Chapter 1:INFRASTRUCTURE FINANCE

AMRUT MAHOTSAV

Sanctioned under Budget 2015 to be achieved by 2022. The mission has 6 pillars and the Union and states shall work cooperatively to achieve these pillars.

Pillars:

1. Housing for All
1. 2 crore urban houses
2. 4crore rural houses
2. Access services 24*7
1. Water, toilets, roads, medical facilities, electricity should be available to all at all times
3. Jobs
1. 1 member in each house can access
2. Convergence of Skill India and Make in India for ensuring employment
4. Education
1. One SSC school within every 1km distance
5. Agriculture
1. Improve irrigation
2. Value addition for agro products
6. IT
1. Internet connectivity for all
2. BharatNet: 2.5 lakh panchayats to be connected by optical fibers to provide internet access.

Infrastructure Issues and Solutions

High growth of population and economy puts pressure on existing infrastructure and creates bottlenecks. Transport, energy, communication and sanitation are some basic services which have to be augmented to be able to meet the needs of the growing population. Poor infrastructure will lead to GDP bottlenecks, poverty and make essential services expensive.

Role of government in infrastructure development:

1. Planning
1. To ensure that development reaches all regions and benefits everyone
2. Contracting
1. Since government doesn't have the resources to complete all infrastructure development on its own it prefers contracting these to executive agencies.
2. The agreement are signed with these agencies and can be of type public - private - partnership or engineering - procurement - construction. Each of these has its own clauses and involves sharing of responsibilities.
3. Regulating
1. Since private sector will not find it economically feasible to provide services in rural areas the government has to act as a regulator to prevent such market failures and also prevent monopolies.

Problems of infrastructure firms

1. Market failure: Firms take high debt so that they can bid and complete big contracts but if they cant repay loans then government can renegotiate contracts.
2. Regulatory failure: Contract awarded to lowest bidder who offers highest revenue share to government but not best service. Projects get stalled due to red tape, lack of exit mechanisms.

3P- India is an agency to be established by the government that shall handle problems of designing PPP contracts.

New model for highway contracts - Hybrid Annuity Model

Hybrid Annuity model has been utilized by the government in highway construction. Under HAM the government will contribute to 40% of the project cost in the first five years through annual payments (annuity). The remaining payment will be made on the basis of the assets created and the performance of the developer. The developer shall have no toll right and this shall be done by NHAI. Thus the construction and maintenance cost shall be borne by the private player and financial risk shall be shared by him with the government.

Kayakalp is the innovation council of railways for business reengineering and promoting spirit of innovation. Ratan Tata to be the chairman.

Rail Reforms

Bibek Debray committee for rail reforms:

Recommendations:

1. Reduce number of rail divisions and zones
2. Shift to commercial accounting to find rate of return
3. Distance from non ore operations and focus on core operations i.e. outsource security to states , education to Kendriya Vidyalaya Sangathan.
4. Independent rail regulator for ticket price, service quality.
5. No more cross subsidization of passenger fares with freight fares.
6. Indian Railways manufacturing company for coaches and wagons. A separate track holding company for tracks so that even private players can access track or train repairs.
7. Merge rail budget with general budget and rail ministry with transport ministry.

Miscellaneous

Industrial corridors in planning stage are: Delhi Mumbai Industrial Corridor [Japan assistance], Amritsar Kolkata corridor [ Wholly Govt of India owned], Mumbai Bengaluru corridor [ Britain ], Chennai Bengaluru industrial corridor [ Japan ].

Diamond quadrilateral project 2014 through high speed railway. The projects under this are Mumbai - Ahmedabad, Howdah - Haldia, New Delhi - Patna, Hyderabad - Chennai.

Meghalaya got railway connectivity in 2014 for the first time.

Greenfield project is where an existing project is redeveloped and brownfield project is where a completely new project is built.

BharatNet project aims to connect 65000 gram panchayats with optical fiber connectivity. The company involved in the implementation is Bharat Broadband Network limited. The target of reaching 100000 gram panchayats by March 2017 is on track but the last mile connectivity is a problem. The marketing of the network, obtaining customer's, payment collection agents is not happening and so internet service to customers is absent.

NITI Aayog has recommended the strategy of PPP (Build own operate transfer) and (Build own operate) model for working.

Currently there are two parties one for maintenance and other for building the infrastructure. This means that in times of lapses the parties shall blame each other and customer service shall deteriorate. Hence both BOOT and BOT ensure that the one involved in construction shall also handle operation, this means that no undercutting in terms of quality of infrastructure shall be made when the optical fiber is laid.

BOOT model is the best if leases are given for a long period of 20-25 years. Here the private entity shall operate the infrastructure and provide the services and earn profit from it. The PPP model seeks to combine the private sector’s efficiency in service delivery with role of government being preventing market failures and acting as an enabler and regulator.

