Prime Ministers Narendra Modi, Shinzo Abe arrive in Varanasi

In terms of liabilities, he said that the Japanese side was assured of the efficacy of the liability solutions that India had found earlier in the year. Shared investment objectives and a mutual apprehension about China’s expansionism are pushing the two nations closer together.

Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe witnessing the Ganga aarti in Varanasi, Uttar Pradesh on Saturday, December 12, 2015.

“This enterprise will launch a revolution in Indian railways and speed up India’s journey into the future”, said Modi, who has pledged to overhaul India’s ramshackle railways and other infrastructure.

Starting the day with a meeting with business leaders, the warmth between the two “friends” was visible when Modi and Abe used the Bullet Train (Shinkansen in Japan) as an analogy to praise each other.

Japan has offered what is being described as a “highly concessional loan” at an interest rate of 0.1 per cent with repayment of over 50 years and a moratorium for 15 years.

Japan also made a decision to provide opportunity to 10,000 young Indian youths in Japan under students exchange programme.

Though the much awaited nuclear deal between the two nations still remains a work in progress, Japan has now agreed to the principle that it can conclude a civil nuclear cooperation agreement with India, making an exception to its rule of not conducting nuclear commerce with a state that is not a signatory of the Nuclear Non-Proliferation Treaty (NPT). He said the “Japan Plus” initiative that was begun past year as a policy experiment, is also doing well. Components to be manufactured in India include rolling stock, equipment and machinery. For the Indonesian project, China Development Bank provided three quarters of the required $5.5 billion funding.

Ahead of the announcement, Chinese Ministry of Foreign Affairs spokeswoman Hua Chunying (華春瑩) was asked if China might lose because its loans were too costly.

The two countries also signed agreements on military intelligence and the transfer of defense technology to manufacture weapons in India.

Modi added, “I know the significance of this decision for Japan”.

A feasibility study was completed in July, co-financed by Indian Railways and Japan International Co-operation Agency, and it is envisaged that implementation could take seven years and cost Rs976·36bn.

Japan recently lost out on a contract to create a high-speed railway in Indonesia to China. Beijing has, of late, repeatedly thwarted Modi’s ambitions to expand India’s regional influence, unveiling one blockbuster infrastructure project after another in and around India, thus shrinking his room for manoeuvre. However, the rising profile of the Indo-Japanese relationship also needs to be seen in another context. “In terms of putting up cold hard cash for the signature programs of the Modi government, it’s the Japanese companies and government”.

The signing of such an accord would enable India to import Japanese nuclear technology and services. The two countries stopped short of signing a deal, citing technicalities. Though the capital inflows are satisfactory, the fact that large part of these were foreign portfolio flows remained a matter of concern, they said.

In this regard the two PMs underlined the need for all countries to effectively deal with trans-national terrorism emanating from their territory and called for stronger worldwide partnership including increased information and intelligence sharing. “It will become an engine of economic transformation in India”. China has been opposed to India, Japan and the USA, which are outside the South China Sea region, voicing their opinion about the island dispute.

At their summit in Tokyo past year, both leaders agreed to elevate bilateral relations to a “special strategic and global partnership”.