NEW DELHI - The government Thursday approved a Japanese soft loan for the Rs.26,124 crore ($5.4 billion) dedicated railway freight corridor stretching 1,483 km from Navi Mumbai to the national capital, an infrastructure project that has been described as iconic.

The cabinet today (Thursday) approved the proposal for availing Japanese ODA (overseas development assistance) for implementing the western corridor of the DFC (dedicated freight corridor) project, Information and Broadcasting Minister Ambika Soni told reporters after a cabinet meeting chaired by Prime Minister Manmohan Singh.

The first phase of the assistance is estimated at Rs.17,700 crore for the Rewari-Vadodara section. To start with, an engineering services loan of approximately Rs.130 crore will be received, Soni added.

The western DFC will stretch from the Jawaharlal Nehru Port Trust in Navi Mumbai to Dadri in Uttar Pradesh on the capital’s outskirts through Maharashtra, Gujarat and Rajasthan.

The loan comes at a very low interest of 0.2 per annum, a long repayment period of 30-40 years and a moratorium of 10 years, Soni said.

Under the terms of the loan, the prime contractors for the project must be Japanese firms.

Joint ventures with firms incorporated and re-registered in recipient countries are also allowed to be prime contractors, provided a Japanese firm is a lead partner. Sub-contractors may be from any country, Soni pointed out.

This apart, not less than 30 percent of the total amount of contracts (excluding consulting services) financed by the loan must be accounted for by goods and services from Japan.

The western DFC is an important infrastructure project recently identified as an iconic project to be specially monitored,” Soni said.

By connecting the raw material production areas with the consumption centres and linking both to major ports, DFC will positively impact overall growth rates and efficiency in the Indian economy.

Further, the Delhi-Mumbai industrial corridor (DMIC) coming up along the western DFC will have a multiplier effect on industrial production, employment generation and development of the region as whole, she added.

Indian Railways have decided to develop the western and eastern DFCs along its busy trunk routes to augment the transport capacity and meet the growing requirements of moving freight.

The two DFCs are one of the most ambitious projects Indian Railways has ever taken up. Once completed, they would meet the transport requirement of the two busy trunk routes for the next 15 to 20 years, an official statement said.

The eastern DFC, the modalities for which are being worked out, will extend 1,806 km from Ludhiana in Punjab to Dankuni near Kolkata. It will be extended in future to serve the new deep sea port in the Kolkata area and to largely serve coal and steel traffic.