Investment in industries and infrastructure projects

Infrastructure Development

One of the many areas in which foreign direct investment can benefit a country or any entity, for that matter, is that of development of infrastructure. It has been observed over the years, that a lot of countries as well as other recipients of direct investment from overseas entities have used that money in order to develop the infrastructural facilities at their disposal.

All the various types of infrastructure that are at the disposal of a country like health or education, for example, may be benefited by foreign direct investment.

Technological infrastructure is one of the many areas in which foreign direct investment is meant to benefit a country. With the help of foreign direct investment being made in a country the government can construct, as well as, improve the existing technological tools at their disposal.

This in turn also plays a very crucial role in the economic development of a country as this technological advancement assists a country in upgrading its industries and thus helps them to face the challenges of the contemporary global economy.

Foreign direct investment is also capable of upgrading the health infrastructure of a particular country. This could be done by way of providing high-end equipments or medicines.

Such investment is normally made by the world level organizations in countries that are economically backward and have no or little medical infrastructure to speak of. For years, the World Health Organization, as well as the World Bank and the International Monetary Fund have been providing a number of the economically backward countries, all over the world and especially in Africa, with money and medicines in order to eradicate critical diseases or improve the medical infrastructure in place.

Communication infrastructure is an important area where the foreign direct investment can come in handy. The money that is invested in a country by overseas entities can be used for the construction of roads, railways and bridges.

These facilities are used for establishing connections with the remote areas of a country and for transporting important services to these parts like medicines and aids at times of floods or other natural disasters. A lot of construction groups are taking active interest in developing the communicational infrastructure of other countries.

Foreign direct investment is also used for the purpose of educating the unskilled labor force that is present in a country. In India during the later stages of 80s and 90s there was a situation whereby there was a huge labor force but it was mostly unskilled and was employed in the unorganized sector.

It was possible with the help of the financial assistance from the overseas direct investors to train these people so that they may be capable of being recruited into the industry. Foreign direct investment is also useful for executing mass educational programs that can educate those people who remain out of the bounds of conventional and institutional education as they are not able to afford it or it may not be available in their areas.

Privatisation of infrastructure development

India’s infrastructure deficit, whether congested roads and ports, inadequate hospitals or wastewater treatment facilities, and slow trains is a key factor constraining rapid, competitive growth and job creation and thereby imposing huge costs on society. Low productivity, poor competitiveness, high costs, and the slow pace of urbanization are some of the consequences of this deficit.

In this context, PPPs in infrastructure represent a valuable instrument to speed up infrastructure development in India. If India already represents the largest PPP market in the world, there has been a large decline in private investment in PPP projects in recent years for a number of reasons, including delay in project approvals and land purchase by the government, complicated dispute resolution mechanism in concession agreements and lower than expected revenue due to aggressive assumptions.

Impact of PPP in the context of lack of infrastructures

The issue of lack of infrastructure in India is highlighted by the World Economic Forum, according to which the global requirement for infrastructure spending over the next 20 years is at least USD 40 trillion i.e. USD 2 trillion per annum. With all other commitments and responsibilities, it is undisputable that the states are not well sufficient to fully finance the same and hence the need for PPP becomes apparent. The importance of PPP infrastructure sector can be showcased by the fact during last 25 years, over 1000 projects worth at least USD1 trillion have been completed under PPP basis as pointed out by KPMG in one of its last study.

In order to revive the dilapidated infrastructures, according to the last data available from the Wold Economic Forum, the governments globally need to spend about USD 2 trillion annually over the next twenty years. In the context, PPP may help in maximizing the economic value of the project due to the dominant expertise of private party, increasing the efficiency of the project by way of judicious allocation of risks and responsibilities and boost the development of technology and capital starved sectors.

The increasing impact of PPPs can be estimated from the fact that in 11th five years plan 292 projects worth Rs2.4 lakh crore are being implemented and 404 projects worth Rs.3.8 Lakh crore are expected to be awarded in mid-term as mentioned by the Indian Construction Sector on its website. The maximum share of 35.4% and 15.9% has been granted to the road and ports sector respectively. In all cases, leading states have been noticed by the PPP central office which has noticed that among these states you have Karnataka, Andhra Pradesh and Madhya Pradesh which are the leading states in terms of number and value of PPP projects. At the central level, the National Highway Authority of India (NHAI) is the leading user of the PPP mode al.

