Two infrastructure projects in South Asia were built on the promises of East Asian trading partners and on extensive lines of credit. Though both are characterized by extensive delays, why is one celebrated as an important step forward towards infrastructure modernization, and the other derided as “debt-trap diplomacy”? In Gujarat, India’s preparations for a high-speed train project to connect Ahmedabad and Mumbai are well underway, albeit significantly delayed, based on a debt agreement between Japan and India. Approximately 2,000 miles away, across the Palk Strait, the completion of the Hambantota International Port, financed by commercial loans from Chinese-owned banks, led to consternation when those loans could not be repaid. Much has been written about the Hambantota port – both as a curse and a boon for Sri Lanka. This essay adds to the conversation by comparing and contrasting it with India’s bullet train project. This essay explores the contours of both deals, highlighting the differences in debt terms, political rhetoric surrounding the projects, and their foreign policy implications.
The debt terms of both projects highlight important differences. Japan offered India “a soft loan” of 79,00,00 crore rupees (103 billion USD), approximately 80% of the project, on the favorable interest rate of 0.1%, allowing for a 50-year tenure, and a 15-year moratorium period. The port, however, was built on a “$307 million, 15-year commercial loan with a four-year grace period” and a 6.3% interest rate. The lines of credit for both projects drew both domestic and international attention. The low interest rate that Japan offered to India has been repeatedly highlighted by Prime Minister Modi as a political achievement. In contrast, the high interest rates offered by China are cited as the primary reason for Sri Lanka’s subsequent default on the port, leading to an eventual sale of controlling equity and a 99-year lease on the port.
Political Rhetoric and Foreign Policy Motivations
For both countries, the infrastructure projects were, at their inceptions, viewed as straightforward wins. Even when infrastructure projects are delayed and above-budget, as with both the train and port, they serve a different goal: supporting malleable political promises. Politicians are inherently myopic; their promises are characterized by the ebbs and flows of election cycles. In contrast, infrastructure and transportation projects are distinguished by their multi-year plans.
In India, the bullet train was incorporated into Modi’s signature Make In India campaign, and it is unsurprising the line was built to connect Ahmedabad in his native state of Gujarat with Mumbai, India’s biggest financial center. At the inauguration of the train’s construction, he spoke about “his own Ahmedabad.” There are questions too, about whether these projects are needed or essential at all – serving to boost GDP measures and political aspirations, but not contributing to true development. Mahendra Rajapaksa, Prime Minister of Sri Lanka, was born in Hambantota, and building the port there fulfilled his earlier campaign promises about development. In Sri Lanka, the port project outlasted the government that promised to repay the debt. The bullet train may do the same. The next scheduled general election in India (to elect the federal government) is May 2024, and the latest estimate for a fully operational project is October 2028.
Both projects tap into narratives about modernization and economic progress. Speeches made during the inauguration of construction in Ahmedabad spoke about the role trains had played in Japan’s economic progress. The Hambantota port was seen as crucial in terms of both foreign policy and economics, allowing Sri Lanka to more closely align itself with China in opposition to India. The port was also seen as crucial to an image of an advanced maritime economy. Criticisms of both projects point to their lack of commitment to true inclusive development. For example, the India-Japan deal leaves open the question of whether crucial technology transfers are included. Delays in the project can also be attributed to protests by farmers whose lands were appropriated for the project. Similar issues plagued the Hambantota port, which saw frequent violent protests during its construction.
The story of India’s train and Sri Lanka’s port poses important questions for cross-sovereign-financed infrastructure projects, particularly in low- and middle-income economies. Since the Indian project is far younger than Sri Lanka’s, and is separated by Japan’s comparatively less expansionist foreign policy as compared to China, it remains to be seen whether these differences will lead to success. These projects are particularly ill-suited to the political process because they outlast election cycles, and leave nations holding the bill long after the politicians who promised repayment have moved on.