Is Japan’s bullet train loan the best deal India has ever had?:
Context:
- Japan’s loan at 0.1% interest rate for the bullet train is not extraordinary, viewed in light of Japan’s low 0.05% interest rates and domestic economic conditions
Introduction:
- Japan had offered India a 50 year loan at just 0.1% interest to fund the Ahmadabad-Mumbai bullet train link.
- Japan had made a similar offer of bullet trains to Indonesia too, offering finance at 0.1%.
- The rate of interest was much lower than the prevailing 10-year US treasury interest rate of around 13% in 1981-82.
- Similarly, Russia in 1998 provided Dollar-denominated credit of up to $2.6 billion for the Kudankulam nuclear power station. The loan carried an interest rate of 4% per annum, lower than the then prevailing interest rate of 5.25% on a 10-year US Treasury bond.
- The recent loan agreement on the bullet train only represents a continuation in the long history of bilateral external assistance on concessional terms.
- Bilateral assistance from countries like Japan, Germany, Russia etc is often much cheaper compared to loans from multilateral agencies like the Asian Development Bank(ADB) and the World Bank’s International Bank for Reconstruction and Development (IBRD), according to a ministry of finance position paper in 2008.
