yojna july 2009
TRANSCRIPT
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YOJANA July 2009 1
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J 2009 Vo 53
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AGENDA FOR INCLUSIVE GROWTH .................................. 5
PRIVATE PARTICIPATION IN
INFRASTRUCTURE SECTOR IN INDIA ....................... ......... 7Ravi Mital
J&K WINDOW .................................................................... 12
SEA PORTS : HARBOURING GROWTH ....................... ....... 13
A P V N Sarma
NORTH EAST DIARY ........................................................ 16
NATIONAL HIGHWAYS : THE PATH AHEAD .................... 17
V K Sharma
MARKET-BASED FINANCING OF URBAN
INFRASTRUCTURE ............................................................... 21
Chetan Vaidya
SUSTAINING URBAN INFRASTRUCTURE................. ....... 28
Usha P Raghupathi
SHODH YATRA A 'DROPOUT INNOVATOR ................... 31
IRRIGATION IN INDIA ........................................... ............... 34
Surinder Sud
DO YOu KNOW?................................................................. 37
ULTRA MEGA POWER PROJECTS ...................... ............... 38
Umesh Kumar Shukla
BEST PRACTICES WATERSHED FOR
INTEGRATED RURAL DEVELOPMENT ............. ................42
AIRPORTS SECTOR TAKING OFF ....................................... 45
D C Mehta
HEALTH INFRASTRUCTURE IN RURAL INDIA ........... ... 48
Urmilesh Singh
BOOK REVIEW URBANIzATION AND
SOCIAL TRANSFORMATION ........................ ....................... 51
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2 YOJANA July 2009
YE-7/09/05
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YOJANA July 2009 3
Abot the Isse
F
ew subjects in the policy debate have created as much convergence of interestsas the topic of infrastructure development. Anybody who takes more than just
a passing interest in the state of affairs of the economy will be convinced that
infrastructure development is vitally necessary.
Having said that, it equally true there are fewer areas where the plans have proved
so difcult to execute. It is not a simple case of weakness in the rate of execution
of government plans, whether at the state or at the centre. The challenges for
developing infrastructure have stymied even the best intentions of the private sector
too. The challenges are on all fronts. The key challenge is of course is generating
resources to nance the projects, as infrastructure plans invariably demand huge
expenditure. The Prime Minister led committee on infrastructure has estimated
that it would take an investment of about Rs 25,00,000 crore ($500 billion) in the next ve years. To put
that number in perspective, it is three fourth the sie of our annual GDP. But as of now we are able to spendnot more than 3 to 4 % of our GDP for investment in infrastructure. This means we have to mobilise a huge
amount of resources from the nancial sector.
The other issue is the subject of returns from such investment. The public would be hard pressed to pay
for all the bridges, water pipelines, roads and the true cost of electricity that developers would expect them
to pay. But without such an assurance it becomes difcult for even government departments to raise such
investments. In this context, the government and other agencies have to demonstrate to the public the necessity
of such payments and yet be ready to partially pay for some of the costs from the exchequer.
We have already seen the benets of good infrastructure. It is impossible to imagine the trafc chaos that
would have resulted if the metro had not become operational in Kolkata and now in Delhi. Mumbai is racingagainst time to develop one such system and other cities are following suit. The development of the telecom
sector has become so widespread that we may not realise that the success of the IT industry in India was
made possible by it. But on the darker side, several key investments that can create employment and income
across the country are not happening because of the lack of reliable power supply and of decent roads that
can carry the produce of the farms and the industry from the producers to the markets in other states.
So we need to nd the answers to these questions fast and in good time. The ensuing budget will be
expected to answer many of these questions for the economy; answers that will also tell us how fast the
economy develops on the growth path. In this issue therefore we take a detailed look at several of these topics
and try to find answers to them. q
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YOJANA July 2009 5
PrESidENT SPEakS
In 2004 my Government hadset before the country a visionof an inclusive society and
an inclusive economy. It workeddiligently towards translatingthis vision into policies andprogrammes . My Governmentsees the overwhelming mandateit has received as a vindication ofthe policy architecture of inclusionthat it put in place. It is a mandate
for inclusive growth, equitabledevelopment and a secular andplural India. My Government isdetermined to work harder andbetter to realie these goals.
My government i s acu te lyconscious of the challenge ofrising expectations. There wouldbe ten broad areas of priority formy Government for the next veyears.
l Internal security and preservationof communal harmony :
l Stepping up of economic growthin agriculture, manufacturingand services;
l Consolidation of the existingf lagship programmes for employment, education, health,rural infrastructure, urban
renewal and introduction of newagship programmes for food
security and skill development;
l Concerted action for the welfare
of women, youth, children, other
backward classes, scheduledcastes , scheduled t r ibes ,
minorities, the differently-
Agenda for Inclusive Growth
abled and the elderly along withstrengthened social protection;
l Governance reform;
l Creation and moderniation
of infrastructure and capacity
addition in key sectors;
l Prudent scal management;
l Energy security and environment
protection;
l Constructive and creativeengagement with the world
and
l Promotion of a culture of
enterprise and innovation.
My Government will intiate steps
within the next hundred days on thefollowing measures:
l Early passage of the Women'sReservation Bill in Parliament
p rov id ing fo r one - th i rd
reservation to women in State
legislatures and in Parliament;
l Constitutional amendment toprovide 50 percent reservation
for women in panchayats and
urban local bodies. Women
suffer multiple deprivationsof class, caste and gender
and enhancing reservation in
panchayats and urban localbodies will lead to more womenentering the public sphere;
l Concerted effort to increase
representation of women in
central government jobs;
l A Na t iona l Mis s ion on
Empowerment of Women for
implementation of women-centr ic programmes in a
mission mode to achieve better
coordination;
l A voluntary national youth corps
which could take up creative
social action around the river
cleaning and beautification
programme beginning with the
river Ganga;
l Restructuring the BackwardR e g i o n s G r a n t F u n d ,
which overlaps with other
development investment ,
to focus on decentralied
p l a n n i n g a n d c a p a c i t y
building of elected panchayat
representatives. The next
three years would be devoted
to training panchayat raj
functionaries in administering
agship programmes;
l A public data policy to place
all information covering non-
strategic areas in the public
domain. It would help citiens
to challenge the data and engage
directly in governance reform;
l Increasing transparency and
public accountability of NREGA
by enforcing social audit and
ensuring grievance redressalby se tt ing up di st rict leve l
ombudsman;
l S t r e n g t h e n i n g R i g h t t oinformat ion by su i tab lyamending the law to providefor disclosure by government inall non-strategic areas;
(This is an extract from the address of President of India Smt. Pratibha Devisingh Patil to the Parliament. We bring
extracts relating to priority areas, agenda for 100 days and plans for infrastructure as outlined in the address.)
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6 YOJANA July 2009
l S t r e n g t h e n i n g p u b l i caccountability of flagshipprogrammes by the creationof an Independent EvaluationOffice at an arm's distancefrom the government catalysedby the Planning Commission.
It would work on a networkmodel by collaborating withleading social science researchorganiations and concurrentlyevaluate the impact of agshipprogrammes and place it in thepublic domain;
l Establishing mechanisms forperformance monitoring andperformance evaluation ingovernment on a regular basis;
l Five Annual Reports to bepresented by governmentas Reports to the People onEducation, Health, Employment,Environment and Infrastructureto generate a national debate;
l Facilitating a Voluntary TechnicalCorps of professionals in allurban areas through JNNURMto support city development
activities;l Enabling non government
organisations in the area ofdevelopment action seekinggovernment support througha web-based transaction on agovernment portal in which thestatus of the application will betransparently monitorable;
l Provision of scholarships andsocial security schemes through
accounts in post offices andbanks and phased transition tosmart cards;
l Revamping of banks and postoffices to become outreachunits for financial inclusioncomplemented by businesscorrespondents a ided bytechnology;
l Electronic governance through
Bharat Nirman common service
centres in all panchayats in thenext three years;
Infrastructure is a fundamentalenabler for a modern economyand infrastructure developmentwill be a key focus area for thenet ve years.
