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DMIC Summit – Developing Hub for Investors Analysis and Report by Resurgent India

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Page 1: DMIC Summit – Developing Hub for Investors

DMIC Summit – Developing Hub for

Investors

Analysis and Report by Resurgent India

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Report Contents

Message from the desk of Sh JP Gadia

Section 1 : Overview and Approach

Section 2 : Implementation Framework

Section 3 : Phased Implementation -- Phase 1 Overview

Section 4 : Financing

Section 5 : Key Issues

Section 5 : Conclusion

About ASSOCHAM

About RESURGENT INDIA

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Message from the desk of

Sh. JP Gadia

DMIC is India’s biggest infrastructure investment and the largest infrastructure

project ever undertaken. At a cost of $100 billion and covering the states of Uttar

Pradesh, Haryana, Rajasthan, Madhya Pradesh, Gujarat, and Maharashtra, the

project aims to create top-notch infrastructure and establish 24 smart cities with

cutting-edge technology, connectivity across rail, road, port and air, and

uninterrupted power. DMIC also proposes to create a dedicated freight corridor

(DFC) in railways that will cover nearly 1,500 km will support high-speed train

connectivity and will run almost parallel to the Delhi–Mumbai Golden Quadrilateral

National Highway. Specifically, the project aims to triple industrial output in 9 years

and Quadruple exports from the region in 8-9 years. DMIC model has been drawn on

the lines of Tokyo-Osaka Industrial Corridor. Till date, the project has managed to

receive a significant amount of investment from Japan apart from the public-private

partnerships and the Government.

Since inception, the project progress has been plagued by several issues like land

acquisitions, delay in GST roll-out, operational and social and environment issues. It

is thus high time to effectively address these issues and work towards successful

implementation. As India is already on its way to implementing ‘Make in India’

campaign, this will only add to the entire process and make India one of the largest

economies of the world by 2025.

We are hopeful that this report will be helpful in diagnosing the right pushes and

allowing the industry to move forward with the continued positive momentum.

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Overview & Approach

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DMIC Overview

Delhi-Mumbai Industrial Corridor, from here on referred to as DMIC, is a multi-modal

High Axle Load dedicated freight corridor connecting Delhi and Mumbai. It is a mega

infrastructure project at USD 100 billion with technical and financial aid built in from

Japan. The project is a flagship programme of Government of India with the aim of

creating futuristic Industrial Cities by leveraging the "High Speed - High Capacity"

connectivity backbone provided by Western Dedicated Freight Corridor (DFC). The

government has proposed to promote DMIC along the alignment of DFC between

Delhi and Mumbai. The envisaged alignment of freight corridor passes through

multiples states including Uttar Pradesh, Haryana, Rajasthan, Madhya Pradesh,

Gujarat and Maharashtra and is mostly aligned parallel to the existing railway tracks.

1504kms, of freight corridor will be covered to create industrial hub, with end

terminals at Tughlakabad and Dadri on one end and Jawaharlal Nehru Port at

Mumbai on the other.

Genesis

Vision & Objectives

The vision for DMIC is to develop it as a “global manufacturing and trading hub”. It

looks at creating a strong economic base with globally competitive environment and

infrastructure. It is to be conceived as a Model Industrial Corridor of international

standards with emphasis on expanding the manufacturing and services base.

In addition to new Industrial Cities, the programme envisages development of

infrastructure linkages like power plants, assured water supply, high capacity

transportation and logistics facilities as well as softer interventions like skill

development programme for employment of the local populace. This will drive

commerce, enhance foreign investments and attain sustainable development. Stable

regulations, well-developed communications, efficient transportation systems and the

pro-business environment are some of the essential requirements to be fulfilled to

accomplish the huge potential for growth and development. At a very basic level, to

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point towards the impact this project is capable of having, consider the time taken to

transport goods from North India to Western Coast. Currently goods produced in the

northern part of India take about 14 days to reach the ports on the western coast of

India. Post the corridor, the movement will take between only about 13 and 14 hours.

This will have impact across the supply chain for any product or industry.

Specifically, the project aims to deliver definite end results ensuring realization of

envisaged vision for the project. Accordingly the project goals for DMIC are:

Triple industrial output in 9 years

Quadruple exports from the region in 8-9 years

Characteristics

The project acknowledges and provides for effective integration between industry

and infrastructure leading to overall economic and social development. The corridors

constitute world class infrastructure such as high-speed transportation (rail, road)

network, ports with state-of- the-art cargo handling equipment, modern airports,

special economic regions/ industrial areas, logistic parks/trans-shipment hubs,

knowledge parks etc. along with enabling policy framework. Corridor approach for

industrial development primarily takes advantage of the existence of proven, inherent

and underutilized economic development potential within the influence region.

