Do the maths: India's first bullet train isn't 'free of cost' as Modi claims

Over 50 years, the loan repayment value will be much higher based on the inflation differential

Prime Minister Narendra Modi has claimed the bullet train offered to India by Japan is virtually free of cost. A 50-year yen loan amounting to Rs 88,000 crore at 0.1 % interest is being described by the prime minister as free of cost. This is patently absurd.

India can have as many bullet trains as it wants on these terms from the Japanese, but nobody should be misled into believing they are free. For one, India may have to repay much more than Rs 88,000 crore over a 50-year period because the rupee will most likely depreciate against the Japanese yen over a long period.

Why is this? Simply put, it’s because the exchange rate between the currencies of two countries is determined by their inflation differential. If India’s inflation rate is average 3% over the next two decades and Japan’s inflation rate is zero, as is widely anticipated, then it stands to reason that the rupee must depreciate 3% every year because the rupee’s value is eroding by 3% as against no erosion in the yen. So, the rupee is bound to weaken by over 60% in two decades. This means that on a loan of Rs 88,000 crore, the repayment, in rupee terms, goes up to more than Rs 1,50,000 crore at the end of 20 year

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