P u b l i c i n v e s t m e n t i ninfrastructure is of paramountimportance. Bottlenecks anddelays in implementation ofinfrastructure projects because ofpolicies and procedures, especiallyin railways, power, highways,ports, airports and rural telecomwill be systematically removed.Public-private partnership (PPP)projec ts are a key element ofthe strategy. A large number ofPPP projects in different areascurrently awaiting governmentapproval would be c learedexpeditiously. The regulatory andlegal framework for PPS would bemade more investment friendly.My Government will continue itsspecial emphasis on infrastructuredevelopment in the North-East andJammu and Kashmir and enhance
connectivity to these regions.
Our fellow citiens have everyright to own part of the shares ofpublic sector companies while thegovernment retains majority share-holding and control. My Governmentwill develop a road-map for listingand people-ownership of publicsector undertaking while ensuringthat government equity does not fallbelow 51%.
My Government is firmlycommitted to maintaining highgrowth with low inf la t ion,particularly in relation to prices ofessential agricultural and industrialcommodities. It will steadfastlyobserve scal responsibility so thatthe ability of the Centre to investin essential social and economicinfrastructure is continuously
enhanced.
Coordinated action for energywould be guided by the integrated
energy policy. The effort would
be to see that at least 13 ,000
MW of generating capacity is
added each year through a mix
of sources coal, hydel, nuclear
and renewables. Village and ruralhousehold electrification and
reduction in aggregate technical
and commercial losses wil l
continue to be given the highest
priori ty. Compet iti veness and
efficiency in the power sector
will be enhanced through time-
bound measures , includ ing
operationalising the provision of
open access.
The pace of oi l and gas
exploration will be intensied and
India's oil diplomacy aggressively
pursued. Reforms in the coal sector,
for which a detailed blueprint has
been prepared, will be pursued
with urgency. The international
civil nuclear agreements will
be operationalised with various
countries even as domestic sources
of uranium are exploited and work
continues on the indigenously
designed fast breeder and thorium
reactors.
My Government will ensure
that our space programme which
has achieved wide recognition
continues to bring rich dividends
to society in agriculture, tele-
medicine, tele-education and byproviding information to rural
knowledge centres, besides
contributing to telecommunication,
television broadcasting and
weather forecasting. Several
innovative initiatives commenced
by government in the science
and technology sector in the
last five years and now under
implementation will be further
strengthened. q
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YOJANA July 2009 7
Private Participation in Infrastructure
Sector in India
iNfraSTruCTurE
H E N A T I O N A L
Development Council
(NDC) in its meeting held
on May 20, 2006 passed
the following resolution:
Recognising that improvement
in physical infrastructure has
emerged as a common priority and
increased private participation hasnow become a necessity to mobilie
the resources needed to achieve
its expansion and upgradation,
the NDC observed that successful
promotion of private participation
in infrastructure requires a well-
designed framework of policies in
which investors have the assurance
that standards of services will be
maintained and concession will
be tr ansparent ly awarded and
directed the Central Government
to work towards evolving such a
framework, which could be adopted
by the States.
The Eleventh Five Year Plan
recognies that adequate, cost-
effective and quality infrastructure
T
The author is Adviser (Infrastructure), Planning Commission, New Delhi.
The Eleventh
Five Year Plan
recognizes that
adequate,
cost-effectiveand quality
infrastructure is
a pre-requisite
for sustaining the
growth momentum
Ravi Mital
is a pre-requisite for sustaining
the growth momentum and that
investment in physical infrastructure
would have to be increased from
about 5 per cent of GDP during the
Tenth Plan (2002-07) to 9 per cent
of GDP by the terminal year of the
Eleventh Plan period (2007-12).
The investment in infrastructureduring the Tenth Plan was Rs.
887,842 crore which constituted
5.07 per cent of GDP. This included
Rs 1,75,203 crore (2006-07 prices)
of investment by the private sector.
To overcome the infrastructure
decit, the Government has planned
for an investment in infrastructure
of Rs.20,56,150 crore during the
Eleventh Plan period which would
imply an investment of 9 per cent
of GDP in the terminal year of
the Plan (2011-12). This includes
public sector investment of Rs.
7,65,622 crore in the Central sector
and Rs. 6,70,937 crore by the
States. It is envisaged that the
private sector would invest Rs.
6,19,591 crore, including through
OVErViEw
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8 YOJANA July 2009
attractive to investors and also seen
to be fair to consumers, especially
since many infrastructure projects
have an element of monopoly.
This calls for an environment in
which either the market itself is
competitive, giving consumers a
choice among different suppliers, asin the case of telecommunications
or freight container carriers; or
concessions are given to the
most competitive bidders in an
environment where regulatory
system limits user charges to
reasonable levels and regulations
set appropriate standards of service
as in the case of airports, ports and
roads.
The Eleventh Plan has also
made an assessment of the decit
in various infrastructure sectors
and set quantitative targets for these
sectors. These targets are given
below:
Policy initiatives to promote
private participation
With a view to encouraging thedevelopment of infrastructure in
general and private participation in
infrastructure sectors in particular,
a number of initiatives have been
taken by the government. These are
outlined below:
Committee on Infrastrctre
(CoI)
The Committee on Infrastructure(CoI) was constituted in 31st August,
2004 under the chairmanship of
Prime Minister. Its members
include the Finance Minister,
Deputy Chairman Planning
Commission and the Ministers in-
charge of infrastructure ministries.
The objective of COI is to initiate
policies that would ensure time-
bound creation of world class
Figre 1 : Investment in Infrastrctre
Figre 2: Infrastrctre Investment as a per cent of GDP
PPPs, during the Eleventh Plan
period. This is 30 per cent of the
projected total investment during
the Eleventh Plan, as compared to
20 per cent realised during the Tenth
Plan. The amount of investment in
infrastructure and infrastructure
investment as a percentage ofGDP are shown in Figures 1 and 2
respectively.
Infrastructure development
is capital intensive and requires
huge resources. However, public
resources available for investment in
physical infrastructure are limited,
as social sectors have a priority
in the allocation of budgetary
resources. The strategy for the
Eleventh Plan encourages private
sector participation directly as
well as through various forms of
PPPs where desirable and feasible.
It is expected that as in the case
of telecommunications sector,competition and private investment
will not only expand capacity but
also improve the quality of service
in Indian infrastructure.
Achieving high volumes of
private investment in infrastructure
is not easy. It is necessary to develop
an environment which is both
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YOJANA July 2009 9
infrastructure, developing structures
that maximie the role of PPPs, and
monitoring the progress of key
infrastructure projects to ensure that
established targets are realised. The
COI has also initiated institutional,
regulatory and procedural reforms.
The CoI is serviced by the Planning
Commission through the Secretariat
for CoI. It held several meetings andgave direction to the entire policy
framework for accelerating the
growth in infrastructure sectors.
Empowered Sb-Committee of
CoI
With a view to facilitating
the functioning of the CoI, an
Empowered Sub-Committee of
the Committee on Infrastructure
(ESCOI) was constituted on 16th
May 2005. The main objective
of constituting this empowered
committee was to accelerate
formulation, review and approval
of policy papers and proposals for
submission to CoI; monitoring and
follow up on implementation of the
decisions of CoI; and undertaking
such other actions as may be
necessary in furtherance of the
objectives of CoI.
Pblic Private Partnership
Appraisal Committee (PPPAC)
With a view to streamlining
and simplifying the appraisal and
approval process for PPP projects, a
Public Private Partnership Appraisal
Committee (PPPAC) has been
constituted consisting of Secretary,
Department of Economic Affairs
as Chairman and Secretaries of
Planning Commission, Department
of Expenditure, Department of
Legal Affairs and the Administrative
Department concerned as members.
The project proposals are appraised
by the Planning Commission and
approved by PPPAC. Until March
2009, the PPPAC has approved 94
projects involving an investment of
Rs.84,406 crore.
