Funding Upswing: Japan’s financing to infrastructure sectors in India

Japan’s financing to infrastructure sectors in India

Japan is one of the largest economies in the world with great technological prowess while India is a resource-rich country with huge growth potential. The India-Japan partnership presents underlying economic benefits for both countries. India, which is trying to develop its infrastructure, requires financial support for its long-gestation projects. Japan, a country with negative interest rates, is looking for investment opportunities which yield higher long-term returns, like India offers.

Amidst unusual volatility in the international economic environment, India stands out as a stable economy offering a host of opportunities. The country registered gross domestic product (GDP) growth of 7.9 per cent in the January-March quarter of 2016 and 7.6 per cent for the fiscal year 2015-16, on account of the government’s pro-growth policies. The fast growth of the economy has placed increasing stress on the country’s physical infrastructure. Japan’s burgeoning role in the Indian economy in terms of official development assistance (ODA), private investment and technical cooperation in infrastructure will underpin government efforts to unlock the infrastructure pipeline.

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Japan International Cooperation Agency (JICA)

India has been a preferred destination for JICA’s financial support for the past couple of years. The agency’s funding activity, in terms of ODA loans and technical assistance, picked up in 2015-16 after a lull in 2014-15. During 2015-16, JICA extended financial assistance of JPY 338 billion, a colossal jump of JPY 293 billion over 2014-15. A total of eight infrastructure projects were funded in 2015-16 as against a meagre two the previous year. The transport sector was the major recipient of ODA loans during the period. Some of the key projects that received assistance were the Dedicated Freight Corridor project, and the Chennai and Ahmedabad metro projects.

Seven of the eight infrastructure projects received ODA loans between January 2016 and March 2016. These are in the urban infrastructure, urban transport, infrastructure finance, railway and power sectors.

Apart from these, JICA has agreed in principle to fund 10 crucial greenfield highway projects in the Northeast, for which India has sought a soft loan of Rs 150 billion. Detailed project reports for these projects have already been approved by JICA. The loan will be provided at a 0.5 per cent interest rate for a period of more than 25 years.

Between 2011-12 and 2015-16, JICA provided JPY 1.19 trillion worth of financial assistance to India’s infrastructure sectors. Funding activity peaked in 2015-16 in terms of loan amount and number of projects. Over the five-year period, the urban infrastructure sector secured the lion’s share of JICA’s funding (32 per cent), followed by urban transport (21 per cent) and power (16 per cent).

The government envisions transforming and modernising the railway sector by introducing bullet trains. One such project, the Mumbai-Ahmedabad high speed rail corridor, has been won by Japan. Estimated to cost over Rs 950 billion, 80 per cent of the project funding will come in the form of a soft loan from JICA for a 50 year period, at an annual interest of 0.1 per cent and a moratorium of 15 years. As per the loan agreement, which is slated to be signed with JICA by end-2016, rolling stock and other equipment like signalling and power systems will be imported from Japan. Construction work is likely to begin by end-2018.

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Japan Overseas Infrastructure Investment Corporation (JOIN)

Upbeat about India’s economic growth potential, the Japanese “government-private sponsored” fund JOIN is keen to explore investment opportunities in the country’s infrastructure space. The fund supports the building of infrastructure through public-private partnership (PPP) arrangements and works in collaboration with Japanese companies, banks, institutions and the government.

JOIN is considering investing in the National Investment and Infrastructure Fund (NIIF), which is likely to play a crucial role in India’s infrastructure development. Japanese institutions are looking at such government-backed institutions to park their funds. The Indian government holds 49 per cent in NIIF and is looking for investors for the remaining stake in the Rs 400 billion fund.

Key initiatives

Make-in-India Fund: Seeking to step up bilateral cooperation, Japan has set up a Japan-India Make-in-India Special Finance Facility of JPY 1.5 trillion (approximately Rs 830 billion). Constituted by Nippon Export and Investment Insurance (NEXI) and the Japan Bank for International Cooperation (JBIC), this financial assistance will be provided for the purpose of contributing to the government’s Make in India initiative, while bolstering direct investment by Japanese enterprises in India, business activities of Japanese subsidiaries in India, and the development of infrastructure to support these enterprises. Meanwhile, India has committed to devising a special package of incentives for attracting investments in the “Japan Industrial Townships” (JITs). The incentive for companies investing in JITs will not be lower than that under the prevailing policy framework for special economic zones and national investment and manufacturing zones.

Private investment: A number of Japanese investors have shown keen interest in being part of India’s “infrastructure growth story”. Japanese telecom and internet conglomerate SoftBank has forayed into the renewable energy segment by unveiling plans to make its first investment in a solar project ($350 million) in India. In June 2015, the company had announced a joint venture, SBG Cleantech Limited, with Bharti Enterprises and Taiwan’s Foxconn Technology Group to generate 20 GW of renewable energy. In the next 5-10 years, SoftBank plans to scale up investments in the country to around $10 billion.

Focus on roads: In a bid to improve road connectivity, India and Japan are planning to enter into a partnership to launch an infrastructure finance company which will provide soft loans for Indian road projects with a credit target of Rs 2 trillion ($30 billion). JBIC will hold 50 per cent equity in the firm on behalf of the Japanese government and the rest will be held by an Indian state-owned entity. It is envisaged that this finance company will give long-term loans (30-40 years) for infrastructure projects in India at an interest rate of 0.5 per cent. Going forward, the Indian government plans to set up a Rs 1 trillion ($15 billion) finance corporation, in collaboration with Japanese investors, to fund projects in the road sector.

Others: Japan, in collaboration with the Asian Development Bank, will provide approximately $110 billion for quality infrastructure investment in Asia till 2021. Besides, both parties have laid stress on establishing a new mechanism, the Japan-India Internet of Things (IoT) Investment Initiative to promote investment in IoT-related ventures.


There are now a host of India-Japan bilateral projects attempting to put flesh to the bones of India’s vision of quality infrastructure creation. They range from the Delhi-Mumbai industrial corridor to building highways and bridges connecting India’s Northeast to Myanmar. Further, under the Japan-India Investment Promotion Partnership announced in 2014, the two countries have initiated a plan for realising JPY 3.5 trillion (about Rs 1.96 trillion) of public and private financing to India by 2019. Besides, Japan’s technical acumen and experience in delivering world-class high speed rail projects will play a crucial role in furthering the development of the railway sector in India.