New Delhi: Japan, which has agreed to lend $4.5 billion (about Rs 25,110 crore) to the ambitious Delhi-Mumbai Industrial Corridor (DMIC) project aimed at building industrial cities, has asked India to allow Japanese state-owned agencies to bear the exchange-rate risk to provide rupee loans to Indian entities.
Currently, yen loans by Japanese agencies are converted into rupees by an intermediary Indian bank, which charges a premium as the loan has to be repaid in yen and the bank bears the exchange-rate fluctuation risk.
Japanese state-owned agency, the Japan Bank for International Cooperation (JBIC), has said it is ready to bear this exchange-rate fluctuation risk and will lend the rupee equivalent of the yen loan. The government has formed a committee under economic affairs secretary R. Gopalan to look into the matter as the proposal needs clearance from both the finance ministry and the Reserve Bank of India, two government officials said, speaking on condition of anonymity.
JBIC will lend $3 billion, while another $1.5 billion will be provided through official development assistance by the Japan International Cooperation Agency (JICA) to DMIC over five years. The finance ministry has agreed to give a 26% stake to JBIC in the DMIC development corporation, a special purpose vehicle (SPV) to vet the project proposals.
“The proposal will reduce the cost of the funds for DMIC as the intermediary bank charges 3.5-4% interest rate,” one government official said.
The official said a positive outcome is expected from the Gopalan-led committee as such a dispensation has already been allowed to the Asian Development Bank and the International Finance Corporation.
A JBIC official in the Indian office refused to comment on the matter.
The joint statement issued by both the countries during the visit of Japanese Prime Minister Yoshihiko Noda to India in the last week of December said: “In order to effectively utilize the facility and to facilitate investments by Japanese companies, India will endeavour to resolve issues within the existing regulatory framework and guidelines of capital regulations, and an inter-departmental consultation mechanism will also be established by India to provide expeditious solutions to issues raised by Japan during the course of implementation of the DMIC project.”
Cherian Thomas, chief executive officer, IDFC Foundation, said such a move would benefit DMIC.
DMIC proposes to develop what it calls self-sustainable smart cities on either side of the 1,483km-long western dedicated rail freight corridor between Dadri in Uttar Pradesh and Jawaharlal Nehru Port Trust in Navi Mumbai.
DMIC will run across six states—Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Gujarat and Maharashtra—and a majority of the projects in the corridor are envisaged to be implemented through public-private partnerships.
It is touted to be the largest infrastructure project in the world, with an estimated $90-100 billion required only to set up the infrastructure over the next 30 years.
The cabinet, at a 15 September meeting, approved Rs 17,500 crore over five years for providing assistance through debt or equity to the SPVs and for the development of trunk infrastructure in the industrial cities along DMIC. The cabinet also approved financial assistance of Rs 1,000 crore over five years for further project development activities.