Regarding India, let us acknowledge and salute the huge efforts made to create the right enabling environment for the PPP. These relate to enacting new legislation, as for example, the Electricity Act, 2003, the amended National Highways Authority of India Act, 1995, the Special Economic Zone Act, 2005, and the Land Acquisition Bill. As also the creation of new institutions like regulatory authorities in telecom, power and airports, implementing authorities like the National Highways Authority of India (NHAI), and financial institutions like the Infrastructure Development Finance Company, the India Infrastructure Finance Company and so on. A slew of model concession agreements across sectors created the template for private participation.

On the other hand, as pointed out by several Committees and Reports, there is a sharp decline in private investment in PPP projects in recent years principally because of delays in project approval as pointed out by a Moody’s report (Moody’s Investor Service). Delay in project completion has resulted in cost overruns and revenue losses to private concession owners. The same report also point out the fact that the poor performance of some infrastructure projects, including PPP, has been a source of stress for both developers and the Indian banking system.

Among the numerous recommendations, the Report on 19 November 2015 from the Committee on Revisiting and Revitalising Public Private Partnership (PPP) Model set up by the Union Ministry of Finance pleaded for a consistent and transparent legislative and institutional frameworks which will lower the risk of adverse changes that can reduce market confidence and deter investor participation. Indeed, in many countries, PPP-specific laws are not strictly required to make PPPs legal, but have been introduced to encourage them as a model for delivering public infrastructure. In South Korea, for example, the PPP Act and the Enforcement Decree regulate the procurement of PPP projects, including a “Basic Plan for PPP,” which provides a detailed implementation process and defines the roles of associated parties. In Europe, France and Greece have laws that accelerate the implementation of PPPs. In the developing world, there are PPP facilitation laws in Angola, Benin, Mauritius, Fiji and Honduras.

Advance Infrastructure

Good quality infrastructure is critical to sustainable growth, especially for rural areas.
As over 60 per cent of the population lives in rural areas, with low levels of per capital income, there is need to impart greater attention in improving rural infrastructure.
Currently the rural infrastructure is inadequate to support over 600,000 villages. Investment in rural transport infrastructure stimulates the rural economy and hence acts as a tool for poverty reduction.
The services in the rural sector, like market access, education, health, and communication depend on the availability of infrastructure.
A common observation has been that the rural areas with better connectivity also lead on the development scale. Inadequate transport infrastructures in rural areas cause lack of mobility and constraint to rural development.
However, providing infrastructure entails huge dose of capital investment. Rural infrastructure growth is thus dependent on financial resources.
Improved transportation infrastructure and services undoubtedly contribute to reduced costs of transport, market expansion, improved productivity and competitiveness. Still, within the economic function of transport, the sector contributes to pro-poor growth patterns by targeting transport interventions to support the development of markets and businesses that serve and employ the poor.
To address the issue of rural infrastructure the government launched the Bharat Nirman programme and there are independent schemes to boost Road building, Irrigation, Housing, Water Supply, Electrification, and Telecommunication Connectivity. In this issue we focus on the relevance of rural infrastructure in raising economic development in rural areas.
There has been a virtual telecom revolution in the last ten years connecting all villages. In fact the growth of rural teledensity is remarkable and is growing at a much faster rate than urban teledensity.
Information Communication Technology, (ICTs) is known to be a facilitator of socio-economic development. Rural areas which lag behind facilities by way of health, education, financial services and employment avenues are using the benefits of ICT.
Certainly, the growth of rural telephony, especially mobile telephony has brought improved connectivity and this has contributed significantly to socio-political and economic mainstreaming of rural India in the past decade.

