Sunday, March 13, 2011

Delhi-Mumbai Industrial Corridor: devious scheme, dubious deals

DMIC scheme holds the 'public-purpose' umbrella over private interests
Here is a public-private partnership (PPP) scheme implemented by ministers and IAS officers with taxpayers’ money. The only thing ‘private’ is rights over resources and profits.
This article estimates, based on the available information and trends in the PPP policy, that at least 78 per cent of the total cost of the DMIC scheme and the western dedicated freight corridor (western DFC) is likely to be borne by the public sector.
The article also sheds light on other shady aspects of the DMIC scheme, including its undemocratic nature, irregularities in the selection of private partners, conflicts of interest, the dubious nature of a sovereign guaranteed loan extended to a 'private company', and private companies being given an extra-constitutional role in town planning at the cost of citizens’ rights.

By Kapil Bajaj

Delhi Mumbai Industrial Corridor (DMIC), which the government claims will attract investment of US dollar 90 bilion or about Rs 3.60 lakh crore, can be described as an umbrella scheme for a large number of PPP projects to be executed in six states -- Uttar Pradesh, Haryana, Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.
The scheme involves developing industrial areas and a host of other infrastructure in a band of 150-200 km on both sides of the ‘multi-modal dedicated freight corridor’ that the government has planned to build between Delhi and Mumbai.
The dedicated freight corridor between Delhi and Mumbai – called ‘western DFC’ -- is one of the two planned, the other one being Ludhiana-Kolkata or eastern DFC.
The two DFC projects are being implemented by Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), a wholly-owned subsidiary of Indian Railways, which was incorporated in October 2006.
The two freight corridors span about 2762 route km. The western DFC will traverse 1483 km from Dadri in Uttar Pradesh to Jawahar Lal Nehru Port (JNPT) in Mumbai. The eastern DFC will start from Ludhiana in Punjab and terminate at Son Nagar in Bihar – a distance of 1279 km.

Japanese angle
“The seeds for the project were sown as early as in April 2005 when Prime Ministers of India and Japan made a joint declaration for feasibility and possible funding of the dedicated rail freight corridors,” says the DFCCIL website.
DFCCIL estimates total cost of the two DFCs to be in “the region of Rs 40,000 crore” to be met through “a combination of debt from bilateral/multilateral agencies and equity from the ministry of railways”.
The western DFC project has been estimated at Rs 26,124 crore, according to government sources quoted in the media[1].
“There is an understanding that for the western DFC, the government of Japan will provide a loan to meet about 67 per cent of the construction cost… The loan will be extended on soft terms for a period of 40 years with a moratorium of 10 years. The remaining portion of the project construction cost will be borne by the ministry of railways as equity funding to DFCCIL,” says the DFCCIL website[2].
“The government has further proposed establishing, promoting and facilitating
Delhi-Mumbai Industrial Corridor (DMIC) along the alignment of DFC between
Delhi and Mumbai,” says a ‘concept paper’ on DMIC, prepared by IL&FS for the government[3].
“An MoU relating to the DMIC has been signed between the Ministry of Economy, Trade and Industry (METI) of Japan and the Ministry of Commerce and Industry (MoCI) of India to explore the opportunities for mutual cooperation. MoCI has further initiated the process by appointing IL&FS Infrastructure Development Corporation Ltd (IIDC), New Delhi, as consultant for preparation of conceptual framework of DMIC,” adds the same concept paper, without explaining why the government did not conduct competitive bidding in making the selection and why IIDC, a subsidiary of IL&FS, was selected.
(Interestingly, IL&FS, which the government regards as a ‘private company’, is owned 43.47 per cent by three central government-owned financial institutions and 24.16 per cent by ORIX Corporation, a Japanese financial services group, according to IL&FS website[4].)
The conceptual framework or the concept paper, prepared by IL&FS, was given a superfast approval by the government; it was ready by “the end of July 2007” and received “in-principle approval” on 16 August 2007, according to DIPP website[5].

No parliamentary discussion, no public consultation
There is no mention in the official information placed in the public domain as to whether the government had tried, before planning DMIC, to discuss the scheme in the Parliament or to elicit public opinion; there is no word on whether the Centre discussed the multi-state scheme in National Development Council (NDC). There is also no mention of the Planning Commission’s role, if any, in planning for the DMIC scheme.
There is also no information as to whether the Centre encouraged the concerned state governments to discuss DMIC in their legislatures and take the local bodies in confidence before agreeing to participate in a scheme that will affect the constitutional and statutory rights of local governments/Gram Sabhas at a time when land acquisition for industrial projects has been causing widespread social unrest.
In Maharashtra alone, 70,000 hectares of land is being acquired for the DMIC scheme by Maharashtra Industrial Development Corporation (MIDC), the official nodal agency, according to a PTI report of 09 August 2010[6].