Viability Gap Fnding
Recognising that externalities
engendered by infrastructure projects
can not always be captured by project
sponsors, a Viability Gap Funding
(VGF) Scheme was notied in 2006
to enhance the commercial viability
of competitively bid infrastructure
projects which are justified by
economic returns, but do not pass
standard thresholds of financial
returns. Under the scheme, grantassistance of upto 20 per cent of
project capital costs is provided
by the Central Government to PPP
projects undertaken by the Central
Government, State Government,
Statutory entities and local bodies,
thus leveraging budgetary resources
to access a larger pool of private
capital. An additional grant up to
20 per cent of project costs can beprovided by the sponsoring Ministry
or State Government. Upto March
2009, 139 projects, were approved
with a total capital investment of Rs.
1,19,041 crore.
Empowered Commit tee /
Instittion
An institutional framework
comprising an inter-ministerial
Infrastructure Decit and Eleventh Plan Physical Targets
Sector Decit Eleventh Plan Targets
Roads/
Highways
65590 km of NH comprise of
only 2% of network; carry 40%
of trafc; 12.4% 4-lanes; 50%
2-lanes; and 38% single-laned
6-lane 6500 km in GQ; 4-lane
6736 km NS-ES; 4-lane 20000
km; 2 lane 20000 km; 1000 km
Expressway
Ports Inadequate berths and rail/road
connectivity
New capacity:485 m MT in
major ports; 345 m MT in minor
ports
Airports Inadequate runways, aircraft
handling capacity, parking space
and terminal buildings
Modernie 4 metro and 35
non-metro airports; 3 greeneld
in NER; 7 other greenfield
airports.
Railways Old technology; saturated
routes; slow speeds (freight:22
kmph; passengers:50 kmph);
low payload to tare ratio (2.5)
8132 km new rail; 7148 km
guage conversion; modernie
22 stations; dedicated freight
corridors.
Power 1 3 . 8% p ea ki n g d e fi c it ;9.6% energy shortage; 40%
transmission and distribution
losses; absence of competition
Add 78577 MW; access to allrural households
Irrigation 1123 BCM utiliable water
resources; yet near crisis in per
capita availability and storage;
only 43% of net sown area
irrigated.
Develop 16 mha major and
minor works; 10.25 mha CAD;
2.18 mha ood control
Telecom/
IT
Only 18% of market accessed;
obsolete hardware; acute human
resources shortages
Reach 600 m subscribers
200 m in rural areas; 20 m
broadband; 40 m Internet
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10 YOJANA July 2009
Empowered Committee has been
established for the purpose of
appraising and approving projects
for availing of the VGF upto 20 per
cent of the cost of infrastructure
projects undertaken through PPP.
It has approved 44 projects in the
State Sector and 1 project in the
central sector involving a capital
investment of Rs. 34,635 crore till
March 2009.
India Infrastrctre Finance
Company Limited (IIFCL)
India Infrastructure Finance
Company Limited (IIFCL) was
set up as a non-banking company
for providing long-term loans forfinancing infrastructure projects
that typically involve long gestation
periods. The IIFCL prov ides
nancial assistance up to 20 per
cent of the project cost both through
direct lending to project companies
and by refinancing banks and
nancial institutions. Upto one-
half of the lending by IIFCL can
also be in the form of subordinateddebt, which often serves as quasi-
equity. IIFCL raises funds from
both domestic and overseas markets
on the strength of Government
guarantees. Upto March 2009,
IIFCL has raised Rs.15,700 crore.
It has approved 88 projects with a
total investment of Rs. 1,47,092
crore of which IIFCL lending will
be Rs.18,720 crore. It has disbursedRs. 4,891 crore upto March 2009.
Of the 88 projects sanctioned by
IIFCL, nancial closure has taken
place in 78 projects involving an
investment of Rs. 1,15,689 crore.
Advisory Services
Implementation of PPP projects
requires appropriate advisory
services in terms of preparation of
project agreements, structuring of
projects, etc. Planning Commission
has operationalised a scheme for
technical assistance to project
authorities by way of appointing
consultants for them. The Ministry
of Finance has also created an India
Infrastructure Project DevelopmentF u n d ( I I P D F ) t o p r o v i d e
development expenses, including
cost of engaging consultants for
PPP projects.
Foreign Direct Investment
100 per cent Foreign Direct
Investment (FDI) under automatic
rou t e i s pe rmi t t ed fo r a l l
infrastructure projects.
Tax Exemption
The Government has provided
several incentives such as tax
exemption and duty free imports
of road building equipment and
machinery to encourage private
sector participation. Also, 100 per
cent exemption on income tax is
available for a period of 10 years.
Model Docments
PPP projects typically involve
transfer or lease of public assets,
de l ega t i on o f Gove rnmen t
authority for recovery of user
charges, operation and/or control
of public utilities/services in a
monopolistic environment and
sharing of risk and contingentliabilities by the Government. The
terms of the project agreements
as well as the bidding process
for award of concessions are
usually complex because of
the nature of the risks and the
involvement of many participants
in PPPs including project sponsors,
lenders, Government agencies, and
regulatory authorities. The use of
standard documents streamlines
and expedites decision-making by
the authorities in a manner that is
fair, transparent and competitive.
The CoI has, therefore, mandated
the adoption of model documents
such as concession agreements and
other bid documents for award ofPPP projects. All projects that are
based on such documents benet
from fast-track appraisal and
approval
As par t of the aforesaid
initiatives, Model Concession
Agreements have been published for
national highways, state highways,
Operation & Maintenance ofhighways, Operation of Container
Trains, Non-metro airports, Urban
Rail Systems, Greeneld Airports,
re-development of Railway Stations,
new port terminals and a long-term
procurement-cum- maintenance
contract.
Standardised guidelines and
model documents that incorporate
key principles relating to the bidprocess for PPP projects have also
been developed. Guidelines for
the pre-qualication of bidders
along with a Model Request for
Qualication document have been
approved by the CoI for application
to all PPP projects. Guidelines for
inviting nancial bids on the basis
of a Model Request for Proposal
Document (RFP) have also beenapproved and published. Similar
model documents for procuring
the services of consul tants
and advisers have also been
published.
Other reform initiatives
CoI has identified several
areas for reform of processes and
guidance to project authorities. The
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YOJANA July 2009 11
following Reports and Guidelines
were nalised under the aegis of
CoI.
Guidelines for Financial Support
to PPPs in Infrastructure (VGF
Scheme)
Guidelines on Formulation,
Appraisal and Approval of PPP
Projects (PPPAC)
S c h e m e f o r F i n a n c i n g
Infrastructure Projects through
the India Infrastructure Finance
Company Ltd. (IIFCL)
Report of the Task Force on
the Delhi-Mumbai and Delhi-
Howrah Freight Corridors
Report of the Committe e
of Secretaries on Road Rail
Connectivity of Major Ports
Report of the Core Group
on Financing of the National
H i g h w a y s D e v e l o p m e n t
Programme
Report of the Task Force onFinancing Plan for Airports
Report of the Inter-Ministerial
Groups on Customs Procedures
and Functioning of Container
Freight Station and Ports
Report of the Task Force on
Financing Plan for Ports
Manual of Specications and
Standards for Two-Laning of
Highways through PPPs
Manual of Specications and
Standards for Four-Laning of
Highways through PPPs
Report on Restructur ing of
NHAI
Guidelines for Pre-Qualication
of Bidders (RFQ) for PPP
projects
Model Request for ProposalDocument (RFP) for PPP
projects
An Approach to Regulation in
Infrastructure
Institutional Mechanism for
Performance Monitoring of PPP
projects
Guidelines for Selection of
Consultants
Independent Reglators
The Eleventh Plan vision
of private investment in the
infrastructure sector will require
significant improvements in
the quality of governance. The
Government has consti tuted
i n d e p e n d e n t r e g u l a t o r s i n
the power, telecom and civilaviation sectors. Tariffs in the
port sector are also fixed by
an independent authority. The
role of independent regulators
is particularly evident in the
infrastructure sectors where
economic policy changes have
led to a shift from the earlier
system, where infrastructure
was provided almost exclusivelyby t he publ i c s ec to r, t o a
system where private suppliers
o f i n f r a s t r u c t u r e s e r v i c e s
are actively encouraged. For
initiating further improvements
in the regulatory structures and
prac tices, the government has
approved a paper titled Approach
to Regulation, which has since
been published by the PlanningCommission. q
(E-mail : [email protected])
YOJANAForthcoming
Isses
Agst 2009
&
September 2009
Yojana will bring you the Budget 2009-10 in its August 2009 issue. Along with budget highlights,
there will be articles from sector experts on how the budget is likely to impact certain important
sectors.