This also has long term advantages with respect to smoother backward and forward

access, decreased freight and communication costs, improved delivery time and

inventory handling. In all, aiming to develop new industrial cities as "Smart Cities"

and converging next generation technologies across infrastructure sectors.

Given the above context, the delivery can be seen under two broad heads of a.

Quality industrial investments and world class infrastructure facilities

a. Industrial Infrastructure : This entails providing for:

a. Up gradation of existing industrial clusters/ estates;

b. Developing new industrial clusters or townships and export oriented

manufacturing zones;

c. Development of ‘Skill Development Centers (or) Knowledge Hubs’

d. Developing agro-processing hubs with cold storage, packaging and

distribution and other allied infrastructure;

e. Developing IT/ ITES Hubs/ other service oriented facilities.

b. Physical and Social Infrastructure

a. Efficient logistics chain with multi-modal trans-shipment zones and

logistic hubs;

b. Provision of Feeder Road and Rail connectivity to ports, hinterlands

and markets;

c. Augmentation of existing port infrastructure and developing Greenfield

ports;

d. Up gradation/ Modernization of Airports;

e. Captive Power Generation Plants with power transmission facilities;

f. Environment and Human Sustainability

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g. Dovetailed social infrastructure to ensure attractive investment climate.

Coverage

A band of 150 km to 200 km has been chosen on both

the sides of the Freight corridor to be developed as the

Delhi-Mumbai Industrial Corridor.

In addition to the influence region, DMIC would also

include development of requisite feeder rail/road

connectivity to hinterland/markets and select ports along

the western coast.

Integrated Development Approach – Concept of Nodes

The corridor passes through multiple states and cities, each at a different level of

industrial development, natural endowment, human talent etc. The project

acknowledges and proposes to address this bottleneck through a holistic approach

while benefiting from the inherent strengths and competitiveness of each of the

DMIC states.

Given the above, high impact/ market

driven nodes identified across the corridor

under which integrated Investment Region

(IRs) and Industrial Areas (IAs) would be

set up. These regions are proposed to be

self-sustained industrial townships with

world-class infrastructure and connectivity,

reliable power and other quality social

infrastructure, and provide a globally

competitive environment conducive for

setting up businesses.

An Investment Region (IR) would be a

specifically delineated industrial region with

a minimum area of over 200 square

kilometers (20,000 hectares), while an

Industrial Area (IA) would be developed

with a minimum area of over 100 square

kilometers (10,000 hectares).

24 such special investment nodes - 11 IRs and 13 IAs spanning across six states

have been identified, based on pre-specified criteria.

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Investment Regions:

Ahmedabad – Dholera Special Investment Region, Gujarat (903 sq. kms.)

Dadri-Noida-Ghaziabad Investment Region,Uttar Pradesh, (218 sq. kms.).

Manesar-Bawal Investment Region,Haryana (402 sq. kms.);

Khushkhera-Bhiwadi-Neemrana Investment Region,Rajasthan (160 sq. kms.);

Pitampur-Dhar-Mhow Investment Region,Madhya Pradesh (372 sq. kms.)

Industrial Areas:

Shendra-Bidkin Industrial Area, Maharashtra (84 sq. kms.)

DighiPort Industrial Area, Maharashtra (253 sq. kms.)

Jodhpur-Pali-Marwar Industrial Area, Rajasthan (155 sq. kms.)

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Implementation Framework

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Implementation and Institutional Framework

The effective implementation of such large and complex project, involving multiple

states and agencies calls for immaculate planning and a robust administrative

structure. In order to ensure that the traditional pitfalls of project implementation are

overcome, it is proposed that a Project Development approach be adopted, wherein

each facet of the project is rigorously developed from an engineering, financial,

contractual, environmental and social perspective, along with interlinkages, on

prioritization and selective basis and prior to commencement of implementation

The project will include number of sub-projects, some of which will be amenable for

PPP and others will have to be implemented departmentally by the government.

