The US$15 billion deal clinches three years of negotiations and reflects the deepening relationship between India and Japan stemming from the personal relationship between Prime Minister Narendra Modi and Mr Abe. Shared investment objectives and a mutual apprehension about China's expansionism are pushing the two nations closer together.
The proposed 505-kilometer railway will link India's financial capital of Mumbai with Ahmedabad, a major economic and industrial hub in Modi's home state of Gujarat. Japan is offering about $12 billion of the 980 billion-rupee ($14.6 billion) cost, Mr Modi said. The 50-year loan will carry an interest rate of 0.1 percent and a 10-year grace period, according to a copy of the agreement.
The deal comes after Japan lost out to China on a $5 billion rail deal in Indonesia in October. Along with the rail agreement, Mr Modi and Mr Abe signed accords on nuclear energy cooperation and defense equipment and technology transfers.
Despite losing the contract, China still dominates trade with both nations. Japan's trade with India is about 5 percent of its commerce with China, and less than a quarter of India- China trade.