The September 2009 issue of Yojana will be devoted to the Education Sector in India what have been
the major policy initiatives in this area, our important milestones and the challenges we are faced with.
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12 YOJANA July 2009
J&k wiNdOw
Ban on polythene soon in the Valley
Bamboo sector to get boost
The government had decided to implement the law, which bans the use of polythene. The law would
be initially implemented in some specic areas of the Valley like towns, notied areas and tourist
places.
The government, is also looking to introduce the jute and paper bags, which would serve as an alternative
to the polythene.
The J&K Agro Industries in collaboration with an Italian rm were developing the biodegradable jute
bags and government had already provided Rs 20 lakhs for it. The ban would be effective when the jute bags
are manufactured locally and made available to people.
The government is also committed to restoration the Dal Lake and other water bodies. An Anti-
pollution rally was held recently and a eet of rafting boats, canoes and motorboats participated in the
river Jhelum. The event was a part of the campaign to create awareness among masses about preserving
the water bodies. Polythene is a biggest source of pollution. It has destroyed water bodies which arethe back bone of tourism. q
(Courtesy : The Greater Kashmir)
The state government of J&K has submitted a proposal worth Rs. 7.58 crore under National Bamboo
Mission to the Union Ministry of Agriculture to promote growth of bamboo sector in the State.
Out of the approved programme of Rs. 2 crore, Rs. 50 lakh were received for implementing the
programme during the year 2008-09. Bamboo Mission Programme was extended to J & K in 2008-09 scal
and is being implemented through Departments of Agriculture, Social-Forestry, State Forest Research Institute
(SFRI) and the Forest Department.
The objective of the Mission is to envisage marketing of bamboo and bamboo-based handicraft, development
and dissemination of technologies through a seamless blend of traditional wisdom and modern scientic
knowledge, as well as generate employment for skilled and unskilled labourers.
The major focus of the programme is to establish bamboo nurseries, training of farmers and eld
functionaries, establishment of Kissan and Mahila Nurseries, management and improvement of existing
bamboo forest and plantations.
Five centralied nurseries, three mahila nurseries and four kissan nurseries have been established by various
departments to produce bamboo seedlings for plantation during the coming monsoon. This step is expected
to cover both forest and non-forest area including agricultural lands.
About 40 farmers and eld functionaries were sent for training at FRI, Dehradun. In the meeting,
SBSC approved annual programme for the year 2009-10 for Rs. 727.35 lakh, which will be sent to the
Union Ministry of Agriculture for its consideration. q
(Courtesy : The Greater Kashmir)
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YOJANA July 2009 13
Sea Ports : Harbouring Growth
iNfraSTruCTurE
NTERNATIONAL TRADE
is the cornerstone of global
economy. Exchange of
goods amongst countries
widens the choice of supply
and ensures that production takes
place where it is the cheapest and
the best. This is reected in the
intensication of globalization and
the fact that world trade is growing
faster than the world output. World
trade relies on cheap and secure
transport. Seaborne trade plays a
key role in this context since an
estimated 90% of global trade by
weight takes place by seaborne
mode. As trade grows, the demand
for maritime transport also grows.
Ports are economic and serviceprovis ion un it s of remarkable
importance since they act as
points for the interchange of
two transport modes- maritime
and land, either rail or road.
Ports are Indias gateways to the
world. Indias coastline of about
7517 Kms is spread on the western
and eastern shelves of the mainland
I
The author is Secretary (Shipping), Ministry of Shipping, Road Transport & Highways,
With initiatives
being taken for
development of
ports it is hoped
that the port sector
would be able to
meet the challenges
of the international
trafc demand and
match world class
standards
A P V N Sarma
as also along the sea islands. The
coastline is studded with 12 Major
Ports besides 200 Non-Major
Ports. While the major ports come
under the administrative purview
of the central government, the
responsibility for the development
and management of the non-major
Ports rests with the respective
maritime states/ union territories.
The 12 Major por t s a re
at Kolkata/Haldia, Paradip,
Visakhapatnam, Chennai, Ennore,
Tuticorin, Cochin, New Mangalore,
Mormugao, Mumbai, Jawaharlal
Nehru Port at Nhava Sheva, and
Kandla. Port Trust Boards have been
set up for the administration, control
and management of 11 of these 12
ports, except Ennore Port, which
has been incorporated as a company
under the Indian Companies Act,
1956. The Department of Shipping
under the Ministry of Shipping
and Road Transport and Highways
in the Government of India is
responsible for the development of
the major ports with the objective of
ViSiON
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14 YOJANA July 2009
providing necessary and adequate
cargo handling capacity to meet
Indias EXIM trade requirement, a
major portion of which is borne by
the sea route.
There has been a tremendous
increase in the trafc handled byIndian ports in the last ten years.
The trafc increased at a CAGR of
7.4% from 227.26 MT in 1996-97
to 463.78 MT in 2006-07. In the
10th Plan the trafc increased at a
CAGR of 10 % from 287.59 MT in
2001-02 to 463.78 MT in 2006-07.
The non-major ports handled 185
MT in 2006-07 which was 28%
of the overall sea borne trade. In
spite of the global slowdown, the
cargo carried by major ports in
2008-09 was 530.35 MT which is
higher by 2.1% in comparison to the
cargo of 519.3 MT carried during
the nancial year 2007-08. There
has been an impressive growth
in the cargo related to fertiliers,
thermal coal, petroleum, oil and
lubricants.
Development Initiatives
The increase in trafc requires
a concomitant increase in capacity
of the ports. Accordingly, the
capacity of major ports is planned
to be enhanced to 1016 million
tonnes per annum (MTPA) to cater
to a projected trafc of 708 MTPA
under the Eleventh Five Year
Plan. Major ports have identiedprojects covering the entire gamut
of activities, namely, deepening
of channels/berths, construction
and reconstruction of berths/
jetties, oating jetties, rail and road
connectivity projects, procurement,
upgradation and moderniation of
equipment and other schemes
in order to meet the capacity
requirement. The Government
has also put in place a scheme
for private sector participation
in major ports for handling bulk,
break bulk and multipurpose and
specialied cargo, warehousing
and public storage facilities, dry
docking and ship repair facilities.
In addition, all the 12 major portshave formulated Port Business
Plan, with a 20 years perspective
, as well as Action Plan for a
seven year period with a view to
transforming them into ports with
world class facilities. The total
proposed outlay for the Eleventh
Plan period for the major ports is
Rs.17551.24 crores, of which the
Gross Budgetary Support (GBS)component is Rs.2056.98 crores.
In view of the resource constraint
in the public domain, active
public private partnership (PPP) is
envisaged for the purpose. Private
sector investment is anticipated to
the tune of Rs.36868.24 crores.
To encourage private sector
participation, it is essential to have
an enabling policy framework.The Department of Shipping has
already put in place an independent
tariff regulator to take care of the
interests of all the stake holders. A
new Model Concession Agreement
(MCA) has been approved by the
government, bringing in several
refinements and improvements
over the earlier Model Licence
Agreement of 2000. The tariffsetting mechanism has also been
modified with tariffs being set
upfront before the projects are bid
out on a revenue sharing basis.