Accordingly, a four tier institutional structure has been put in place, to enable an

effective framework development:

a. An Apex Authority: Government of India constituted Apex Authority in

August, 2007 with Union Finance Minister as Chairman, other Cabinet

Ministers and Six Chief Ministers of DMIC States as Members. This is meant

to oversee the entire program and to ensure that the necessary policy and

administrative issues are tackled appropriately within the defined framework.

b. Dedicated Corporate Entity: Delhi Mumbai Industrial Corridor Development

Corporation Ltd. (DMICDC), a special purpose company, works as a servicing

agency for the Apex body. It undertakes project development services for

investment regions / industrial areas / economic regions / industrial nodes and

townships, for various central government agencies and also assists state

governments.

c. State Level Nodal Agencies : An existing institution was nominated by state

govt. for coordination between DMICDC, various State Govt. Entities;

d. Special Purpose Vehicles: Established for individual projects like, airport,

port, industrial area, road, power etc, to mobilize financial resources through

appropriate consortia and undertake actual implementation, operation and

maintenance.

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A brief purview of roles and responsibilities flowing from the implementation structure

has been presented below, with specific and detailed focus on DMICDC and Role of

State:

a. DMIC Steering Authority : The key functions of the authority will be

a. Project Approval

b. Financing Pattern Approval

c. Setting up timelines for implementation and monitoring

b. DMICDC : The corporate entity was formed with a view of providing :

a. A dedicated corporate entity, that has..

b. Support of government, but can work..

c. With the flexibility of a corporate environment, and is

d. Authorized to channelize funds from various sources to intended output

areas

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Delhi Mumbai Industrial Corridor Development Corporation Limited (DMICDC)

was incorporated on January 07, 2008 on a Public-Private Partnership model

with stakeholders from the private sector (Banks, FIIs), PSUs as well as from

the Central and State Governments concerned. The percentage shareholding

pattern is as below:

Source: DMICDC Website

The key functions of the entity are :

a. Detailed project preparation and obtaining various clearances

b. Evolving financing patterns for different components including

arranging finances, where required, on the basis of a sovereign

guarantee;

c. Co-ordination with various Union Ministries and State Governments,

Financial Institutions, and Infrastructure development agencies;

d. Monitoring the implementation of various components &

subcomponents and facilitating in their execution;

e. Introducing ‘state-of-the-art’ implementation methodologies and

know-how for quicker implementation of infrastructure projects;

f. Undertake project development services for various central

government projects and also help in assisting state governments

(where desired);

g. Secretariat of the Steering Authority

c. Special Purpose Vehicle: It is envisaged most of the projects in DMIC region

would be implemented through Public Private Partnership. Special Purpose

Companies are thus to be established for project implementation, operation,

maintenance and management of such facilities. The financial structure of

SPVs will include:

a. Own equity specific to each project,

b. Initial small equities could be of DMICDC, which would then be sold

to operators selected for implementation.

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c. Debts raised domestically and externally. Debts could also be

raised by DMICDC and passed on to SPVs.

The key functions here include: a. Implementation of specific components , b.

Projects to be awarded, preferably with all relevant clearances and bidding

process and c. Project operators to raise finances, implement and operate the

project

d. State level Nodal Agencies: State governments have the lead role in setting

up of various Investment regions and industrial areas in the DMIC. As part of

this, each state is meant to notify a nodal agency that will coordinate with

DMICDC in implementation of investment regions / industrial areas. The

agencies as notified, have been mentioned below:

Source: DMICDC Website

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Role of States

The role of state governments start from the point of notifying a nodal agency to

coordinate with DMICDC, State level agencies and SPVs. The agencies in turn, in

close coordination with the multiple agencies, and with the support of the state

governments work towards:

a. Facilitating all clearances required from the State Government

b. Acquiring/ assisting in acquiring the land necessary for setting up of the

infrastructure, processing and non-processing areas. The acquisition of land if

any must be in accordance with law and must provide for rehabilitation as per

the laid down norms. As far as possible acquisition of agricultural land may be

avoided.

c. Ensuring the availability of world-class physical and social infrastructure,

utilities and linkages under its jurisdiction within a stipulated time frame. It

includes: a. Power connectivity and availability of reliable and good quality

power. The units may also seek open access as per the regulations of the

State Electricity Regulatory Commission; b. Provision of bulk requirements of

water; c. o Road connectivity (State roads); d. Sewerage and effluent

treatment linkages; e. Appropriate infrastructure to address the health, safety

and environmental concerns.

