$168bn Bullet Train: a game changer for MSMEs

India has one of the largest rail networks in the world, but needs a massive upgrading of the transportation system to keep up with high-speed trains.  (picture Indiarailinfo.com/gallery).

A massive US$168 billion would be spent over the next 10 years if and when the Indian government’s Bullet Train plan is executed, according to SMERA Ratings Limited.
These calculations incorporate the Mumbai- Ahmedabad High Speed Corridor, said the authoritative agency, a joint initiative of Small Industries Development Bank of India (SIDBI), Dun & Bradstreet Information Services India Private Limited (D&B) and leading public and private sector banks in India.
“The project not only has the potential to showcase technological progress of the country but also could change the Micro Small and Medium Enterprises (MSME) landscape of India in terms of technology absorption and innovation,” it said.
However, there will be an additional debt requirement of US$19 billion over and above the current debt shortfall faced by MSMEs in India.
During the course of the project, a 30% offset clause in favour of MSMEs, can unleash nearly US$51 billion for the sector.
SMERA assesses that collectively 28% of India’s MSMEs operating in sectors such as special purpose machinery, fabricated metal products and printing among others will be directly or indirectly influenced by this mega program.
With the additional money stock circulating in the system due to cheap bilateral credit from partner countries such as Japan and China, access to debt should ideally be easy for the MSME sector – provided there is innovative financing facilities.
As per SMERA analysis, if India were to take 10 years to lay down 6,000 km of high speed rail network, the per kilometre cost will be US$28 million. This figure consists of the costs pertaining to both the rolling stock and construction activity. Involvement of manufacturing based MSMEs in the project will create immense value for the sector in terms of aiding the Gross Capital Formation (GCF).
SMERA estimates that currently, the GCF for the MSME segment is US$52 billion, which is an important indicator of the extra value created over existing fixed assets.
Equivalent of 3.7% of the annual manufacturing MSME GCF can be attributed to the cheap additional debt made available through the project.
This will create value in terms of innovation and capacity utilization in the sector – depending on how efficiently credit is deployed.
“The Bullet Train project will have far reaching effects in terms of technology diffusion across the value chain, helping India make an immense leap. The Central Government’s initiative will have a ripple effect on the MSME sector, strengthening India’s capabilities in line of the Make in India plan,” said  Sankar Chakraborti, CEO, SMERA Ratings.
In terms of the viability and timing of the bullet train project, SMERA estimates that at US$1,600 per capita income, India is as a matter of fact in a better position than Japan – when it got its first Series 0 Shinkansen in 1964.
As per SMERA analysis, Japanese inflation adjusted per capita income (in present day money terms) was only US$1,346, when the first bullet train was introduced between Tokyo and Osaka.
“We believe that such ambitious infrastructure projects are value multipliers and can create tremendous forward and backward linkages for the MSME sector,” said the agency.
“Equivalent of 3.7% of the annual manufacturing MSME GCF can be attributed to the cheap additional debt made available through the project. This will create value in terms of innovation and capacity utilization in the sector – depending on how efficiently credit is deployed,” said Karan Mehrishi, Lead Economist, SMERA Ratings. fii-news.com