The importance of infrastructure to economic development: an example from China

The fact that infrastructure provides critical support to the growth of an economy can be clearly seen when bottlenecks arise. One of the most striking examples is that of China’s intercity transport system, with its links to the supply of raw materials, coal, and electricity.
The coverage of China’s intercity transport networks is one of the thinnest in the world: the total route length per capita or per unit of arable landfor highways or railwaysis similar to, or lower than, that in Brazil, India, and Russia. This has resulted mainly from chronic underinvestment in China’s transport infrastructure. China’s transport investments amounted to only 1.3 percent of GNP annually during 1981-90, a period of rapid growth in transport demand.
Since the onset of China’s open door policy in 1979, economic growth averaging 9 percent a year has resulted in an unprecedented expansion in intercity trafficwith growth averaging 8 percent a year for freight and 12 percent a year for passengers.
This traffic growth has imposed tremendous strains on the transport infrastructure, as manifested by the growth of bottlenecks in the railway network, the severe rationing of transport capacity on railway lines, and the poor quality of service experienced by shippers and passengers.
Transport shortages have adversely affected the supply of coal in particular. Coal is the source of some 73 percent of China’s commercial energy and represents about 43 percent of the total tonnage of freight handled by the railways.
The shortage of coal has in turn adversely affected supplies of electricity, about 76 percent of which is generated by thermal plants. In 1989, China was experiencing a shortfall in available power of about 20 percent of industrial electricity requirements. Central and local authorities established quotas for allocating electricity and rationed new connections, but power cuts have nevertheless been frequent.
A conservative estimate is that the annual economic costs of not having adequate transport infrastructure in China during the past several years amount to about 1 percent of China’s GNP.

RURAL INFRASTRUCTURE DEVELOPMENT-A TOOL FOR RURAL POVERTY

Rural infrastructure is not only a key component of rural development but also an important ingredient in ensuring any sustainable poverty reduction programme.
The proper development of infrastructure in rural areas improves rural economy and quality of life. It promotes better productivity, increased agricultural incomes, adequate employment; etc. Development of rural areas is slow due to improper and inadequate provision of infrastructure with compare to urban areas. That’s why rural share in GDP is always less.
Infrastructure is important for the services it provides. It is an important input to the production process and raises the productivity of other sectors.
Infrastructure connects goods to the markets, workers to industry, people to services and the poor in rural areas to urban growth centers. Infrastructure lowers costs, enlarges markets and facilitates trade.
Thus, infrastructure provides services that support economic growth by increasing the productivity of labor and capital thereby reducing the costs of production and raising profitability, production, income and employment.

Areas of Rural Infrastructure

A set of basic facts define the constraints within which the economic growth and development of India’s rural population must be addressed. Fundamentally, they relate to resource constraints, the nature of infrastructure, and the future trajectory of the geographical distribution of the population.
These services include, at a minimum market access, educational, health, financial, entertainment, transportation, and communications. Further, services depend on the availability of infrastructure.
Infrastructure investment is irregular and inadequate to support 600,000 villages and the average cost of providing infrastructure is inversely related to the scale of the operation.
Limitations on the financial and other resources available for providing infrastructure made it impossible to provide infrastructure at every village in India. Even if they were provided at every village, it will not be commercially sustainable.
The basic geographical structure of population distribution will change once India shifts from being agriculture based country to industry based nation. The Government has launched “Bharat Nirman” for the development of rural infrastructure. Plans proposed for the development of India Rural Infrastructure are –

Irrigation,
Roads,
Housing,
Water Supply,
Electrification,
Telecommunication Connectivity.

Growth of financial infrastructure in rural India

Financial Infrastructure: It comprises the underlying foundation for a country’s financial system, including all institutions, information, technologies, rules and standards that enable financial intermediation.
Poor financial infrastructure in many developing countries poses a considerable constraint upon financial institutions in expanding their financial services to the underserved segments of the society. It also creates risks to financial institutions and resultant lack of adequate credit facilities leads to financial crises.

Interventions for Achievement of Financial Inclusion

Goal of Financial Inclusion (F.I.) is difficult, but not unattainable:

State Driven Interventions by Central, State and Local Governments.
Voluntary Interventions by Banks, Micro-finance Institutions (MFI), Cooperatives, Self Help Groups (SHGs) and other social organizations.

Measures

Harnessing advances in the Information & Computer Technology (I.C.T.), like Smart Cards, Internet Kiosks and Cell Phone Messaging.
Developing, testing and implementing appropriate products and suitable delivery channels for financial services to be extended.
Attention to the 5 Ps of marketing-Product, Price, Place, Process and Promotion.