d. Arrange requisite funding for development of infrastructure, through budgetary

resources, by availing existing schemes of Government of India as VGF and

IIFCL etc. or through loans from multilateral agencies

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Phased Implementation – Phase 1

Overview

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Phased Implementation and Current Status

Given the scale and complexity of the project, the implementation has been planned

in three phases. Government of India has accorded in-principle approval to the

project outline in August, 2007 and identified nodes for Phase-1 implementation: A

total of 8 manufacturing cities (in a mix of Industrial region and Industrial area) will be

developed in Phase 1. In terms of a dashboard, this means covering 8 investment

regions, 12 early bird projects, 2 MRTS projects, 1 Solar Plant and 2 Airports.

A brief Description, Coverage and Status of each of the above mentioned phase 1

sub-projects have been provided below. The key source of information for the

current status is the DMICDC website.

a. Manesar- Bawal Industrial Region

The designed site covers an area of about 402sq kms. This includes existing

Bawal Industrial Town and borders Rajasthan. The MBIR is the first

investment region to be designated under the proposed Delhi – Mumbai

Industrial Corridor project (DMIC). It is envisaged that the MBIR would

become a major industrial centre, having direct connectivity with DFC and

major National & State Highways. As part of the initial development following

three projects are likely to be taken forward immediately:

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a. Global City Project in Gurgaon

b. Integrated Multimodel Logistics Hub (MLH) Project

c. Mass Rapid Transit System

b. Dholera, Special Investment Region

DSIR has been planned over land measuring approximately 920 sq. km. It is

strategically located near the industrial cities of Vadodara, Ahmedabad,

Rajkot, Surat and Bhavnagar urban agglomerations. Being a large

developable area, the project is divided into six (6) Town Planning Schemes.

Town Planning Schemes 1 and 2 cover the development in Phase-I. Town

Planning Scheme 1 covers an area of approximately 51 sq km and Town

Planning Scheme 2 covers an area of approximately 102 sq km. To simplify

the execution further, an Activation Area of 22.5 sq. Km has been identified

which would act as catalyst for further investments and will provide a base for

taking up development of further phases. It will cover:

a. Roads and Services

b. Water Treatment Plant

c. Sewage Treatment Plant

d. Common Effluent Treatment Plant

e. Admin cum Business centre

f. MRTS/ RRTS

g. International Airport

c. Pithampur – Dhar –Mhow Region

The proposed infrastructure improvements will create a vibrant regional

economic center in an underutilized area planned for industrial and

commercial development. This will support job creation, preserve the

surroundings environmental and enhance the regional economy through:

a. Integrated Industrial Township ‘Vikram Udyogpuri’ Project in Ujjain

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b. Improvement of Water Supply System for Pithampur Industrial Area &

Phase- I.

d. Dadri Noida Ghaziabad IR

The Proposed Investment Region at Dadri-Noida-Ghaziabad would be located

within 50 km of the RewariDadri alignment of Dedicated Freight Corridor.

Other sub-projects include:

a. Integrated Industrial Township Project in Greater Noida

b. Multi Modal Logistics Hub, Noida

c. Multi Modal Transport Hub, Boraki

d. MRTS between DNGIR and IGI Airport, Delhi

e. Jodhpur Pali Marwar Industrial Area

The state government in addition to the first chosen node of Neemrana, has

identified Jodhpur Pali Marwar Industrial Area as the second node for

development under DMIC Project. It is intended to improve overall

connectivity of the region on the back of Marwar Junction.

f. Khushkhera Bhiwadi Neemrana Investment Region

The Khushkhera- Bhiwadi- Neemrana Investment Region is to be developed

in an identified area of around 165.6 square kilometres. The objective is to

create a world-class city—in this area, with industry as the main driver of

economic development and employment with non-industrial/non-processing

uses. Under Aerotropolis Project, an airport development plan for this

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Greenfield Airport has been prepared to determine the requirements for the

airport at the opening day and subsequent phases.

g. Shendra Bidkin Industrial Area (SBIA), Maharashtra

SBIA is located at a distance of approximately 15 km from downtown

Aurangabad and is 8 km east of the Aurangabad Airport. It is planned as a

new industrial corridor extending from the existing Maharashtra Industrial

Development Corporation’s (MIDC) Shendra Industrial Park to the town of

Bidkin.

