Will Bullet trains be financially viable in India?

Ahmedabad: The proposed bullet train between Mumbai and Ahmedabad will have to ferry 88,000-118,000 passengers per day, or undertake 100 trips daily, for the Railways to keep it financially viable, according to a report by Indian Institute of Management Ahmedabad ( IIM-A).

The report, titled, "Dedicated High Speed Railway (HSR) Networks in India: Issues in Development," states that if the Railways set the ticket price at Rs 1500 for 300-km drive per person fifteen years after the operation, it will have to ferry between 88,000 and 110,000 passengers every day to ensure that it repays the loans with interest on time.

Japan has offered a concessional loan of Rs 97,636 crore to fund about 80 percent of the project cost with a repayment period of 50 years beginning from the 16th year of operation at an interest rate of 0.1 percent. 

For the remaining 20 percent loan, the authors assume 8 percent average rate of interest (on Rs 20,000 crore to be funded by Centre). Japan has offered a 15-year moratorium on loan, so revenue concerns for the Indian Railways will arise from the 16th year, the authors state in the paper.

The total distance covered by the train will be 534 kilometres.

The paper has been jointly authored by faculty members G Raghuram, professor of the institute's Public Systems Group, and Prashanth Udayakumar.

Fifteen years after the bullet train becomes operational, while the actual operating cost is not known, the paper assumes two scenarios by pegging operating cost at 20 per cent and 40 percent of revenue.

"So if the Railways earn Rs 100 revenue, Rs 20 or Rs 40 will go for maintenance, and remaining surplus money will go for cash payment of loan with interest. Now, to cover the loan with operating cost in two scenarios, we consider passengers travelling an average 300 kilometres.

In this case, we will need 88,000-118,000 passengers respectively for both the scenarios," Raghuram said.

"Typically one train carries 800 passengers, so to carry 88,000 passengers daily, you will need to take a total 100 trips, or 50 trips each way. So, we need three trains every hour in each direction," he said.

As per the paper, "there are many positive benefits and externalities of the HSR which would be useful in India's overall aspirational development."

"These externalities include technology percolation into other domains, economic development, game-changing sense of connectivit and national pride due to cutting-edge infrastructure. 

"In such a context, it is a good idea to begin and learn," the paper states as it draws on experiences of running HSR in countries such as Japan, China, Spain, France, Russia, among other countries.

 "The Mumbai-Ahmedabad route is a good choice for the first route, since it connects India's first and seventh most populous cities, with significant economic development in the 500-km corridor between them. Also, the low cost Japanese financing has been a great catalyst." 

In terms of future network growth, this segment can be part of extension to Jaipur and Delhi, it states