The Cabinet Committee on Economic Affairs has approved the utilisation of Japanese assistance under the Japan International Cooperation Agency (JICA) through Special Terms for Economic Partnership (STEP) of Japanese official development assistance loans for the Delhi Mumbai Industrial Corridor (DMIC) project and the operational rules, terms and conditions of this tied loan facility.

The Government of India is developing the Delhi Mumbai Industrial Corridor (DMIC) Project as a global manufacturing and investment destination by utilizing a high capacity 1483 Km long western dedicated Freight Corridor as the backbone. The development of industrial cities with world class infrastructure in the DMIC region will attract an estimated investment of around US $ 90-100 billion, while providing employment opportunities for over three million people. The proposal for availing the US $ 4.5 billion facility through a STEP loan is expected to bring in Japanese funding, cutting edge technology and knowhow into projects implemented in DMIC. This would also enable the Japanese companies to establish their manufacturing facilities in India and enable transfer of technology from Japan to India.

JICA will conduct consultation with Japanese companies for a project to be financed by a STEP loan to promote more appropriate formulation and prompt implementation of the project as well as to promote more active participation of Japanese companies. All efforts will be made by JICA/ DMICDC/ Ministry of Economy, Trade and Industry, Government of Japan (METI) to ensure that there is price discovery through participation of a minimum of two companies/ consortia. The conditions of the STEP loan permit that the 30 percent of the goods to be sourced from Japan can be procured from local companies in India, where Japanese companies hold 10 percent or more equity. This will encourage Japanese companies to create joint ventures in partnership with Indian companies and address concerns regarding high cost of goods procured from Japan.

The ODA loan under the STEP scheme is available at an interest rate of 0.1 percent for a repayment period of 40 years covering up to 100 percent of the project cost. The scheme also provides for a moratorium of 10 years. Based on a cost comparison communicated by DMICDC, the ODA loan under the STEP scheme provides for substantial savings, in comparison to other standard ODA loans with interest rates ranging from 0.8 percent to 1.4 percent for a repayment period of 15 to 30 years.

Background

The assistance from JICA under the STEP loan facility will be required particularly for trunk infrastructure projects and transport connectivity projects which may not be commercially viable in their initial stages.

STEP loan financing enables long-term low-interest Japanese ODA support for infrastructure and technology transfer in industrial corridor projects Cabinet approval authorises use of JICA STEP official development assistance loans for DMIC, to fund trunk infrastructure and transport connectivity projects that may lack initial commercial viability. JICA will consult Japanese firms and seek price discovery via participation of at least two companies/consortia. STEP conditions permit that goods otherwise sourced from Japan may be procured from Indian companies where Japanese firms hold significant equity, encouraging joint ventures and technology transfer. The concessional loan covers up to full project cost and features a long repayment tenor and moratorium to reduce financing costs relative to standard ODA loans.