The total area of SBIA admeasuring 84.17 sq kms has been divided into two

parts viz. Part-I and Part-II. The Part-I consisting of area of 41.42 sq km,

which is further divided into two parts, viz. Phase-I and Phase-II. The Phase-I

covers an area of 8.39 sq km located north of Jalna Road adjoining existing

MIDC Shendra Industrial Park. Phase-II includes the remaining area of 32.03

sq km located near Bidkin. This covers:

a. Roads and Utilities

b. Roads over bridges

c. STP/CETP/ WTP

d. District Administrative Building

e. Landscaping

h. Dighi Port Industrial Area

The total land available for development in the DPIA is around 253 square

kilometers (after excluding forest and undulating terrain). It is meant to be a

port, trade and industrial hub that will augment the existing port ad global hub.

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Financing

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DMIC Financing

DMIC will be an essential component of India’s future economic development.

Implementation of DMIC Project requires huge investment for building up of

infrastructure. It is envisaged that there will be primarily two categories of projects

under the purview of state and central government agencies as:

Category-1: Projects that can be implemented through Public Private

Partnership (PPP Viable Projects) viz. Logistics Infrastructure, Power Plants,

Ports and Airports, Special Economic Zones, industrial Parks,

IT/ITES/Biotech, Hubs and Agro-Processing Hubs, Knowledge Cities,

Integrated Townships; and Augmentation of selected National and State

Highways.

Category-2: Other Projects (Non- PPP Projects) viz. Augmentation of rail

linkages and development of connectivity to the identified investment regions/

industrial areas, Provision of requisite urban infrastructure, Augmentation of

industrial areas, Provision of missing links and augmentation of state

highways.

DMICDC is the overall in charge for development and execution of the project. The

government of India owns 49% stake in the DMICDC, the Japan Bank for

International Co-operation owns 26% and other government-owned financial

institutions share the remaining 25% equity.

The whole project spread over two phases is estimated to cost USD 100 Bn. Of this,

USD 2-2.5 Bn is required for project preparation alone. For this purpose, a Project

Development Fund (PDF) was created. This fund is used as a Revolving Fund and

would specifically be used for undertaking project development activities viz.

identification of projects, preparation of feasibility reports, detailed project reports

(DPRs) etc and its cost would be recovered from successful bidders.

To meet the project implementation costs, DMICDC will raise funds, allocate funds

and liaison between the Centre and six states. The land for the project will be

acquired by the respective state governments and would be considered as the equity

contribution of the State Government.

The Indian government has earmarked an amount of Rs 17,500 crore as project

implementation fund and Rs 1,000 crore as project development fund towards the

DMIC project. The funds are released to the Special Purpose Vehicles (SPVs)

formed between the State and the Central Government for each node being

developed in the State at Rs 3000 crore per node. The amount spent as on Feb

2016 is Rs 2,008 crore and Rs 310 crore under Project implementation and Project

Development Fund respectively.

The amount sanctioned by the government under project implementation fund is

mainly being used to build trunk infrastructure – non-profit-making but essential

needs like sewage pipes, water supply and roads. Trunk infrastructure is expected to

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comprise about 35-40% of the project, which will be funded by the DMIC Trust, with

the remaining project structured on a public private partnership (PPP) model.

Typically, the land prices surge once the basic infrastructure such as roads, water

and sewage pipelines, are built. This land can be sold at a premium to seek more

funding for completion of the project.

Apart from this, the Japanese government has also sanctioned a loan of USD 4.5

billion for the first phase of the project. This loan is available for a period of 40 years

at a nominal interest of 0.1%. This facility will be available through a Special Terms

for Economic Partnership (STEP) loan. This will bring Japanese funding, cutting

edge technology and knowhow into projects implemented in DMIC, especially trunk

infrastructure projects and transport connectivity projects which may not be

commercially viable in their initial stages.

However, this will meet only 10% of the funding requirement. A large chunk,

approximately 90% of the funds will have to flow from the private players. Private

sector investment is expected to come once the land prices rise post building of the

basic infrastructure.

Financial Structure of DMICDC

Source- EY

Cost Heads Estimated Costs Institution Funding Funding

Project preparation costs (preparation of

master plans, feasibility studies, etc.)USD 2-2.5 Bn

DMIC Project

Development Fund

(Revolving fund)

->100% contribution from Govt. of India by way of a grant

->To be replenished from successful bidders of PPP projects

Project investments (initially un-bankable

projects like external infrastructure and

later banakble projects too)

USD 90-95 BnDMIC Project

Implementation Fund

->Set up as separate Trust with DMICDC as asset manager and

administrative support

->50% contribution from Govt. of India by way of grant

->50% contribution from Govt. of Japan by way of untied loans (USD

4.5 billion)

->Loans facilitated by DMICDC as a pass-through arrangements for

specific projects

Project investments (bankable projects) SPVs

->Land cost to be provided by State govts.

