What prompts Japan to continue with its unwavering low-cost financial support, running into billions of yen, to promote the development goals of a country like India for decades? The assistance helps India’s poor gain access to a certain minimum standard of living. At a bigger level, however, this is also part of a strategy to maintain and improve ties with other nations, Shinichi Yamanaka, chief representative of Japan International Cooperation Agency (JICA) in India, tells Sudheer Pal Singh in an exclusive interview. Edited excerpts:
What is the broad philosophy under which JICA extends assistance to India? How does the model of financing work and how has it been impacted after the Fukushima nuclear disaster?
JICA extends financial and technical support to developing nations under the official development assistance, or ODA. In India, we have around 100 projects and we regularly monitor these. JICA’s ODA loan is a concessionary low-interest and long-term loan. And for this assistance, JICA uses the government of Japan’s general account [tax payers’ money] as well as the borrowings from the government’s loan programme. So, the model follows a mixture of the two sources. The Fukushima incident has only delayed JICA’s assistance to nations. It has not had a major impact since almost all of our commitments are met through dedicated funding streams.
Does the tax payer in Japan understand and support the aims of ODA? How does Japan benefit from this?
Yes, the Japanese tax payer supports our initiative. ODA is an important tool for the government of Japan to maintain good relations with other countries. Also, since Japan does not have huge mineral resources like oil and gas, we have to depend on trade relations with other countries. Otherwise, we cannot survive. So, ODA is also a tool to maintain our presence internationally. Our model of assistance benefits both sides.
Typically, in India, we have been focusing on infrastructure development for over a few decades. This includes projects in transport, energy, water resources, environment and also support to rural areas for poor people. Of course, this benefits the Indian economy. But, at the same time, Japanese companies are now evincing interest in India. But the poor infrastructure situation is a big bottleneck. Focusing on infrastructure will help increase FDI [foreign direct investment] in the Indian economy, especially from Japan.
Standard & Poor’s (S&P) has cut India’s rating outlook from stable to negative. How confident is JICA about India’s profile as a nation in which it is parking huge debt assets? Does this not cast doubts on the repayment capacity of Indian companies?
The credibility of a country is one of the factors that decide financing aspects. But considering the purpose of our financing, this help is extended to developing countries and not the developed ones. So, despite the cut in rating outlook, our operations and plans will not be affected. We are supporting countries with similar and lower ratings. For example, in this region, we are also supporting Bangladesh, Nepal, Sri Lanka and Pakistan. So the purpose of financing itself is development.
Owing to this outlook downgrade, foreign borrowing could become difficult and costly for Indian entities. Don’t you think this is an opportunity for you to raise interest rates for your loan to the Delhi Metro Rail Corporation (DMRC)?
I do not think so. Our interest rates are based on the GNI [gross national income] per capita of the borrowing countries. This has nothing to do with ratings. We are not a private bank. Our purpose is development.
There is currently a perception that a policy paralysis is holding back reforms in India. Is that a concern?
We are a bit worried about this since it affects project implementation. Project implementation takes time here. But I think this is because of the bureaucracy. However, I believe in the Indian bureaucracy and I believe it would not be affected by the recent alleged scandals. S&P’s outlook downgrade is a short-term decision but we see our projects getting implemented over the long term. I believe that the Indian economy and politics will develop and improve further. The long-term view is positive. But, of course, it is necessary to address the corruption issue and improve the financial situation.
What gives you this confidence in the India story?
The main reason is India’s population structure. There is a huge presence of young people here. This is a very great advantage for the economy compared to advanced countries. This is very important. We are sure to see an increase in labour potential in this country.
JICA has gradually decreased its assistance to DMRC as a percentage of the overall project cost. Is this because JICA is not confident about DMRC’s repayment ability?
The percentage contribution to DMRC funding by JICA decreased from 60 per cent in the first phase to 55 per cent in the second phase and to 50 per cent in the third phase. So, on average, our contribution has remained at a half of the overall funding. In fact, it is the other way round. Because we are sure about DMRC’s own financing ability, we could reduce our commitment. This is because we thought DMRC could take more borrowing commitments on its own.
But DMRC’s cost of construction has almost doubled to around Rs 300 crore in the third phase from Rs 160 crore in the first phase. More assistance from JICA could have helped.
Both DMRC and JICA came to a consensus that the increased cost burden has to be shared among all stakeholders. And, finally, we decided on a model that will entail 50 per cent funding from JICA and the rest from the Indian government. Also, DMRC’s financial position is not bad. And we have considered the EIRR [economic internal rate of return] for the project that includes the social benefits of the project.
DMRC has been indicating that in the absence of an increase in fares, the company is just managing to survive. Given the fact that the increase in rail fares is a politically-sensitive decision in India, are you not worried about your loan assets turning bad in the near future?
The management of the fare structure is important in terms of affordability to passengers and the financial sustainability of the project. It should be revised appropriately from time to time. We would like this fare fixation mechanism to be properly implemented. We do not want to intervene in any management issue of DMRC. We are only looking at it from a broad point of view. With regard to our loan assets, the financial credibility is secured by the government since the borrower is the government, not DMRC. So, repayment is not a worry, what matters is the sustainability of the project.
What is the current status of JICA’s funding of the third phase of DMRC?
We are providing around 50 per cent of the overall project cost of about Rs 35,000 crore. So far we have sanctioned Rs 7,922 crore. This is at an interest rate of 1.4 per cent. We see this rate remaining almost the same going forward, though this rate is revised every year. We will decide the amount and timing of the next loan depending on the progress of the project implementation. This is the first commitment. Two to three years later, we will come again, do an appraisal and decide on our commitment. Overall, JICA’s commitment to India is expected to jump to 300 billion Japanese yen in this financial year.