Guidelines in this regard have
already been issued. New Model
Bidding documents vi. Request
for Qualication and Request for
Proposal have been approved by
the government.
A N a t i o n a l M a r i t i m e
D e v e l o p m e n t P r o g r a m m e
(NMDP) has been finalied to
implement specic programmes/
schemes. Under the Programme,
specific projects to be taken up
for implementation over a dened
period have been identied. Totalinvestment involved under the
Programme is Rs.1, 00,339 crores.
Out of this, Rs. 55,804 crores are
for the Port Sector and the balance
is for the Shipping and Inland
Water Transport Sectors. In the
Major Ports, 276 projects have
been identified for inclusion in
the Programme. These projects,
to be taken up over a period upto2011-12 will be implemented in
phases. Out of these, about Rs.34,
505 crores are expected from private
sector mainly in commercially
viable projects like development
and operation of berths, terminals,
etc. Public funds will be principally
used for creation of common
user infrastructure facilities.
The objective is to upgrade and
modernie the port infrastructure
in India which will enable it to
benchmark its performance against
global standards. Some projects
included in the Programme have
already been completed whereas
a number of projects are under
implementation.
Major Projects
Some of the important projectswhich have been successfully
completed are:
Development of additional
link road from port junction to
the industrial by pass road at
a Cost of Rs.114.00 crore at
Vishakhapatnam;
Crude Oil Handling for Kochi
Reneries Ltd. at Cochin Port
with total cost of Rs.743.60
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YOJANA July 2009 15
crore resulting in capacity
addition of 7.50 MT;
Redevelopment of Bulk Terminal
into Container Terminal at JN
Port, Nhava Sheva with a cost
of Rs.1078.00 crore , resulting
in a capacity addition of 15.60
MT;
Construction of 12th Cargo
Berth & setting up of state-of-
art -Container Terminal through
BOT at 11th &12th Cargo Berth
at a Cost of Rs.446.77 crore at
Kandla, with a capacity addition
of 7.20 MT;
Setting up of marine terminal
by M/s. VOTL at Vadinar for
M/s.Essar Oil Ltd. At a cost ofRs.750.00 crore and capacity
addition 12.00 MT;
Development of a Marine Liquid
Terminal to handle LPG, POL,
Chemicals and other liquids at
Ennore Port Cost Rs.200.00
crore; Capacity 3 MT;
Some of the important projects
in progress are:
Deepening of channel to handle
1, 25,000 DWT vessels - Cost
Rs.253.36 crore and 4 laning
of road from Chandikhole to
Paradip NH-5A Cost Rs.442.00
crore at Paradip Port.
Development of a Coal Terminal
to handle coal for users other
than TNEB Cost Rs.300.00
crore; Capacity 8 MT and
Development of an Iron OreTerminal Cost Rs.350.00
crore; Capacity 12 MT at Ennore
Ports Ltd.
Dredging the Dock Basin and
Channel Cost Rs.538 crore at
Tuticorin Port.
I n t e rna t i ona l Con ta ine r
Transhipment Terminal (ICTT)
Cost Rs.2118.00 crore; Capacity
12.50 MT at Cochin Port.
Construction of two off-shore
container terminal. Development
of two container berths of total
quay length of 700 mtrs. and
related upgradation for handling
vessels of 6000 TEUs capacity.
Cost Rs.1228.00 crore; Capacity
9.6 MT at Mumbai Port
Challenges
The tremendous growth in
EXIM trade will put an enormous
pressure on the port infrastructure.
To ensure that the Indian exports
remain competitive, it is essential
that the transaction costs are
reduced. The efficiency at the
Ports is being improved througha judicious use of information
technology by implementing web
based electronic data interchange
at all Major Ports between various
stake holders such as shipping lines/
agents, banks, customs, etc. with
matching backend computerisation
in the Ports and discontinuance of
manual exchange of documents,
modernisation of equipments,training for Port employees and
modern management practices
The main problems being
faced in port operations relate to
congestion at the berths, lack of
proper storage facilities and the
problem of draught due to which
the modern large size vessels nd
it difcult to call at the Indian ports.
Despite having adequate capacityand modern handling facilities, the
average turnaround time was 3.85
days during 2008-09, compared
with 10 hours in Hong Kong; this
undermines the competitiveness
of Indian Ports. Since ports are not
adequately linked to the hinterland
the evacuation of cargo is slow
leading to congestion. To this end,
all port trusts have set up groups
with representatives from NHAI,
the railways and State Governments
to prepare comprehensive plans
aimed at improving road-rail
connectivity of ports. The NHAI
has taken up port connectivity as
major component of NHDP. An
efcient multi-modal system, whichuses the most efficient mode of
transport from origin to destination,
is a prerequisite for the smooth
functioning of any port. It involves
coordinating rail and road networks
to ensure good connectivity between
ports and the hinterland. While
capital dredging in Major Ports is
being undertaken to increase the
draught availability in the entrance/approach channels it is still a major
issue impacting the passage of
large sie vessels. Recogniing
the criticality of having adequate
draught at the seaports, several
projects have been identied in the
NMDP for Deepening of channels
for improvement in draughts.
Ports security is an area of deep
concern for the government as wellas the Port Trusts. In view of the
terrorist activities in Mumbai last
year, several steps have also been
taken to improve the security along
the coastline. The Ports have been
directed to install VTMS devices
and all maritime states have been
directed to re-visit their security
plans and set up Marine police
stations and take other measures
to maintain an effective round theclock surveillance of the Ports.
With all such initiatives being
taken for development of ports and
for improving their efciency it is
hoped that the port sector would be
able to meet the challenges of the
international traffic demand and
match world class standards. q
(E-mail : [email protected] )
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16 YOJANA July 2009
Mizorams potential in carbon trading
Mizoram has been identied as a state having huge potential in carbon trading, thanks to its vast
forest reserve. The Mioram Industries Department has teamed up with Electronic Test and
Development Centre (ETDC), Union government, Guwahati and Mumbai-based Intrux System
Pvt. Ltd. to calculate carbon footprint in Mioram.
Mioram has a huge potential for carbon trading. Currently, the ETDC will calculate the carbon footprint
in Mioram. This will determine their Participation in the carbon trading.
Carbon footprint is the total set of GHG (greenhouse gas) emissions caused directly and indirectly by
an individual, organisation, event or product, Mioram manages to be the greenest state in India despite the
large-scale deforestation through the jhum cultivation. With 88.34 per cent forest covered area, against the
national average of 33 per cent, Mioram has the largest forest in India. Of the 88.63 per cent forest, as much
as 58.72 per cent is open forest.
Carbon credits are awarded to countries or groups that have reduced their green house gases below their
emission quota, Carbon credits can be traded in the international market at their current market price. In India
Orissa, has already earned revenues from carbon trading while in the Northeast, Mizoram is the rst state to
take such initiatives.
The Carbon credit system was ratied in conjunction with the Kyoto Protocol. Its goal is to stop the
increase of carbon dioxide emissions. For example, if an environmentalist group plants enough trees to reduce
emissions by one tonne, it will be awarded a credit. If a steel producer has an emissions quota of 10 tonnes,
but expects to produce 11 tonnes, it could purchase this carbon credit from the environmental group. q
(Courtesy : The Sentinel)
North east diary
Self-help grops enabling women to earn in Tripra
Women members elected
to the village council
in Tripura have taken a
lead in paving the way for a large
number of poor women to becomeself-reliant. This has been made
possible by these enterprising
women representatives by setting
up Self-Help Groups (SHGs),
which generate allied productive
vocations for the poor families.
One such self-help group
consists of 11 women and right
from making incense sticks and
packaging to marketing is being
done all by women. Another 200
women work under them and
have become self employed and
earn for their families by makingincense sticks which are made out
of raw natural materials available
locally.
Although the Self Help Groups
exist only at the village level,
the fact is that these women
members of the village councils
have played a stellar role in
empowerment of women and
also in poverty alleviation atthe grass roots.
