Bullet trains: Lessons from Jakarta to Mumbai on debt and development

Indonesia conceived a high speed rail project from Jakarta in Western Java to Surabaya in Eastern Java in 2008. China has taken up the project under its Belt and Road Initiative which is President Xi’s strategy to win friends and extend sphere of influence through soft power. Indonesia chose China over Japan because initially  the Chinese bid did not require government guarantee for its 2% loan, as against Japan’s development bank JICA’s bid with an interest of 0.1% with government guarantee, but with a caveat that technology and equipment must be sourced from Japan. Later, China too asked and got government guarantee, but without reduction in the interest rate. 

The special purpose vehicle (SPV) running the ‘Whoosh’ (bullet trains) has an Indonesian public sector undertaking (PSU) holding 60% equity and a Chinese PSU holding 40% with the project having a debt:equity of 75:25. The first phase of the project  from Jakarta to Bandung—covering a relatively short distance of 145 km that is covered in 45 minutes—has commenced commercial operation in 2023 and has run into losses.   The PSU has incurred a loss of $253 million in the last year and $96 million in the first half of 2025.  

The main reasons are lack of demand and high fares at $15 for this section, which is five times that of the normal train fare. There is a sense of  déjà vu of executing unneeded white elephant projects and making them look viable by overestimating the demand and subsequently getting into a debt trap. With the souring of BRI projects, China is taking over the assets when the target country is unable to pay back. Instead of     winning friends this has made it an enemy of the people of the target country. Examples include, Pakistan, Balochistan province and the Sri Lankan port project and now Indonesia.  

Now, how has India performed in the bullet train project between Mumbai and Ahmedabad? Firstly, it went with Japan, the pioneers of bullet trains. The project seeks to cover a distance of 508 km in two hours and seven minutes with few stops and three hours with stops at 12 stations en route. Close to 80% of the project cost of approximately Rs 1.1 lakh crore is through a soft loan from Japanese development bank JICA at 0.1% interest, with 50 years repayment and a 15 year moratorium. India’s 0.1% rate for the Mumbai–Ahmedabad High Speed Rail is among the lowest-ever offered by JICA to any upper-middle-income country. The total package of interest rate, moratorium and repayment period is even better than IDA loans of World Bank for essential projects in poor countries. However, like the Nano paradox—where the car was meant to be affordable for a poor man, but this noble idea itself turned out to be its undoing—this project’s strength becomes its weakness. It puts India as a receiver of aid and gives lie to the rhetoric of becoming a developed country by 2047. In spite of such attractive financials, the project does not quite clear the bar of financial viability because of high capital cost and ‘ridiculously optimistic’ ridership forecasts (40,000 end-to-end passengers daily in 2023), high ticket fares (of about Rs 3,000) in the presence of competitive air fares (about the same for cheapest air fares) and conventional train fares (for Vande Bharath CC class fare is at Rs 1,210, and it takes five-and-half hours). Moreover, there is a foreign exchange risk, since JICA loan must be repaid in Japanese yen. When rupee becomes weaker than yen,
it must pay more rupees for the same
yen, but the government, which sets prices of public transport, cannot afford to increase the fares in proportion to inflation and as frequently.  

What about economic viability? These address the benefits of time saved, increased productivity and monetising land price appreciation and so on, but no study has quantified these. There is nothing for social viability—where Re 1 benefit received by a poor man is valued at a multiple of Re 1—as the project is for the richer sections of the population.

The project is likely to benefit Gujarath much more than Maharashtra, as is evident from the difference in excitement in the two states about the project.   

So far, Indian Railways has been a glaring contrast with European Railways. IR is characterised by very low fares and very high passenger load factors of 110% (people travelling, hanging out of the train, in Mumbai suburban) and freight traffic subsidising the politically sensitive passenger traffic. IR has also been ceding some 90% of commercial freight traffic to the road, despite lower costs due to huge economies of scale. European railways, by contrast, feature high ticket prices and low passenger load factors. Ironically, the bullet train project seems to nudge India towards this European model--high fares and fewer passengers--holding up ‘developed country’ optics!

(The writer is retired professor
of economics and energy, and RBI
Chair Professor of Infrastructure, IIM-B)