Amid Modi’s ‘Make in India’ call, Japanese firms grab contracts of Bullet train project

In a major blow to Prime Minister Narendra Modi’s economic policy - a push to ‘Make in India’, Japanese steel and engineering companies are set to bag major supply contracts for $17 billion Indian bullet train, Reuters reported quoting “several sources”.

PM Modi’s dream initiative, ‘Make in India’ aims to lift the share of manufacturing in India’s $2 trillion economy to 25 percent and create 100 million jobs by 2022.

Reuters, quoting “five sources in New Delhi with direct knowledge of the matter”, claimed Japanese companies are likely to supply at least 70 percent of the core components of the rail line.

A Japanese transport ministry official involved in the project, on condition of anonimity told Reuters, “the two countries were still working out a strategy for the supply of key components, and would unveil a plan for procurements around July.”

Two clauses were included in the agreement between Japan and India in September 2017 for the bullet train project. First, the promotion of ‘Make in India’ and second ‘Transfer of Technology’. Prime Minister Modi had to set up manufacturing facilities in the country, generate jobs and get a toehold in Japanese technology.

With the Bullet Train project already facing Critics’ scrutiny, Narendra Modi finds himself under severe pressure to provide more jobs to millions of unemployed in India with the general election scheduled in 2019. Critics point out the bullet train to be wasteful and that the money could be better utilised elsewhere.

Achal Khare, the managing director of National High Speed Rail Corp Ltd (NHSRCL) told Reuters, “The Japanese have reservations on certain issues because they have a concern that there is a difference in the culture and systems of Japan from the culture and systems in India.” NHSRCL is the agency tasked to execute the bullet train project. “The work culture is very different,” he told Reuters.

Speaking on condition of anonymity, two Indian railways officials told Reuters that their Japanese counterparts had ‘raised questions about efficiency in Indian companies and their ability to meet timelines’.

Tomoyuki Nakano, director for international engineering affairs in the railway bureau at Japan’s transport ministry, told Reuters, “the issue was that Indian companies had no experience or technologies specialising in high-speed railway systems at present.”

“I don’t think Japanese are concerned about a difference in the work culture,” Nakano said. He and other Japanese officials said efforts were continuing to fulfil the ‘Make in India’ component of the agreement by promoting collaborations between companies from the two countries.

Still, several Indian officials told Reuters that ‘it was by and large accepted that Indian companies would not have a major part to play in the bullet train project’.

Quoting a close aid of PM Modi on condition of anonymity, Reuters reported, “Japan will get major leeway because the bullet train is largely funded by a 50-year loan provided by its government.”

A senior official at the Indian government’s policy think-tank, NITI Aayog, told Reuters, “At this stage to expect Indian companies to have a bigger share in manufacturing appears to be a little difficult.”

However, midway through Modi’s five-year term, manufacturing was still at 17 percent of India’s GDP in the 2016/17 financial year from 15 percent previously, the Reuters report highlighted.

ONLY ONE JOINT VENTURE

“Nippon Steel and Sumitomo Metal Corp (5401.T), Japan’s biggest steelmaker, and other companies like JFE Holdings Inc (5411.T), Kawasaki Heavy Industries Ltd (7012.T), Mitsubishi Heavy Industries Ltd (7011.T), Toshiba Corp (6502.T) and Hitachi Ltd (6501.T) are likely to bid for various contracts,” three senior Indian government officials directly involved in the project told Reuters.

While Nippon Steel said it would not comment on specific projects, Reuters reported, ‘JFE, Hitachi and Toshiba said they were interested in the project but had not finalised plans, including any possibilities of joint ventures with Indian firms’.

The sole collaboration aimed at the bullet train project, Reuters report claimed, ‘is between Kawasaki Heavy Industries and India’s Bharat Heavy Electricals Ltd (BHEL.NS), which aims to win carriage orders.’

Quoting three senior Indian officials, Reuters claimed that while ‘the Japanese government officials have asked for more bullet train corridors in India before transferring technology, India is unlikely to announce any new projects until the final cost and commercial feasibility of the Mumbai-Ahmedabad link is clear.’

“It’s like a chicken and egg situation on technology. The Japanese want an economy of scale and business, but the Indian view is that India is a big market that once this market is explored the business will automatically be generated,” Khare from NHSRCL told Reuters.

MISSED OPPORTUNITY

According to the Reuters sources in New Delhi, last year, the Indian government mediated negotiations between Nippon Steel and India’s Jindal Steel and Power Ltd (JNSP.NS) to set up a joint venture to manufacture rails, but the talks fell through after the Japanese major raised quality concerns.

“State-owned Steel Authority of India (SAIL.NS) (SAIL), which for decades has been the main supplier of rails to Indian Railways, was also overlooked by Japanese companies due to quality concerns,” the sources further told Reuters.

Left with little choice, Reuters’ sources claimed, Indian firms will now largely provide raw materials like cement and supply manpower for the assembly of rails.

India’s UltraTech Cement Ltd (ULTC.NS), Larsen & Toubro Ltd (LART.NS), Bharat Heavy Electricals Ltd (BHEL.NS) and Ambuja Cements Ltd (ABUJ.NS) are among those in the race for the supply of construction materials and power, the two Indian railways officials told Reuters.