Apart from creating variedvocations, the Self-Help Groups
have also been active in otherspheres such as education,drinking water and communityhealth programmes. The self-helpGroups have also been instrumentalin the construction of link roadsin the villages including buildingculverts across streams and other
rivulets. q
(Courtesy : The Sentinel)
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YOJANA July 2009 17
National Highways : The Path Ahead
iNfraSTruCTurE
N F R A S T R U C T U R E
D E V E L O P M E N T i s
absolutely critical for Indias
economic growth and for
sustainable development.
Building world class infrastructure
is a pre-condition for attaining a
sustained growth of 7% to 8%per annum, which is needed to
improve the quality of life of
the citiens. Road connectivity
holds the key to infrastructural
development, especially for a
country of such vast proportions
as India. The share of road in total
trafc is growing everyday. The
rapid expansion and strengtheningof the road network, therefore,
is imperative, both to provide
for present and future trafc and
for improved accessibility to
the hinterland. In addition, road
transport needs to be regulated
for better energy efciency, lesser
I
The author is General Manager (Environment & Press Relations), National Highways Authority of India
Successful
completion of
such mega
projects would
require pro-
active supportof various
Central/State
Government
Departments and
other stakeholders
V K Sharma
pollution and enhanced road
safety.
At about 3.3 million kilometers,
India has the second largest road
network in the world. Of this, the
highway network accounts for
about 2 %, with a total length of
66,754 km, but carries about 40%of the total traffic. At present,
14% of national highways are 4
or 6 lane, about 59% two-lane
and 27% single lane. The existing
network has inadequate capacity
to handle high trafc density in
many places and suffers from poor
riding quality.
The Central Government is
responsible for development
and maintenance of the national
highways system. The National
Highways Authority of India
(NHAI), set up under the Ministry
of Shipping, Road Transport &
Highways has been vested with
TakiNg STOCk
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18 YOJANA July 2009
special powers for taking up the
highway development program
with certain investment decisions,
acquisition of land and speedy
implementation of the projects.
NHAIs endeavour is to meet the
nations need for providing and
maintaining national highways
network to global standards and
to meet the expectations of users
in the most cost and time effective
manner.
National Highways Development
Programme
The Government of India has
chalked out a massive investment
plan in the road sector, under the
National Highways Development
Programme (NHDP). An investment
of over Rs. 2,20,000/- crore has been
planned for extensive up gradation
of the national highways network
till 2015. The projects under Phase-I
& Phase-II of NHDP, and their
current status is as follows:
Golden Quadrilateral, i.e.,
National Highways connecting
four metropolitan cities - Delhi,
Mumbai, Chennai & Kolkata,
having a length of 5846 km. Four
laning of about 98% (5,724) km has
been completed and work is going
on in the remaining length.
North-South & East-West
Corridor which comprises 4-laning
of 7300 km of national highways
connecting North-South corridor
from Srinagar to Kanniakumari
with Cochin-Salem spur and East-
West corridor from Silchar to
Porbandar. Under this project,
four laning of 3,541 km length
has been completed and 2,810 km
length is under implementation.
Work for 791 km length is yet to
be awarded.
Port connectivity, 380 km
length of national highways to be
upgraded to 4-lane for improving
connectivity to 10 major ports of
the country to NHDP. So far, work
on 206 km has been completed,
168 km is under implementation
and 6 km of length is to be
awarded.
Out of 962 km of other National
Highways, so far 800 km has
been completed, 142 km is under
implementation and balance length
of 13 km is to be awarded.
NHDP Phase-III
It comprises of widening of
existing National Highways to 4/6lane standard for a length of about
12,109 km, having high traffic
density, connecting important
tourist locations, economically
important areas, state capitals on
BOT basis. Four-laning of 827 km
has already been completed. 1,920
km is under implementation and
9,362 km remains to be awarded.
In next 5-6 years the government
proposes to carry forward the
National Highways Development
Project through various phases.
These include :
NHDP Phase IV. under which
there are plans for 2-laning of 20,000
Km of the national highways, with
paved shoulders. This is being
implemented by the Deptt. of Road
Transport & Highways.
NHDP Phase V. for 6-laning of
6500 km of existing 4 lane highways.
This constitutes about 5,700 km of
the Golden Quadrilateral and 800
km of other NHs with high density
of traffic which are otherwise
important for tourist or economic
reasons. The project would be
implemented on DBFO basis. Out
of 6,500 km, 123 km has already
been completed. 911 km is under
implementation and 5,466 km is tobe awarded.
NHDP Phase VI. This phase
envisages development of 1,000
km of expressways connecting
important commercial and industrial
townships through Public Private
Partnership. Four stretches have
been identified - 400 km long
Vadodara-Mumbai section would
be taken up in the rst stage, 66
km long Delhi-Meerut Expressway,
334 km long Bangalore-Chennai
Expressway and 277 km long
Kolkata-Dhanbad Expressway. All
these expressways would be on a
new alignment and are scheduled
for completion by Dec 2015.
NHDP Phase VII. It envisages
construction of Ring Roads, Flyovers
and Bypasses in several important
cities for proper regulation and
movement of trafc.
PPP in Highway Development
While the first two phases
of NHDP were largely EPC
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YOJANA July 2009 19
contracts, public funded, most of
the future projects under NHDP
would be through public-private
partnership (PPP) model. PPP in
highway development seeks to
tap the resources, expertise and
professionalism of private sector
for public development under a
framework attractive to both parties.
The framework enables a private
entrepreneur to secure reasonable
returns at manageable risk, assures
the user of adequate service quality,
at an affordable cost, and facilitates
the Government in procuring value
for public money.
The cess on petrol/diesel for
road users, dedication of the
cess to a central road fund, the
decision to involve the private
sector are some of the factors
helping the sector. The reliance
on the private sector increased
due to an expansion in the projectscope of the NHDP and the
inadequacy of funds to implement
the expansion. Such a reliance has
also necessitated some policy and
regulatory changes in the last few
years. Well dened, standardized,
transparent and quick processes
have been put in place in order to
foster greater condence in the
private sector. The current policy
framework has all the ingredients
required to ensure a competitive
road development industry. Some
of the key recent initiatives taken
by Government of India include:
Standard bidding documents:
The request for qualication and
request for proposal have been
nalised and are in use by the NHAI
since December 2007.
The new model concession
agreement, which provides for the
revenue sharing mechanism, was
introduced in January 2007. It has
now been accepted by all parties
as fair and has helped to balance
the risk and obligations between
the government and the private
parties.
The approval of the Toll Rules
2008, is expected to further increase
private sector participation. The rule
is likely to increase the viability of
privately funded projects.
Shift from BOT to DBFO-
The NHAI has shifted from the
Build-Operate Transfer model for
awarding projects to the Design-
Build-Finance-Operate model for
projects under NHDP. This modelallows the concessionaire to design
the project and removes the risk of
changes in project scope resulting
in time and cost overruns.
Road Safety
NHAI is designing roads with
international standards with great
emphasis on enhanced safetyfeatures. Provisions for yovers,
bypasses, Railway Over/Under
Bridges, etc. are made with an
eye on enhancing road safety.
In the Detailed Project Reports
(DPRs), provisions are also made
for overhead signs, cautionary/
regulatory/informatory retro-
reective signboards, cat eyes,
delineators, crash barriers and
median railings. For safety of
road users during construction
stage, provisions are made for
safety features such as advance
traffic warning signals, retro-
reflective signs and reflectivelights at haardous locations.
Once the construction work is
over, highways are maintained
through long-term and short-
term Operation and Maintenance
(O&M) contracts which have
inbuilt safety provisions to
ensure the safety of road users.
At present about 4310 km of
Nat ional Highways ar e being
maintained through Operation and
Maintenance contracts.
