Mapping India in Japan’s infrastructure agenda

Japanese Prime Minister Shinzo Abe’s Partnership for Quality Infrastructure in Asia (PQI) aims to consolidate Japan’s regional clout among the emerging Asian economies. PQI, which is often viewed as a competing formulation vis-à-vis the Chinese mega infrastructure designs, is critical to achieving the goals of Japan’s national growth strategy.

Indian Prime Minister Narendra Modi talks with his Japanese counterpart Shinzo Abe at a ceremony, in New Delhi, India. (Photo: AAP) Japan aims to promote high quality infrastructure partnerships and facilitate expansion to emerging markets in Asia, and enable a revolution in productivity by investment in the future.

Prior to conceptualising PQI, the June 2013 Japan Revitalization Strategy articulated the significance of creating new frontiers for growth by capturing the international infrastructure market. It argued for tripling infrastructure sales by 2020. The stage is set in Southeast and South Asia where the latest manifestation of the China–Japan contest is evolving in the infrastructure sector.

Abe is aggressively arguing Japan’s case based on the rationale of quality as ‘cost-effective in the long-run’. The Japan Business Federation identified Asia, and especially countries like Indonesia, Vietnam, India and Myanmar, as the priority regions. Sectors including railway, airports, harbours, telecommunication and power plants are of interest. Drawing from its promising economic prospects, rapid urbanisation, expanding market and growing strategic significance as a regional power, Japan is aggressively pursuing PQI in India.

This is a win–win construct for Japan and India as Indian Prime Minister Narendra Modi’s ‘Make in India’ initiative, which aims to make India an epicentre of global manufacturing by creating excellent infrastructure and enhancing the investment climate, intersects with Abe’s PQI.

Japan will increasingly play an instrumental role in redefining Indian infrastructure. PQI will further expand the shadow of Japan in India’s development story. While Japan’s footprint in high-speed rail, industrial corridors and urban mass rapid transport systems have expanded in India over the years through Official Development Assistance loans, PQI is a more comprehensive approach. It appears to be relatively more amenable to high risk projects and reinforces the Japan Bank for International Cooperation’s role to give support for private–public partnerships for infrastructure projects; calls for robust collaboration with the Asian Development Bank (ADB) for expansion of lending capacity and lending portfolio to the private sector; encourages mobilisation of private funding for infrastructure projects; and aims to accelerate loan procedures.

The policy priority of Prime Minister Modi is economic development and reinstating the confidence of investors. Besides good governance, this requires resilient infrastructure that will facilitate industrial networks and regional value chains. Estimates indicate that India requires investment of approximately US$1 trillion in infrastructure over the next few years — innovative solutions are needed to address this huge requirement. As India mobilises resources to attain its developmental goals, Abe’s PQI will play a key role in enhancing connectivity within India and beyond the borders.

India is benefitting as the competition for infrastructure financing is heating up between China and Japan in emerging Asian economies. The impact of losing the Indonesian high speed railway project to China in September 2015 made Japan offer attractive loan terms and Shinkansen technology for the Mumbai–Ahmadabad high speed railway project during Abe’s visit to India in December 2015.

Meanwhile, the feasibility study for the Delhi–Mumbai high speed train corridor is being conducted by an Indo–Chinese consortium, while the Delhi–Nagpur section of the Delhi-Chennai Diamond Quadrilateral corridor is being done through government-to-government cooperation with China. France and Spain based consortiums are also engaged in the feasibility studies for the Mumbai–Chennai and Kolkata–Delhi railway corridors respectively. Constructive competition in infrastructure financing is desirable since it will provide India the choice to opt from the best terms. This will eventually serve the larger goal of enabling the emerging economies of Asia to fuel their national growth engines and boost Asia’s overall ability to compete in the global economy.

PQI will certainly add qualitative depth to the India–Japan Special Strategic and Global Partnership. But both sides will have to invest more energy and demonstrate patience as infrastructure financing will have to navigate a few hurdles while India makes effort to undo decades-old bureaucratic bottlenecks to ease procedures and attract investments.

Even as Modi welcomed the concessional loans and high speed rail technology for the Mumbai–Ahmadabad project from Japan, national debate questioned the rationality of a high cost project between two already well-connected cities in a poor country like India when resources could be mobilised to improve the overall railway network. Some have argued in favour of developing the highspeed railway network along the Diamond Quadrilateral — which aims to connect the four cities of Delhi, Mumbai, Chennai and Kolkata — rather than regional corridors. A section of the domestic debate revolved around the question of economic viability and ridership of the Mumbai–Ahmadabad project. Still high speed railway will certainly redefine the Indian transportation sector and fuel the engine of economic growth.

Weighing the impact of China-led mega-infrastructure projects, Abe conceptualised PQI. One of the important pillars of PQI is to deepen collaboration with the ADB. Meanwhile, Asia is closely observing how the ADB is debating the scope of joint infrastructure financing with the Asian Infrastructure Investment Bank while responding to Asia’s enormous infrastructure requirements. Japan has stressed that in cooperation with the ADB, it will deliver high-quality and innovative infrastructure to Asia and committed US$110 billion over five years, demonstrating a 30 per cent increase in funding. India will certainly gain from such commitments, which in turn will redefine the contours of India–Japan relations at a time when political energy on both sides is working to add further depth to bilateral ties.

Titli Basu is a Researcher at the Institute for Defence Studies and Analyses, New Delhi.

The article was originally published in the East Asia Forum