PPP’s might fail if sufficient safeguards are not present against aggressive bidding, ambiguous risk allocation, ambiguous tariff adjustment guidelines, weak conflict resolution and ineffective feasibility studies before giving contracts.

To resolve these issues NITI Aayog wants bidding at level of Telecom circles.The Aayog has also warned against a possible monopoly in the vertical supply chain i.e. telecom service provider, equipment manufacturer and customer service provider. Steps should be taken to combat this

Land Acquisition Act, 2013

This Act is applicable to acquisition by all agencies of the State and the central government but doesn't apply to the State of J&K. The Act applies to all acquisitions done by Government for own use or use by a private company or use of land under a public private partnership.

Land Acquisition under public purpose and by PSU's shall be exempted from the purview of this Act.

Acquisition shall be preceded by Social impact assessment. 70% consent needed of land owners if land to be acquired for public private partnership projects. 80% consent of land owners needed if land is to be acquired for private sector.

Compensation shall be cost of land at market value * 4 for rural areas and *2 in urban areas.

Separate allowance for SC, ST. Provision for housing if land acquired for housing projects.

Separate authority to resolve disputes and with appeal to HC.

If land acquired not used for 10 years then it should be returned to Government and if sold unused then 20% profit to be shared with all persons from whom land was acquired.

Dept of Land Resources, Ministry of Rural Development is implementing it.

Head of Department responsible if department performs illegal acts.

If fertile land acquired then equal amount of wasteland has to be converted to farmland.

Analysis:

1. Act makes land acquisition fairly impossible.


2. Consent clause are too stringent.


3. PSU's exempted from purview and so disadvantage to private sector.


4. Cost of acquisition of land increased due to this, making projects costlier.


5. Policy paralysis as Head of departments not sanctioning projects for fear of prosecution.


6. Public purposes under which land can be acquired without bringing it under purview of this Act is very broad field and so has diluted the Act.

Q.With reference to ‘stand up India scheme’, which of the following statement is/are correct?
1. Its purpose is to promote entrepreneurship among SC/ST and women entrepreneurs.
2. It provides for refinance through SIDBI.
Select the correct answer using the code given below. (UPSC CSAT 2016)

• 1 only




• 2 only




• Both 1 and 2




• Neither 1 nor 2

Ans . C

Q.Pradhan Mantri MUDRA Yojana is aimed at (UPSC CSAT 2016)

• bringing the small entrepreneurs into formal financial system




• providing loans to poor farmers for cultivating particular crops




• providing pensions to old and destitute persons




• funding the voluntary organizations involved in the promotion of skill development and employment generation

Ans . A

1. 4% of MSME's were getting loans from formal system, hence MUDRA bank and Scheme were introduced.

Q.India’s ranking in the ‘Ease of Doing Business Index’ is sometimes seen in the news. Which of the following has declared that ranking? (UPSC CSAT 2016)

• Organization for Economic Cooperation and Development (OECD)




• World Economic Forum




• World Bank




• World Trade Organization (WTO)

Ans . C

Q.Recently, India’s first ‘National Investment and Manufacturing Zone’ was proposed to be set up in (UPSC CSAT 2016)

• Andhra Pradesh




• Gujarat




• Maharashtra




• Uttar Pradesh

Ans . A

1. Andhra Pradesh is set to house India’s first national investment and manufacturing zone,

Q.Which of the following statements is/are correct regarding National Innovation Foundation-India (NIF)?
1. NIF is an autonomous body of the Department of Science and Technology under the Central Government
2. NIF is an initiative to strengthen the highly advanced scientific research in India’s premier scientific institutions in collaboration with highly advanced foreign scientific institutions.
Select the correct answer using the code given below. (UPSC CSAT 2015)

• 1 only




• 2 only




• Both 1 and 2




• Neither 1 nor 2

Ans . A

1. National Innovation Foundation – India (NIF) is an autonomous body under the Department of Science and Technology (India), Government of India. It was set up in February 2000 at Ahmedabad, Gujarat, India to provide institutional support for scouting, spawning, sustaining and scaling up the grassroots innovations across the country.

2. NIF conducts a biennial national competition for grassroots green technologies (not highly advanced) developed by farmers, mechanics, artisans and others through their own genius without any recourse to professional help.

3. NIF validates these innovations with the help of experts, and, ascertains the novelty in these innovations by doing prior art search. If the innovation is deemed novel, NIF files a patent on behalf of the innovator.

4. NIF also funds value addition initiatives in these innovations to upscale them and make them more useful for a larger segment of people.

Quiz

Score more than 80% marks and move ahead else stay back and read again!