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Bullet Train Project Can Create $51 Billion Business for MSME
Dec 25, 2015

According to a report, the proposed Rs. 98,000-crore Mumbai-Ahmedabad bullet train 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 Micro Small and Medium Enterprises (MSME) sector.

  • If the government makes 30 percent mandatory sourcing from Micro Small and Medium Enterprises for these projects, it can create a $51 billion window of opportunities for the sector.

  • A whopping $168 billion will be spent over the next 10 years, if the projects go as planned. 

  • This 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 percent 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 percent 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 percent of the fabricated metal producers gaining, while for non-metallic producers (12.5 percent), special purpose machinery makers (12.1 percent), textile companies (8.9 percent) and close to 8 percent 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. Currently, the GCF for the MSME segment is only $52 billion.

  • These projects can help MSMEs gain an additional 3.7 percent 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 percent to MSMEs' debt shortfall over the next 10 years. Despite this there will still be an additional debt gap of $19 billion for them.

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

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.


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