. In its November 2016 meeting, the DMIC Development Corporation board decided to return land acquired for these projects to respective state governments.

The concerned states have been asked to examine the possibility of alternative use of acquired land, according to media reports.

Western Dedicated Freight Corridor

The 1504-km-long Western Dedicated Freight Corridor (WDFC), the backbone of the Delhi-Mumbai Industrial Corridor, has been delayed and may not be completed by 2020, say industry sources.

In an infrastructure review meeting in May this year, the prime minister pulled up Gujarat, Maharashtra and Uttar Pradesh governments over the delay in land acquisition for the project.

About 70 hectares of land, out of the 6,000 hectares required for the project, was pending for acquisition as of January this year, according to the Dedicated Freight Corridor Corporation of India, the project executing agency.

Also read: The Legal Gymnastics of Acquiring Land for the Bullet Train Project in a Democracy

It came out during the review meeting that the worst-affected sections were the 102 km area between Jawaharlal Nehru Port Trust and Vaitrana in Maharashtra, where nearly 12 km of land was not available and work progress stood at just 7.4% of as of January this year. In the 186-km section between Vaitrana and Sachin in Gujarat, 17 km of land was not available and work progress stood at just 10%. Another section of 133 km between Sachin and Vadodara in the same state was only 8.7% complete.

The cost for the project, initially estimated at Rs 16,592 crore in February 2008, has jumped to over Rs 51,000 crore and could further escalate in case of delays.

Metro rail projects

JICA is funding several metro rail projects in India but the majority of them are running behind their respective completion schedules.

Ongoing metro rail projects in Chennai and Kochi are running behind schedule.

The Ministry of Housing and Urban Affairs has cited delay in land acquisition, termination of contracts due to poor performance of the contractor and delay in tunnelling due to mixed ground conditions with high water table as the key reasons  for slow progress in Phase I of Chennai Metro projects.

The completion schedule was July 2017 but it has now been extended to December 2018.

Similarly, the Kochi metro project is running late due to land acquisition hurdles. The completion date has been extended from June 2017 to December 2019.

JICA reduces disbursals, FDI inflows drop

Due to delays in meeting implementation milestones, JICA has reduced loan disbursements to funded projects in recent years. For example,  the Japanese lending agency had committed a loan of Rs 20,000 crore to Indian projects in 2015-16, but it disbursed just half of that.

Also read: Facing Eviction for National Highway Construction, Dalits Protest in Kerala

In 2017-18, the Japanese lending agency had committed loans of Rs 25,000 crore to Indian projects, but it disbursed just Rs 16,000 crore.

Taking a step back, broadly speaking, foreign direct investment (FDI) of $11 billion has flowed from Japan between 2014-15 and 2017-18. FDI inflows from Japan jumped 80% to $4.70 billion in 2016-17.

Trend in FDI inflows from Japan

FY FDI ($bn)
2014-15 2.08
2015-16 2.61
2016-17 4.70
2017-18 1.61
2018-19 ( upto June) 0.874

Source: DIPP

However, in 2017-18, FDI inflows from Japanese companies dropped 65%. This is surprising considering that overall FDI inflows into India witnessed a positive growth during the year.

Mumbai-Ahmedabad bullet train

Land acquisition issues are threatening to derail the Modi government’s flagship $17 billion Ahmedabad-Mumbai bullet train, which is being financed by JICA. Land acquisition for the project has to be completed by December.

But despite the initial delay, the railway minister Piyush Goyal hopes land acquisition for the project will be completed by December end.

“Land acquisition procedure for the first bullet train project (Mumbai-Ahmedabad) will be over by December this year. We are taking more time because we engage land owners and hold dialogue for acquisition. We want to take them into confidence,” Goyal told mediapersons on Friday.