Our assistance purely depends on the bilateral relationship

The Japan International Cooperation Agency (JICA) is cautious to comment on the progress of the Delhi-Mumbai Industrial Corridor (DMIC). The DMIC project being a greenfield, that has taken a long time and faced land-acquisition delays, has made JICA alter their strategy for other projects in the country especially on Chennai-Bengaluru-Industrial Corridor (CBIC). With the transportation sector seeking the maximum attention from the Japanese agency, Shinya Ejima, Chief Representative of JICA in India, shares with Garima Pant, his views on the Indian infrastructure sector and why the metro projects still hold the lure for JICA and other Japanese investors.

Of lately not much progress is happening in DMIC. Is the Japanese funding agency still interested in continuing to bank on the project?
Our primary purpose is to assist the developmental of India as a bilateral development partner. Regarding DMIC, some years ago two prime ministers agreed that Japan is very important for DMIC. This is a greenfield project stretching to 1,500 km, making it quite a large scale project. And the promise from the Japanese side is to expose at least $4.5 billion, and I think the same equivalent volume of rupee is prepared by the Government of India side. Of the $4.5 billion, JICA is expected to finance $1.5 billion and $3 billion is expected from JBIC, making an aggregate of $4.5 billion. This is our pledge to at least Japanese side will finance $4.5 billion, but this is quite broad-based. So we need to agree in between the two sides involved, India and Japan to which specific project we spend this money on or finance. As of now from the $1.5 billion, nothing has been disbursed so far as the prioritisation among the candidate projects is yet to happen. And also apparently $1.5 billion is far less than the total required fund. So, the Indian side has been discussing internally what projects should be given the top priority and the DMICDC is coordinating with the relevant state governments. They have some ideas but we still have not discussed, agreed or finalised the top priority projects.

But are you still interested in that entire project as of now?
Our concern is to support the Delhi-Mumbai Industrial Corridor. JICA is keen to support the infrastructure, not a very profitable segment but indispensable to this economic industrial corridor. And Japanese private sector is expected to invest some money for a specific project, not their infrastructure but like township (smart city) projects or power projects, profitable than infrastructure projects. And of course, still the fund is not enough so the state government may use their own money or the Central government may allocate some. But various negotiations and discussions have been taking place and I think we are about to start this project soon. So the interest is still there and it goes beyond that as it is a commitment between two prime ministers and the Japanese government.

What makes JICA to look for opportunities in CBIC as the institution already committed to investment in DMIC region, with no disbursements on the card?
The outlook of CBIC is different from DMIC. It is not a greenfield project. There are many investments from Japan or other regions like America, Europe or Korea already exist in Chennai that look good. But still the infrastructure needed to be improved to accommodate more investment and improve the efficiency. So in the Chennai-Bangalore case we started from the preparation of the long term master plan.

The target year is 2030 and the preparation of the master plan is going on, we are in the mid-way through the one and a half year span allocated for the preparation of the master plan. The purpose of the master plan is to identify some industrial nodes and new industrial area, allocation of industry, not necessarily to be automobile but new type of industry it could be. And along this corridor, we are identifying several candidate industrial nodes.

So you are trying to identify these new townships and industrial zones?
Not very independently but our consultants are working towards it. Given the current conditions there is not much potential to invite more investments. So what kind of industry, where to locate or what kinds of resources are needed, all factors are taken into consideration and then we provide our assistance to the master plan. And further this is not yet committed but among several identified nodes Japanese side is in the position to further support the actual development activities. The master plan is just a plan but we are keen to support the implementation of the plan, to materialise it. In CBIC, three states are involved, Tamil Nadu, Karnataka and the current Andhra Pradesh. We are looking at these 3 states and once we identify the industrial zones to be supported by Japan, then after maybe 1 year or 2 years we would start financial assistance to the development of these zones.

With Indian banks taking their hands off from such projects, what makes JICA to fund metro projects in India?
We started from Delhi and now we are financing Bangalore, Chennai, Kolkata and the Mumbai Metro starts soon. And while we are financing the metro we believe that urban infrastructure is very important considering the long term development of India and many statistics say that currently less than 30 per cent of population are in urban area. However, within two-three decades maybe 50 percent may be living in urban. And we experienced this kind of a rapid urbanisation in Asian countries including us, but unfortunately East Asian countries failed to have this mass transit system in urban area. So we are not just finance partners but also believe from the urban development point of view that mass transit system, not only in Asian mega cities, may be required from the beginning and not after they are fully urbanised. That's why we started from Delhi, then we committed to other cities too. Last year, signed the loan agreement of the Mumbai metro and we have no concrete idea which metro comes next. Because as I said, we are financing five metro projects at the same time. So we are keen and we are willing to finance metro. But apparently the Indian side is expecting Japanese finance for other metro projects too. In last decade, roughly 50 per cent of our commitment has gone to the transportation–metro project and dedicated freight corridor.