Several initiatives have been
taken to ensure safe and comfortable
journey on completed corridors of
National Highways. They include
thermoplastic road marking oncarriageway, crash barriers at
the location of high embankment
and curves, railing at the central
median/service road in urban areas
to prevent crossing of pedestrian/
cyclists and shrubs/plantations
in the central median to improve
aesthetics along with mitigating
the glare of light of vehiclescoming from opposite direction. In
addition, there is provision of well-
equipped ambulance with requisite
paramedical staff and necessary
medical equipments for every 50
km of completed stretch to provide
immediate help to accident victims
and taking them to nearest trauma
care centre or hospital. Also tow-
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20 YOJANA July 2009
away vehicle facility is available
on all completed stretches for
towing away the broken down
or damaged vehicles from the
carriageway so that such vehicles
do not cause any safety haard
to the road users. Route patrolvehicles on 24 hours basis are
provided for every 50 km length
of completed corridors to assist
the road users and continuous
surveillance of highway assets.
Each patrol vehicle is equipped
with adequate sign boards, trafc
cones, fire extinguishers, gas
cutters, hydraulic jack , rst aid kit
and communication equipment.
With a view to making road
journey safer, comfortable and
convenient and to reduce the
fatigue in a long distance driving,
NHAI has init ia ted a dr ive to
develop comprehensive wayside
amenities like provisions for
refuelling, refreshment, rest and
relaxation, separate places for
parking of cars, buses and trucks,
workshop for repairs of vehicles,
telephones small shopping centers
etc.
Challenges
One of the most important
challenges is timely completion of
the projects. The projects under
NHDP are spread in almost all
states of the country. NHAI is
required to hand over encumbrance
free site to the contractor as
per the contract agreement for
timely execution of the projects.
NHAI is al so requ ir ed to co-
ordinate with the Central Deptt.
on the issues related to defence
land, ROB clearance, wild life
clearance etc. For expeditious and
timely pre-construction activities
such as land acquisition, forest &
environmental clearance, utility
shifting etc., NHAI is largely
dependent on the State Govts.
Simultaneously, the projects
also suffer due to the law and
order situation in some states.
Once the construction of the
project is complete, Operation
& Maintenance of the highway,
incident management, asset
management and safety of the
highway assets/furniture is another
challenge. Good highways need
good and responsible driving habits.
Lack of adherence to the trafc
rules may prove to be disastrous
for the road users. Therefore,
successful completion of such
mega projects would require pro-
active support of various Central/
State Govt. Departments and
other stakeholders. q
(E-mail [email protected])
GROWTH IN THE INFRASTRuCTuRE SECTOR
Riding on the back of 6.7 per cent
gross domestic product (GDP)
growth and sign of economic
recovery in the economy, the growth
rate of core industries including cement,
nished steel, coal and electricity, nearly
doubled to 4.3 per cent during April, the
rst month of the current scal.
The news of robust growth in the
core sectors and could signal the revival
of the economy that has been on the
downslide for the last few months.
With indications of the economic gloom
blowing away, the output of six core
sectors, which has over 26 per cent
Growth
rate of
cement,
steel,coal and
electricity
nearly
dobled
in April
weight in the Index of Industrial Production
(IIP), rose by 4.3 per cent during the month
under review as compared to 2.3 per cent in
April 2008.
The output of cement during April went up
by 11.7 per cent as compared to 6.9 per cent.Finished steel output recorded a 1.6 per cent
growth against a drop of 0.6 per cent in April
2008.
Coal production registered a growth rate of 13.2
per cent as compared to 10.4 per cent. Similarly,
electricity generation increased by 6 per cent
against 1.4 cent. q
(Courtesy : The Hindu)
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YOJANA July 2009 21
Market-Based Financing of Urban
Infrastructure
iNfraSTruCTurE
A P I D
URBANIzATION has
increased the demand
for urban infrastructure
in India. Since public
funds for these services are
inadequate, Urban Local Bodies
have to look for alternative sources
for nancing their infrastructure
needs. Accessing capital markets has
emerged as viable options for ULBs
to finance urban infrastructure.
Several urban local bodies and
utility organiations have issued
bonds and have so far mobilied
over Rs.12,000 million through
taxable bonds, tax-free bonds and
pooled nancing. The JNNURM, a
agship urban investment program
of Government of India encouragesULBs to link the projects with
market-based nancing. The market
access is important innovation in
the nancing of urban infrastructure
in the country.
In 2001, about 286 million
persons were living in urban areas
of India and it was the second
R
The author is Director, National Institute of Urban Affairs (NIUA)
A market-
based approach to
nancing urban
infrastructure linked
with JNNURM
will further
strengthen ULBs
and help achieve
the decentralization
objective of the
74th Constitutional
Amendment
Chetan Vaidya
largest urban population in the
world. The proportion of urban
population was 27.8% in the year
2001 and the decadal growth of
urban population was 31.2% in
1991-2001.
The urban population is expected
to rise to around 38 percent by
2026. It is clear that urbaniationis inevitable. India needs to
improve its urban infrastructure and
governance to improve productivity
and create jobs for the poor.
Rapid urbaniation has increased
the demand for urban services.
The Eleventh Five Year Plan of
India (2007-2012), has estimated
that total fund requirement for
implementation of the Plan target
in respect to urban water supply,
sewerage and sanitation, drainage
and solid waste management is
Rs. 12,702 billion. Financial
resources from all public sources,
however, fall far short of the urban
sectors estimated investment
requirements. Since public funds for
these services are inadequate, ULBs
aVENuES
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22 YOJANA July 2009
have to look for alternative sources
for nancing their infrastructure
costs. Market-based nancing has
emerged as a viable alternative to
nance infrastructure investments.
M a r k e t - B a s e d F i n a n c i n g
System
Since 1994, the Indo-US
Financial Institution Reform and
Expansion (FIRE-D) project is
working with national, state and
local governments in India to
develop a market-based bond
market. Several ULBs and utility
organiations have issued bonds
that so far have mobilied over
Rs.12,249 million through taxablebonds, tax-free bonds and pooled
nancing (Table 1).
Table 1: Mnicipal Bonds in
India
S.
No.
Type of
Bond
Amont (Rs.
in Million)
1. T a x a b l e
bonds
4,450
2. T a x - f r e e
bonds
6,495
3. P o o l e d
nance
1,304
TOTAL 12,249
Credit Rating
In 1995, the Credit Rating
Information Services of India
Limited (CRISIL) to develop a
methodology for carrying out
municipal credit ratings based oncareful study of ULBs in India
and international experience.
Ahmedabad was the first city
where this methodology was
applied in India. In February 1996,
Ahmedabad received a rating
from CRISIL for a bond offering.
This was the rst rating received
by a municipal bond offering in
India. The municipal credit rating
system has come to be regarded by
Indias private nancial community
as a solid indicator of a citys
performance and competitiveness.
In the last 12 years, all major
rating agencies CARE, FITCH,
ICRA and CRISIL - have provided
ratings for municipal and municipalenterprise bond offerings. Under
JNNURM, about 52 cities have
been credit rated and out of them
about 42 have received investment
grade rating.
Taxable Mnicipal Bonds
The Government of India,
recogniing infrastructures key
role in the process of economicdevelopment, set up the Expert
Group on the Commercialiation
of Infrastructure, often known as
the Rakesh Mohan Committee, in
1994. The FIRE-D project worked
closely with this Committee to
provide international experience
on tax-free municipal bonds. The
Committee recommended private
sector participation in urbaninfrastructure development and
accessing capital markets through
issuing municipal bonds.
The Ahmedabad Municipal
Corporation (AMC) was the first
ULB to access the capital market
in January 1998. It issued Rs.1,000
million in bonds to partially nance
a Rs.4,390 million water supply
and sewerage project. This was aremarkable achievement since it was
the rst municipal bond issued in
India without a state guarantee and
represented the rst step towards a
fully market-based system of local
government nance. The AMC had
previously instituted significant
fiscal and management reforms,
including improved tax collection,
computeriation of its accounting
system, strengthening of AMCs
workforce and nancial management,
and development of a comprehensive
capital improvement program. Due
to these measures, AMC was able to
turn around its nancial position from
a cash decit municipal corporation
to achieve a closing cash surplus ofRs.2,140 million by March 1999.
