Bullet train projects: A $51 bn gold mine in making for MSMEs

According to a report, if the projects go as planned then the face of MSMEs will be changed in terms of technology

The proposed Rs 98,000-crore Mumbai- Ahmedabad bullet project along with the diamond quadrilateral project that seeks to build 6,000 km of high-speed rail network, can create a whopping $51 billion business opportunity for the MSME sector, says a report.

If the government makes 30% mandatory sourcing from Micro Small and Medium Enterprises for these projects, it can create a $51 billion window of opportunities for the sector, according to the report by domestic agency Smera Ratings.

A whopping $168 billion will be spent over the next 10 years, if the projects go as planned, it said, adding that they can change the face of MSMEs in terms of technology absorption and innovation, apart from creating a large channel of funding opportunities for them.

Collectively 28% MSMEs in the special purpose machineries, fabricated metals and printing among other sectors will gain from these mega projects, provided the government makes it mandatory to source 30% of inputs from them through an offset clause. If so, this can unleash nearly $51 billion for the sector.

Citing the MSME ministry's assessment, the report said that such an offset clause will see over 24% of the fabricated metal producers gaining, while for non-metallic producers (12.5%), special purpose machinery makers (12.1%), textile companies (8.9%) and close to 8% structural metal producers gaining.

This will be achievable provided the projects involves manufacturing MSMEs in the project,which can create immense value for the sector in terms of aiding the gross capital formation (GCF), an important indicator of the extra value created over existing fixed assets, says the report, adding currently, the GCF for the MSME segment is only $52 billion.

These projects can help MSMEs gain an additional 3.7% of their annual manufacturing GCF due to the cheap additional debt made available through the projects.

In terms of fund needs, the bullet train network can potentially add 1.5% to MSMEs' debt shortfall over the next 10 years, the report said, adding despite this there will still be an additional debt gap of $19 billion for them.

While many analysts have questioned the viability of the Mumbai-Ahmedabad bullet train project, the report estimated that at $1,600 per capita income, the country is better placed than Japan which rolled out its first Shinkansen (bullet train) in 1964 between Tokyo and Osaka, when its per capita income was only $1,346.

Japan has agreed to fund $12 billion to the project at 1% interest for a 30-year tenor.