Boosting Rural Development through Agri-infrastructure

Most of the perishable items are produced in the villages which remain confined to these due to the absence of road networks. The existing road and rail facilities are inadequate. Most of the areas which produce good quality fruits are still inaccessible. This coupled with the rough terrain of the area and lack of regulatory markets make the farming community to suffer a lot at the hands of the local traders.
Farmers have no information about the market price. There is an urgent need to establish suitable infrastructure like the use of information communication technology (ICT) for benefit of farming community.
The technology like e-kiosks and e-choupals of Indian Tobacco Company in Madhya Pradesh and other states of the country are doing a great job. Each electronic kiosk is connected to a number of villages.
The villagers can obtain any information easily from these kiosks regarding various aspects of crop production. Communication with different markets and among different stakeholders is also possible through the use of ICT.
Irrigation is another area which requires infrastructure upgradation. With suitable infrastructure the irrigation potential can be increased. The utilization of available water for agriculture too is far from efficient. Wastage of water is huge in surface irrigation systems.
The inability to conserve adequate water and curb its indiscriminate utilization, including rampant wasteful exploitation of water is also a cause of concern. The problem is more severe in dry land area of the country which accounts for more than 60 percent of the total cultivable area. Suitable water conserving infrastructure like the drip irrigation and sprinkler irrigation should be installed in these areas.
Water conservation techniques like water sheds, rainwater harvesting and other measures can bring additional area under irrigation in these water scarce regions. Similarly we can also invest in creating community grain storage Banks where the farmers can store their excessive food grains. This will also prevent them from distress selling as they can wait for the right time to sell their produce.
To meet the energy needs of farming sector solar energy can be used and for that solar panels should be set up jointly in the villages to cater to the energy requirements of the farmers.
There is a need to invest in developing infrastructure of agricultural supply chain. Moreover, the government has emphasized on increasing investments of private sector in marketing, transportation and storage facility of fast degradable agricultural products.
The private sector should also come forward and invest in creating agriculture assets. They can use it on a built operate transfer basis.
At the same time greater emphasis has to be laid on research infrastructure by establishing a number of new institutes, national research centers for several crops and livestock to address the local problems and come out with site specific solutions.
To conclude, infrastructure potentially can influence rural economic performance through three ways. These are

Individual development by the increased use of existing resources-land, labor, capital, etc.
Bringing additional resources to rural areas and
Socio-economic development by creating assets and making rural economies more productive.

I Suvrathan, Secretary in the ministry of Food Processing has rightly said, “ Opportunities given to farmers to run post harvest facilities all by themselves in a professional way will empower them, as farmers can hold on to their harvest more than 24 hours and have a say in fixing price for their produce.

BharatNet Programme of India for Rural Connectivity

BharatNet focuses on bringing high-speed broadband connectivity to rural India. In collaboration with Bharat Broadband Network Limited (BBNL), the Government has taken a step forward to connect nearly 2,50,000 Gram Panchayats.
BharatNet for various e-Government services like tele-medicine, tele-education, e-Health, and e-Entertainment, etc. the project is meant to create local employment opportunities and drive socio-economic growth in the area.

SERVICES THROUGHT BHARATNET

Connectivity of Gram Panchayat level offices like schools, panchayat offices, post offices etc
Services like certificates, telehealth, e-Education, agriculture information etc. to rural population
Help in reducing the digital divide across socio-economic strata
Learning & employment opportunities for rural youth

Benefits: Majority of Indians live in rural areas and therefor the initiative will serve as a backbone for transforming India into a digitally empowered knowledge economy, by ensuring internet service to one and all

Government Programmes towards Rural Infrastructure

Government of India continued to implement specific infrastructure strengthening programmes in sectors like irrigation, rural electrification, rural connectivity and rural drinking water supply.