These reforms laid the necessary
groundwork for AMCs bond issue
and the successful implementation
of the water supply and sewerage
project.
The debt market in India for
municipal securities has grown
considerably since the issuance of
Ahmedabad bonds. Since 1998,
other cities that have accessed the
capital markets through municipal
bonds without state government
guarantee include Nashik, Nagpur,
Ludhiana, and Madurai. In most
cases, bond proceeds have been
used to fund water and sewerage
schemes or road projects. Indias
city governments have thus
mobilied about Rs.4,450 millionfrom the domestic capital market
through taxable municipal bonds.
Tax-Free Mnicipal Bonds
To boost the municipal bond
market, the Government of India
decided to provide tax-free status to
municipal bonds. During his budget
speech of 1999-2000, the Finance
Minister announced the Governmentof India's intention to permit ULBs
to issue tax-free municipal bonds.
The Government of India issued
guidelines for issue of tax-free
municipal bonds in February 2001.
These guidelines stipulate eligible
issuers, use of funds, essential
pre-conditions, maturing period,
buy-back, na ture of is sue and
tax benets, ceiling amount for a
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YOJANA July 2009 23
project, compulsory credit rating,
and external monitoring of the
tax-free municipal bond. Tax-free
status provided an incentive to
local governments to improve their
fiscal management sufficient to
meet the demands of the investment
community..
Ahmedabad was the first
municipal corporation in India to
issue tax-free municipal bonds
for water and sewerage projects.
In April 2002, AMC issued a tax-
free 10-year bond with an annual
interest rate of 9.00 percent. The
bond issue amount was Rs.1,000
million. The Municipal Corporation
of Hyderabad also issued a tax-free
municipal bond in May 2002 for
Rs.825 million. The MCH thus
became the second city to issue tax-
free municipal bonds. The money
raised by MCH through municipal
bonds was used for providing urban
infrastructure in the city especially
in slums. The tenure of the bond
was seven years with a rate of
interest of 8.50 percent.
Pooled Financing
Only nancially strong, large
municipal corporations are in a
position to directly access capital
markets. Most small and medium
ULBs are not able to directly access
capital markets on the strength of
their own balance sheets. Also, the
cost of the transaction is anotherbarrier. In the United States and
elsewhere, small local bodies
pool their resources and jointly
access the capital market. Based
on this model, the Governments
of Tamil Nadu and Karnataka
issued municipal bonds by pooling
municipalities.
In 2003, the Tamil Nadu Urban
Development Fund issued a bond
by pooling 14 municipalities for
commercially viable water and
sewerage infrastructure projects.
A special purpose vehicle, the
Water and Sanitation Pooled Fund
(WSPF), was set up to issue the
municipal bonds. The WSPF
structured a Rs.304 million bondissue whose proceeds financed
small water and sanitation projects
in the 14 small ULBs. The Trust
vehicle enabled the local bodies
to participate in the capital
market without increasing the
contingent liabilities of the state
and to channelize private nancial
resources into infrastructure
investments. This was the firstmunicipal pooled issue. It had a
fteen-year maturity and an annual
interest rate of 9.20 percent. USAID
provided a backup guarantee of 50
percent of the bonds principal
through the Development Credit
Authority (DCA) mechanism. The
proceeds helped ULBs to renance
their loans at lower interest rates,
connect periphery areas to newwater supply schemes, and provide
underground drainage and solid
waste management schemes. The
issue demonstrated a successful
model of pooled financing in
India.
Subsequently, the Government
of Karnataka used the concept
of pooled financing to raise
debt f rom investors for theG r e a t e r B a n g a l o r e W a t e r
Supply and Sewerage Project
(GBWASP). This project covers
eight municipal towns around
Bangalore and has a total project
cost of Rs.6,000 million. These
eight municipal towns were
merged with the Bangalore
Municipal Corporation. A debt
fund called the Karnataka Water
and Sanitation Pooled Fund
(KWSPF) was established under
the Indian Trust Act to access the
capital market by issuing a bond
on behalf of the participating
ULBs. The KWSPF was created
as the intermediary between
the local municipalities and thecapital market. The KWSPF
borrowed from the market and
on-lends to the ULBs at terms
determined by the KWSPF.
During June 2005, the KWSPF
successfully floated Rs.1,000
million tax-free municipal bonds
at an annual interest rate of 5.95
percent. USAID under its DCA
program provided a guarantee ofup to 50 percent of the principal
amount of market borrowing. It
is felt that the tax-free status of
the bonds and the DCA guarantee
lowered the interest rate by about
1.5-2.0 percent per year compared
to similar credit enhancement
structures and helped to extend
the bonds tenure to 15 years.
The success of the pooledfinance model as demonstrated
in the States of Tamil Nadu and
Karnataka subsequently led the
Government of India to create a
central fund that enables capital
investments to be pooled under
one state borrowing umbrella.
The objective is to provide a cost-
effective and efcient approach for
smaller- and medium-sied ULBsand to reduce the cost of borrowing.
FIRE-D project supported GoIs
MOUD in formulating the Pooled
Finance Development Fund (PFDF)
Guidelines to help small- and
medium-sied ULBs access market
funds for their infrastructure projects
and to encourage municipalities
undertake fiscal, financial and
institutional reforms required to
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create efcient and equitable urban
centers.
Linkages with JNNuRM
The Government of India has
attempted to meet the challenge
of inadequate urban infrastructure
through a flagship program, theJawaharlal Nehru National Urban
Renewal Mission (JNNURM).
States and ULBs accessing the
JNNURM must complete a total
of 22 reforms, some mandatory
and some optional, during the
seven-year period (2005-12). The
mandatory and optional reforms of
states/ULBs under the JNNURM
include decentraliation of urbangovernance and empowering
urban local bodies, introduction
of improved accounting systems,
improved revenue base, reform
of rent control acts, delivery of
services to poor, etc. The JNNURM
encourages ULBs to access market-
based nancing and PPP for urban
infrastructure projects that are
funded by the Mission. The Nagpur
Municipal Corporation issued a
Rs.212 million municipal bond in
March 2007 to fund a WSS project
under JNNURM.
Constraints for Mnicipal
Bonds
Supply-side Constraints are:
Institutional investors with
long-term funds face regulatoryconstraints on purchasing
municipal bonds:
Institutional investors such
as the insurance companies
are constrained because of
restrictions imposed by the
investment guidelines of
the Insurance Regulatory
Development Authority
(IRDA).
C o m m e r c i a l b a n k s ,
governed by the RBIs asset
and liability management
(ALM) requirements, prefer
to lend over the short- to
medium-term as their assets
and liabilities are short- to
medium-term in nature.
Further , banks cannot
take exposures to ULB
nancing in bonds/structured
instruments due to mark-
to-market requirements.
Lending by banks in the form
of loans is not subject to such
requirements.
Since there is lack of creditenhancement, hedging tools for
investors to mitigate credit risk,
and limited reliability of credit
information, investors perceive
municipal bonds to be risky.
The xed cap on tax-free interest
from municipal bonds does not
respond to market conditions.
Municipal bonds becomeunattractive when market rates
exceed the cap.
Given the poorly developed
government securities market,
municipal bonds are relatively
illiquid investments for lack
of exi t opportuni t ies for
institutional investors. Further,
there is an inefcient clearing
and settlement mechanism.
Demand side constraints are:
There are too few creditworthy
issuers seeking bond nancing.
There are too few nancially
viable projects seeking bond
nancing.
There is a lack of intermediation
support to help issuers achieve
bond structures that respond to
investor needs while providing
the issuer with the longest
possible tenor, lowest possible
interest rate, and lowest possible
cost of issuance.
The re a r e a va r i e ty o f administrative and managerial
constraints that inhibit and
discourage potential issuers of
municipal bonds. Though, the
reforms initiated by the Ministry
of Urban Development shall help
change the situation. Presently,
h