Japan 'steps' down to boost funding of DMICDC project PDF Print E-mail
Wednesday, 01 January 2014 11:12
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STEP loans terms liberalised further to get finmin nod for $4.5-bn DMICDC loan

In a significant concession to India, the Japanese government has agreed to further liberalise the terms of the Special Terms for Economic Partnership (STEP) loans given for various projects including the Delhi-Mumbai Industrial Corridor Development Corporation (DMICDC). Under the original terms of the loan (see box), 30% of the project cost must be spent on goods and services from Japanese companies. What the Japanese government has now agreed to is to include in this 30% even goods and services from joint ventures in India in which Japanese firms have a 10% or more stake.


· Normal interest rate 1.4%, 10-year moratorium on repaying principal, 30-year loan

· STEP loan interest rate 0.1%, 10 year moratorium on repaying principal, 40-year loan
· STEP loans are tied, 30% of project costs must be procured from Japanese firms
· This 30% will now include goods manufactured by JVs in India in which Japanese firms have a 10% equity
· STEP loans cost around half the non-STEP ones


This addresses a major concern of the Indian government that there are not enough Japanese companies to choose from in a project, as a result of which the bids tend to be not competitive.

The issue of STEP loans, $4.5 billion of which was committed as the first tranche for the DMICDC’s ambitious Rs 3,25,000-crore first phase, has become a big stumbling block with the finance ministry opposed to it on grounds the bidding will no longer be competitive.

When commerce minister Anand Sharma first raised the issue with finance minister P Chidambaram in May 2013, he pointed out that there was little question of the Japanese consortia overcharging India just because part of the aid was tied. Sharma said that in the case of the dedicated freight corridor — the western part is funded by the Japanese and the eastern by the World Bank — the Japanese bids were a bit lower. Department of industrial policy and promotion secretary Saurabh Chandra took up the issue again with economic affairs secretary Arvind Mayaram in November but no decision has been taken on this as yet and, in between, a meeting was also held by principal secretary Pulok Chatterjee.

Among the suggestions made by the commerce and industry ministry — extending the 30% clause to include goods produced by Indian joint ventures with a 10% Japanese stake was one of them — is to ensure that there will at least be two Japanese consortia that will bid for each part of the project and, if need be, the size of the projects on offer can be reduced to ensure there is greater participation. The commerce ministry has also proposed the civil works component of projects could be excluded from the STEP commitment.


Since the terms of the STEP loan have not been finalised, DMICDC is not using Japanese funds at the moment, and is using funds released by the government.


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