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA):

Mahatma Gandhi National Rural Employment Guarantee Act, aiming at ensuring 100 days’ guaranteed employment for every rural household in a financial year – has put a major emphasis on creation of durable community assets as well as social and economic infrastructure in rural areas.
Since its inception, in September 2005, the program has been instrumental in enhancement of rural livelihood opportunities on a sustained basis, by developing need-based rural infrastructures

Pradhan Mantri Gram Sadak Yojana and Rural Roads

Rural Road Connectivity is not only a key component of Rural Development by promoting access to economic and social services and thereby generating increased agricultural incomes and productive employment opportunities in India, it is also as a result, a key ingredient in ensuring sustainable poverty reduction. Notwithstanding the efforts made, over the years, at the State and Central levels, through different Programmes, about 40% of the Habitations in the country are still not connected by All-weather roads.
It is well known that even where connectivity has been provided, the roads constructed are of such quality (due to poor construction or maintenance) that they cannot always be categorised as All-weather roads.
With a view to redressing the situation, Government have launched the Pradhan Mantri Gram Sadak Yojana on 25th December, 2000 to provide all-weather access to unconnected habitations.
The Pradhan Mantri Gram Sadak Yojana (PMGSY) is a 100% Centrally Sponsored Scheme. 50% of the Cess on High Speed Diesel (HSD) is earmarked for this Programme.

PMGSY Programme Objectives

The primary objective of the PMGSY is to provide Connectivity, by way of an All-weather Road (with necessary culverts and cross-drainage structures, which is operable throughout the year), to the eligible unconnected Habitations in the rural areas, in such a way that all Unconnected Habitations with a population of 1000 persons and above are covered in three years (2000-2003) and all Unconnected Habitations with a population of 500 persons and above by the end of the Tenth Plan Period (2007).
In respect of the Hill States (North-East, Sikkim, Himachal Pradesh, Jammu & Kashmir, Uttaranchal) and the Desert Areas (as identified in the Desert Development Programme) as well as the Tribal (Schedule V) areas, the objective would be to connect Habitations with a population of 250 persons and above.
The PMGSY will permit the Upgradation (to prescribed standards) of the existing roads in those Districts where all the eligible Habitations of the designated population size have been provided all-weather road connectivity.

Rural infrastructure key to inclusive growth

The recurrent theme of public discourse during the last one decade has been ‘inclusive growth.’ Inclusive growth is essential for social and economic equity. Since India’s majority of people live in villages, it is easily seen that rural infrastructure is a major component for ensuring inclusive growth.
Development of Infrastructure envisages creation of values through engineering consultancy.
Rural development entails structural changes in the socio-economic situation to achieve improved living standard of low-income population and making the process of their development self sustained. It includes economic development with close integration among various sections and sectors; and economic growth, specifically of the rural poor.
In fact, it requires area based development as well as beneficiary oriented programmes. No wonder, rural development is one of the main and important tasks of development planning in India.
Development of rural areas is slow due to improper and inadequate provision of infrastructure with compare to urban areas. That’s why rural share in GDP is always less. The planning and development of human settlements and provision of required infrastructure are much better in urban areas.
Rural population migrates to urban cities for employment opportunities and better facilities. Besides, the limited capacity of rural economy to accommodate the increasing population sends the labour force as surplus to migrate large cities.
There is then a need to encourage reverse migration to rural areas through proper development of rural infrastructure and basic amenities by creation of income generation avenues and improving the quality of life Rural infrastructure is not only a key component of rural development but also an important ingredient in ensuring any sustainable poverty reduction programme.
The proper development of infrastructure in rural areas improves rural economy and quality of life. It promotes better productivity, increased agricultural income.

Industrial Development

To create high quality world class infrastructure facilities in the State and enhance connectivity to the National Capital Region (NCR) and other leading markets.
To provide single window facilitation in the State to expedite project clearances and provide an investor friendly climate.
To provide and facilitate expeditious land availability for setting Industrial ventures and Infrastructure projects.
To promote and encourage private sector participation in the development/management of Industrial Estates/Areas, Growth 3 Centers, IIDCs, Special Economic and Commodity Zones and Parks, Theme Parks, Tourism infrastructure, development of new tourist destinations, Airports/Helipads/Airstrips, Roads, generation, transmission and distribution of power, and projects in the area of Horticulture, Floriculture, Bio-technology etc.
To provide assured, good quality, uninterrupted and affordable power for industries.
To simplify and rationalize labour laws and procedures in tune with the current day requirements
To promote Small scale, Cottage and Khadi and Village Industries and Handicrafts Silk and Handloom sectors
To address problems of sickness and incipient sickness in Industry, SSIs and facilitate required restructuring and rehabilitation, etc.
To promote Industries based on local resources particularly in the Areas of Agriculture, Horticulture, Agro & Food Processing and Floriculture.
To promote planned and scientific exploitation of the mineral resources of the State and maximize value addition within the State.
To promote leading edge technologies and sunrise industries in the State in the areas of Information Technology and Bio-Technology.
To promote public/private sector involvement in generation of power and strengthening of the transmission and distribution network.
To promote Tourism as a focus area and develop Uttaranchal as a premier global tourism destination.
To provide special attention for setting up industries in remote areas.
To develop and strengthen air, road, rail and other connectivity.
To develop Uttarakhand as a premier education and research centre.