Indian banks are full with their appetite while funding infra projects, what makes you to take a risk in funding projects in India where the growth of the sector is not picking up?
The overall demand of the infrastructure in India is huge. Banks may be full with their appetite but because of the burgeoning demands, Government of India needs the external assistance. The point is thinking about the infrastructure projects the external financing including Japan or Asian Development Bank, these shares only I think less than five per cent of Indian development budget. So the quantum of the volume of money is not the first priority. What your government expects us is to transfer our experience and knowledge with money.

Since the amount of investment that you are giving is very little, the risk factor also goes down with it?
Talking about risks, our assistance or finance is G to G (Government to Government) and they are fully guaranteed by the government or borrowed by the government themselves. So we don't have such risk. The ultimate risk is about the bankruptcy of the Indian government but if we talk about such possibilities then it is beyond our control and we are not making exactly the same process of the banks, assessment process or but government to government we maintain under this we become bearer of finance this project.

Would you like to share strategy which can be ideal example for those who have burnt their hands and are yet to recover?
Of course, we evaluate the feasibility and the viability of the project but we don't get any return directly from the project. But if the project benefits the enhancement of the economic activities and contribute to the development of the country, then the government will be able to pay us.

How many proposals have you received so far and which sector obtain maximum fund? What is your commitment towards funding India's infrastructure?
That should be addre¡ssed to your department of Economic Affairs. But the long list is nearly 30 or 40 number of projects. I think the average number of projects we commit every year is 10 and our commitment in the last fiscal fiscal was about $3.1 billion. As far as the sectors are concerned, transportation takes the lion's share followed by water and energy. Energy does not mean generation, but transmission and distribution. Last fiscal year we didn't have any forestry project.

What makes the transportation sector is receive your maximum attention?
The Delhi Metro project showed us a great shining example of bi-lateral cooperation in terms of the technology transfer and the new culture, corporate culture and the new transportation mode in Delhi's people. And you would agree that the metro stations are totally different from the Indian railway stations.

Given the fact that there is a liquidity crunch, how is JICA able to provide loans with such lower interest rates?
No, our terms and conditions of our loan is set by our government. And of course there are several categories applicable to the different level of countries but not like commercial banking or commercial finance. We lend our money on very concessional terms to the less developed countries which totally departs from the commercial bank's behaviour. Our funding strategy means Japanese government bilateral external affairs policy. Historically we started our foreign assistance from the south East Asian countries. So Indonesia used to be the largest recipient and in the 90s China became the largest recipient. But those countries have been developed. And now our bilateral development assistance focus is shifting from east towards north Asia and India has been the largest recipient in the last decade which means as far as the bilateral official development assistance is concerned, this is the centre of our operation.

Will the current market scenario affect your funding pattern in India?
Indirectly financial slowdown may affect the decision making process of some projects like new infrastructure projects. So we may start the new project a little later than the original schedule. Our finance is not limited to the infrastructure but also looks at the forestry and agriculture sector, etc. There are many projects and the decision is purely made based on the fact which even if the project doesn't have much commercial viability, it is very important for the social development or social stabilisation or rural development.

Since the Indian banks are grappling with increase in NPA level every quarter, how JICA has positioned on this front?
Our borrowers are the central government or the state government or a government corporation, so non- performing asset is not our direct problem. But one thing, those borrowers implement a project floating the bids and private sector get the contract and some of the contractors are facing a financial problem. So they can't continue their work and the project has been suspended, not due to the financial crunch but the financial problem of the contractor. So the executing agencies need to repeat it to select a fresh contractor or delay in some projects their business plans needs to be modified because of the delay of the project or some court cases compiled by the contractor side. And it takes a long time. So which means the beneficiary of the project, in many of the cases is the local people, they are kept waiting for the completion of the project because of this financial problem of the major private sector contractor. This is indirect impact caused by the economic slowdown of the financial sector.

What has been your experience with PPP challenges in India?
In India, PPP means, in most of the case, the concession is given to the private sector and we are not asked to finance because private sector propose some profitable scenario or business model to the various state or ministries. The government side is too happy. But in other Asian countries we have with combination of the public finance and private finance funded projects like Bangkok Metro. For the metro in Bangkok, we financed the infrastructure, tunnel and super structures like rolling stock and operation maintenance contracted for the private sector. And we don't touch upon this commercial part but the metro is being operated quite well. Or in the water project in Vietnam, the public sector finance the water purification, the water treatment plant while the sale of the water and distribution are undertaken by the private sector.

This kind of combination or business model we are quite confident….but in India there is no such request or even consultations are not made.

Looking at the infrastructure sector in India how do you see the sector coping with the change of guard at the centre?
Whichever becomes the majority, ruling party or whoever becomes the Prime Minister the infrastructure demand still exists. The Indian government or India needs better Infrastructure for the people, for the investors.

So the medium and long term financing projects continue to be. But I don't know in next fiscal year or this fiscal year, the priority of the local project may be changed with the change in government. But our finance for projects like DMIC or CBIC will see no change.