->PPP / private investments

->Market borrowings

Administrative costs DMICDC

->49 % equity by Government of India

->26% equity by Japan Bank for International Cooperation (JBIC)

->25% equity by indian Financial institutions

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Financing Framework of DMICDC

Source- EY

Some of the other options explored for funding DMIC have been mentioned below -

a) Public-Private Partnerships (PPP) via Viability Gap Funding (VGF). VGF is a

special facility to support the financial viability of those infrastructure projects,

which are economically justifiable but not viable commercially in the

immediate future. Financial grant up to to 20 percent of the project cost can

be availed under this mode. VGFs are expected to be rendered by the Asian

Development Bank (ADB) and World Bank, while loans will be provided to

infrastructure companies by India Infrastructure Finance Company Ltd.

(IIFCL).

b) DMICDC can also source funds from infrastructure financing companies like

IFCL and HUDCO. Apart from this DMICDC can explore other options such

as issue of land and infra bonds, sovereign funds and external commercial

borrowings

c) Funding from Multilateral Agencies such as Asian Development Bank and

World Bank. World Banks has already evinced interest in funding DMIC.

World Bank provides funds for major infrastructure projects at very nominal

rates and also follows very high standards in project execution.

Ensuring adequate availability of funds for implementation of DMIC will require

support from various stakeholders- state, central government agencies and private

investors (domestic and overseas)

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Key Issues

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DMIC will be an essential component of India’s future economic development. Some

of the issues which are impeding the progress of the project are listed below -

1. Issues in land acquisition, environmental approvals, clearances, etc. - The

progress on DMIC has been affected by issues in land acquisition,

environmental approvals, clearances, availability of skilled manpower, trunk

infrastructure, etc.

a. Land acquisition remains a time-consuming and cumbersome process

requiring huge financial resources. Restriction on buying land is one of

the major hurdles that are holding up and affecting the progress on

DMIC projects. Land acquisition continues to be major road block and

government authorities are reluctant to acquire land in the current

environment. The effort of the government to make land acquisition

easier for DMIC could not succeed. The government was unsuccessful

in its attempt to exempt infrastructure initiatives from the mandatory

consent clause and the social impact assessment exercise.

b. No concrete steps have been taken for seamless movement of goods

between states within DMIC region like implementation of GST. The

delay in roll out of Goods and Services Tax (GST) is a concern. The

roll out of GST will eliminate inter-state taxes and create a common

market without any difference between interstate or intrastate sales.

This will help companies planning to set up units in the DMIC optimize

their supply chain strategy.

c. Policy issues and depleting gas supplies have impeded the progress of

setting up critical power plants along the DMIC. Non- availability of gas

has rendered power projects unviable in few states.

d. Cheap and reliable power is still not available in most states which is

major bane for industries. Development of DMIC includes power

intensive industries as SEZs, manufacturing plants and IT parks that

require large quantum of reliable power on continuous basis. The

authorities have not shown significant progress in enhancing power

generation capacities in the state to ensure power supply security and

a balanced regional growth in DMIC area.

2. Operational / Management issues - While the potential economic gains from

the project are enormous, there are unavoidable challenges facing it during

implementation. The sheer size and the complexities involved in the project

require it to be implemented in phases to ensure sustainability. The overall

rate of progress on the project depends critically upon the capabilities and the

interest levels of the DMIC states to proceed on their individual targets. Gaps

are already visible in this regard with some states performing better than the

others. States have experienced delays in project execution, partly on account

of difficulties arising from problems of co-ordination and land acquisition, in

addition to other procedural and administrative problems. Furthermore, there

is little ownership of state in DMIC, given that the project is undertaken by

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DMICDC. It has also been observed that the state development agenda and

priorities has taken precedence over DMIC. Apart from this, there is always an

inter-governmental tug-of-war going on between states and the central

government.