Salient Features:

Single Window Contact, Information and Facilitation by District Industries Centres and SIDCUL.
Single Window Clearance Mechanism
Time Bound Deemed Clearances.
Establishment of Udyog Mitra.
Development and Promotion of Industrial Estates by providing Land/Plots to Entrepreneurs.
Encouraging Private Sector Participation.
Professional Advice to the Projects for developing infrastructure by U-DEC
Mega Projects Over 50 Crores will be considered for grant of further concessions.
State Government and SIDCUL will provide financial credit to the entrepreneurs.
Enhancement of Current Power Production of State.
Simplification of Labour Laws.
Development of Remote and Hilly Powers
Emphasis on Khadi and Village industries
Development of Handicrafts, Handlooms, Wool Based Industry, Agro and Food Processing Industry, Floriculture etc.
Special attention to the Tea Industry and Forest Based Industry.
Schemes for IT industry, Biotech Industry and Industry Based on Herbal & Medicinal Plants.

Benefits:

100% Central Excise exemption for 10 years on items other than those mentioned in the negative list in the Concessional Industrial Package announced by the Central Government.
100% Income Tax exemption for first 5 years and 30% for next 5 years for the Companies and 25% for others.
Capital Investment Subsidy @15% with a maximum of Rs. 30 Lakhs. (Rs. 3 million).
Exemption from entry tax on Plant & Machinery for setting up Industry or undertaking substantial expansion and modernization.
Land use conversion and development charges and regime will be rationalized.
Stamp duty concessions will be provided in respect of land in specialized commodity parks, including I.T. parks.
For the purpose of Interest Incentive, Substantial Expansion shall mean additional investment of not less than 25% of the undepreciated book value of plant and machinery of an industrial unit.
For revival/rehabilitation of sick SSI units, interest incentive @ 3% with a maximum of Rs. 2 lakhs per annum shall be provided on the loan taken under fully tied up revival and rehabilitation package from financial institutions, banks etc.
In the case of sick non-SSI units, Government will sympathetically consider measures required under revival/rehabilitation package drawn by Operating Agency/Financial Institutions/Banks.
100% exemption on Entertainment tax will be allowed for Multiplex projects in the State for a period of three years, and for all new amusement parks and ropeways for five years.
75% of the Total Expenditure subject to a maximum of Rs.2 lakhs incurred in obtaining national/internationally approved quality marks such as ISO series certificate etc., shall be reimbursed to the entrepreneurs provided that the reimbursement / grant availed for this from all sources should not exceed the total expenditure on this head.
75% of the cost subject to a maximum of Rs. 2 lakhs shall be made available to the entrepreneurs in the shape of assistance for registering their patents, provided that the total reimbursement/grant availed for this from all sources should not exceed the total expenditure on this head.
For educated unemployed youth, financial loan assistance for projects upto Rs. 2 lakhs in case of Manufacturing/Service Industry and projects upto Rs. 1 lakh in business sector
Industries generating employment opportunities shall be encouraged.
Purchase preference and price preference will be given to State SSIs in State purchases. Purchase preference shall be accorded to Non-SSI units within the State vis-avis units outside the State.
Matching State subsidy on approved projects of National Horticulture Board (NHB), Agricultural & Processed Food Products Export Development Authority (APEDA), National Medicinal Plant Board (NMPB) subject to a maximum of Rs. 20 Lakhs and subject to a total subsidy not exceeding over 50% of the project cost.

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