Suresh Prabhu invites Japan’s Pension Funds to invest in Indian Railways

After US, Japan has the largest market share of pension fund assets across the world with around 12% share

suresh prabhu at meetingNew Delhi: The government has invited Japan’s pension funds to invest in the country’s railways, Railways Minister Suresh Prabhu said on Tuesday, as India tries to raise $140 billion to invest in railway infrastructure in the next five years.

“Japan has a huge pension fund and it can invest in Indian railways for long-term mutual benefits,” Prabhu said while speaking at a conference on India-Japan Economic Relations: Bilateral Dimensions organized by Indian Council for Research on International Economic Relations (ICRIER) in New Delhi.

In this fiscal year, $20 billion will be invested, which will increase in the years to come. “Many global companies plan to invest in India and Japanese companies can also be a part,” he said.

According to Naoyuki Yoshino, dean, Asian Development Bank Institute, part of Asian Development Bank, the overall accumulated size of Japan’s pension funds is 140 trillion yen.

Japan has the second-largest market share of pension fund assets across the world with around 12% share, while the US has the largest share accounting for around 38%, according to research by Towers Watson, a consultancy firm.

Prabhu emphasized that since railways is a government-owned entity, the capital is guaranteed and the returns are also “almost” guaranteed. “Pension liabilities, which are huge for Japan given its ageing population, can be taken care of with the kind of returns that Indian railways can offer,” he added.

On 10 November, the Indian Railways awarded two contracts to General Electric Co. and Alstom to set up diesel and electric locomotive factories, respectively, in Bihar; the estimated cost of the project is about Rs.40,000 crore. This marked the first big foreign direct investment (FDI) in the railway sector. The National Democratic Alliance government in 2014 cleared a proposal to allow 100% FDI in railway infrastructure.

In October, the national transporter received a Rs.2,000 crore loan from the Life Insurance Corp. as part of a memorandum of understanding signed in March this year for financial assistance of Rs.1.5 trillion over the next five years for implementing railway projects.

The minister added that the railways is also looking at cooperation and tie-ups with Japan in terms of railways research and development and safety structures, given that Japan has almost zero accident rate, and assistance in major projects such as dedicated freight corridors and the Kolkata Metro Rail project. “We need many building blocks to build bilateral relations with Japan and railway is one of them,” he said.

Emphasizing on the overall and spillover gains for the economy and mutual benefits for investor countries, the minister added that investments in railways will lift the steel and cement sectors, create employment and even help global companies, including those from Japan, to reap benefits in India. “Japan can create a market for other countries through investing in India,” he said.

Speaking at the ICRIER conference, Japanese ambassador Takeshi Yagi said his country was impressed by India’s policy initiatives, and urged these be put to ground to encourage investments. Japan is well on course to realize 3.5 trillion yen of public and private investment and financing from Japan, as articulated by Japanese Prime Minister Shinzo Abe.

Abe is expected to visit India to attend the annual bilateral summit likely to be held in New Delhi by the end of 2015.

The railway ministry has taken various steps to make investments in railways transparent and has almost reached 100% in terms of e-tendering. On Sunday, Press Trust of India reported the minister as saying that by early next year, all tendering for Indian Railways will be done online.

“By the end of this year, or earliest, in the early part of next year, everything will be on the Internet. All contracts will be on e-tendering platform,” he said. Tendering in the railways used to earlier take sometimes six years, the time gap has been reduced to six months and the target is to reduce it even further and make it completely transparent, he had said.

On Tuesday, Prabhu reiterated that transparency is of utmost importance while moving towards a modernized and safe railway system in the country. The Indian Railway E-Procurement System, an e-procurement platform which was rolled out in 2012, has about 23,000 registered vendors and about 750,000 tenders have been published on the procurement portal, out of which 141,000 tenders have been published in the first six months of the current financial year.

The annual procurement value through e-procurement is at least Rs.50,000 crore.

The railways has also started paperless settlements of tenders by expanding the scope of e-procurement.

The approval of contracts is done electronically and vendors also get the contract acceptance note electronically. A railways spokesperson said that vendors are assured of a transparent system not only in submission of their offers but also in viewing the tabulated offers of all bidders.

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