India’s finance minister, Arun Jaitley, made a pitch to foreign investors, urging them to become partners in the country’s infrastructure growth story at the 46th World Economic Forum Annual Meeting, held in Davos in January. He said: “The current [gross domestic product growth] rate of 7% to 7.5% is not our real potential and we have the potential to add 1% to 1.5%. There is still headspace that we have, and I am sure we would be able to reach that.” The minister assured foreign businessmen that the reform process – like the Goods and Services Tax – is on track despite what he called India’s "noisy democracy".
Japan has already pledged investment in India's infrastructure sector. The country made a commitment of $33.5bn following India’s prime minister Narendra Modi’s visit to Japan in September 2014. During a return visit to India in December 2015, Japan’s premier Shinzo Abe honoured that commitment by inking a $15bn deal to build a bullet train between Mumbai and Ahmedabad. Construction will start in 2017, and will be completed in 2023.
Significantly, the Japanese extended virtually free financing for 80% of the bullet train project. According to news agency Reuters, this agreement was made on the condition that India buys 30% of equipment, including the coaches and locomotives, from Japanese firms. The $12bn loan is at an interest rate of 0.1% and is repayable over 50 years. The terms include a 15-year upfront repayment moratorium and include a package of technical assistance and training. Japan gives such loans typically at 1.5% interest for 30 years.
Last year, the Indian government allowed 100% FDI in the country's railways, paving the way for collaboration with global firms for India’s high-speed rail programme. Chinese investments are now expected to pick up. China has been competing with Japan for rail projects in Asia and, in October, it won a $5bn high–speed train deal in Indonesia by offering to finance it without recourse to Indonesia’s government. Moreover, before this in September 2015, China won a contract to assess the feasibility of a high-speed train between Delhi and Mumbai.