New Delhi: The ambitious project to build a dedicated rail freight corridor running down a western corridor from New Delhi to Mumbai was put back on the tracks by the Union cabinet on Thursday, when it approved a Rs17,700 crore conditional loan from Japan to help build it.

The western corridor is one-half of a marquee infrastructure project first conceived in 2005 by the first United Progressive Alliance government. It comprises two lines being constructed by the railways to transport goods and will connect India’s largest port in Mumbai to Delhi through the western corridor (1,483km) and link Dankuni in Bihar with Ludhiana in Punjab through the eastern freight corridor (1,806km).

The plan to build these two freight lines was derailed after the government was unable to resolve funding issues and the terms of Japanese assistance.

The financial assistance from Japan will start with funding a rail line, which will run on the western arm of the corridor between Rewari in Haryana and Vadodara in Gujarat.

“The Japanese overseas development assistance is going to be (a) soft loan with an interest of only 0.2% per annum with a long repayment period of over 30 years and a moratorium of 10 years," said information and broadcasting minister Ambika Soni while addressing journalists after the cabinet meeting.

The loan comes with certain conditions—all prime contractors must be Japanese firms, while nearly one-third of the total contracts should go to Japanese companies.

Some government departments have in the past questioned the conditions, saying acquiring Japanese equipment for even a portion of the corridor could mean India would have to use similar equipment for the rest of the project.

“This (the dedicated freight corridor) was there for the last two-three years. But it had some conditions and I think there was some disagreement between the railways (and other departments). It could have a major impact because if the project gets off, it’s not only that the freight gets faster, but also the Delhi-Mumbai industrial corridor will get a fillip because you can’t have an industrial corridor without a freight corridor. Also, while there will be other forms of financing needed, the fact that anchor financing is available will make a difference," said Arvind Mahajan, an executive director with audit and consultancy firm KPMG’s advisory services.

The western corridor will be financed through a debt to equity ratio of 2:1, with debt being raised from bilateral and multilateral sources such as the Asian Development Bank and the World Bank.

The railways too will also contibute to the project funding.