DMIC is multi-sectoral spread across multiple states and thus multiple

department, state agencies & municipalities. Involvement of multiple agencies

from central and state governments portends a major challenge for co-

ordination. The issues of co-ordination are not limited to those among Indian

agencies only. Being the country’s largest foreign-funded project, there are

issues in seeking effective co-ordination between foreign and domestic

agencies too. This is no less challenging given the imperatives of managing

tricky aspects such as differences in work culture and approaches to project

management. Further, legal hurdles are also emerging due to multiplicity of

agencies. Many foreign players are part of the project and regular disruptions

may discourage them to invest in the future.

3. Social and environmental issues- The DMIC is a huge and complex project

and may have significant environmental impact.

a. Water Sustainability: It is expected that the DMIC project will require

tons of natural water for industrial areas. This may lead to distress in

areas with inadequate water resources. Further, there is a fear that to

meet the water requirement for the DMC project, the existing water

supply meant for irrigation may be diverted for industrial use.

b. Food Security: Due to the change of extensive agricultural land to

industrial areas, local food chain including subsistence farming will be

affected significantly. That is, if a farmer loses an agricultural land for

subsistence farming, the family has to spend for foods additionally.

Further, once the land is sold for industrial use, the farmer may not

have an alternative employment opportunity.

c. Loss of Employment: Loss of employment of many farmers and related

workers will be increased due to the acquisition of agriculture lands.

Although an equal or more number of jobs will be created in the

industries that come up, the entire process may take time and also the

farmers and workers may not have the requisite skills to seek

employment in these industries.

d. Labor issues- Many Indian factories employ contract workers who

usually have lower wages, little or no health insurance, and no job

guarantee. With the government’s attempt at further labor market

‘liberalization’, workers at the envisaged factories in DMIC may be

subject to exploitation at the hands of industrialists. Apart from this,

there is an apprehension amongst the locals, that the factories along

the DMIC may prefer hiring migrant labors as they are less likely to

organize themselves to press for greater demands since they lack local

support structures. Furthermore, the industries along the DMIC may

adopt high levels of mechanization, and may not create as many jobs

as predicted.

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4. Investment issues- Private investment is not materializing as expected in

short-term. Private sector investment in DMIC may witness an uptick once

basic infrastructure such as roads, water and sewage pipelines, are in place.

Addressing the above issues will require active support from various

stakeholders including the state, central government agencies and DMICDC

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Conclusion

In many ways, the DMIC is a big boost that India’s infrastructure needs. This is not

only because it can significantly improve connectivity and bring down production

costs, it can also generate virtuous multiplier effects by augmenting employment,

industrial production and exports. The scales of these benefits are significant given

that the project will cover states that account for sizeable economic output and

transactions in India. These states account for almost 54 per cent of India’s gross

industrial output, 60 per cent of total exports and nearly half of total foreign direct

investment (FDI) inflows into India during the last decade. The states also cover

large parts of India’s road and rail networks. Major ports coming under the ambit of

the corridor cover roughly a third of total cargo handled across the country. The

DMIC states are also home to big chunks of India’s mineral resources.

Both foreign and domestic investors are keenly watching the progress on the project.

As connectivity improves and the proposed investment regions and industrial areas

are being developed, new opportunities are expected to appear in several industries

within the DMIC region. These include gems and jewelry, engineering, chemicals

and petrochemicals, oil and gas, textiles and apparel, food processing, IT/ITES, cars,

ship repairing/building, tourism and other knowledge-based industries.

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About ASSOCHAM

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About Resurgent India Ltd. DEBT I EQUITY I ADVISORY

Resurgent India is a full service investment bank providing customized solutions in the areas of debt, equity and merchant banking. We offer independent advice on capital raising, mergers and acquisition, business and financial restructuring, valuation, business planning and achieving operational excellence to our clients. Our strength lies in our outstanding team, sector expertise, superior execution capabilities and a strong professional network. We have served clients across key industry sectors including Infrastructure & Energy, Consumer Products & Services, Real Estate, Metals & Industrial Products, Healthcare & Pharmaceuticals, Telecom, Media and Technology. In the short period since our inception, we have grown to a 100 people team with a pan-India presence through our offices in New Delhi, Kolkata, Mumbai, and Bangalore. Resurgent is part of the Golden Group, which includes GINESYS (an emerging software solutions company specializing in the retail industry) and Saraf& Chandra (a full service accounting firm, specializing in taxation, auditing, management consultancy and outsourcing). www.resurgentindia.com © Resurgent India Limited, 2016. All rights reserved.

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