‘Public scheme’ privately conducted
The DMIC scheme envisages development over two phases of 24 ‘nodes’ in the form of 11 ‘investment regions’ (IRs) and 13 ‘industrial areas’ (IAs).
An IR has been defined as “a specifically delineated industrial region with a minimum area of around 200 square kms (20,000 hectares).”
An IA has been defined as “a minimum area of around 100 square kms (10,000 hectares) for the establishment of manufacturing facilities for domestic and export-led production along with services and infrastructure”.
Scheduled to be completed by 2013, the first phase will involve developing six IRs and six IAs by the year 2013; the second phase comprises development of five IRs and seven IAs by 2018, according to the DIPP website[7].
The government claims that the project will turn the region in question into a “global manufacturing and trading hub” that will double the employment potential, triple industrial output and quadruple exports in the next five years.
For the PPP mode, the concept paper specifies projects for building “logistic parks, power plants, ports, airports, special economic zones, industrial parks, IT/ITES/biotech hubs, agro-processing hubs, knowledge cities, integrated townships, and augmentation of selected roads”.
Non-PPP modes are allocated projects that involve “augmentation of rail linkages and development of connectivity to the identified investment regions/industrial areas, provision of urban infrastructure, augmentation of industrial areas, provision of missing links and augmentation of state highways”.
An ‘apex monitoring authority’, chaired by the finance minister, was set up in September 2007 to “give overall guidance, planning and approvals”. Members include five union ministers, deputy chair of the planning commission, and chief ministers of the six participating states.
In January 2008, Delhi–Mumbai Industrial Corridor Development Corporation Ltd (DMICDC) was incorporated as a special purpose vehicle (SPV) “for project development, coordinating the implementation of the numerous projects and also raising finances, wherever needed”.
The SPV has an authorized equity of Rs 10 crores, the central government holding 49 percent, IL&FS 41 percent, and IDFC 10 percent.
The 10-member board of directors of DMICDC has five nominees of the central government, including the chairman (secretary-DIPP); four directors represent IL&FS, one IDFC; Amitabh Kant, a 1980 batch IAS officer of Kerala cadre, is the Managing Director and CEO of DMICDC [8].
In its first board meeting the same month it was incorporated (January 2008), DMICDC appointed IL&FS Infrastructure Development Corporation Ltd (IIDC), a subsidiary of IL&FS, as “project management consultant (PMC),” whose job would be carry out various project development activities for IRs and IAs to be undertaken in phase one.
Again, no competitive bidding was deemed necessary to be conducted in selecting the PMC.
In fact, the DMIC concept paper says: “The Japanese side suggested (at the third task force meeting on 23 July 2007) that in view of need to maintain continuity, IL&FS, which has prepared the project concept report, should be appointed as PMC.”
There could, however, be another possible explanation of doing away with this very basic rule of public procurement.
Since DMICDC is deemed to be a ‘private company’ under government rules (considering that 51 per cent of its equity is held by two private companies), even though it is primarily operating on taxpayers’ money, has the Centre as the largest shareholder, four government directors on its board, and a government nominee as a CEO, it can do whatever it likes!
(Details about the status of DMICDC and how it is operating on taxpayers’ money follow in subsequent paras.)
By that time, IL&FS had three roles in the same scheme --- as the consultant that prepared the project concept paper, as the part-owner of DMICDC, and as the PMC.
There is not only no official explanation for these grave conflicts of interest, but it seems IL&FS or its subsidiaries will also be free to participate in the various PPP projects that will be hatched under DMIC and for whose hatching IL&FS will be responsible as a shareholder in DMICDC and as the PMC.
According to the Economic Times of 29 September 2010, “IL&FS will become an equal partner with Reliance Industries (RIL) to develop an industrial township in Haryana,” whose location has been proposed by the promoters to be the main hub in north India for the DMIC.”[9]
The Haryana industrial investment agency has approved the setting up of the township and has sent the proposal to the DMIC, the report quotes a state government official as saying.
IL&FS and Reliance Ventures, a subsidiary of RIL, will be given 45 per cent stake each in ‘model economic township’ at Jhajjar which will focus on the domestic market; Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) will hold the rest, says the report, adding that about 10,000 acres of land, acquired for a mega SEZ, whose size was subsequently cut down, will be used for the township.
“The deal values the township at around one billion US dollars (Rs 4,500 crore),” says the report.
What the DMIC case illustrates is the dubiously dominant role that IL&FS, the ‘private company’ 43.47 per cent of whose equity is held by three government-owned financial institutions, has been playing not just in the DMIC scheme but in the entire PPP policy of the central and states governments.
IL&FS is one of the ‘transaction advisors’ for PPPs identified by the central government; it has so far bagged several hundred contracts/concessions both as advisor/consultant as well as developer under the PPP policy.
The government has turned a blind eye to the IL&FS having its cake and eating it too by playing the conflicting roles as consultant and developer of PPP projects[10].

Public to foot the bill, lose rights
The ‘umbrella’ and ‘open-ended’ nature of DMIC, allowing the central and state governments and their favoured ‘private partners’ to push any project under the scheme, is borne out by media reports.
A report in the Mint of 29 April 2010 says, “What was initially planned as an investment corridor along the proposed DFC between Delhi and Mumbai may give India its first world-class, self-sustainable smart cities if plans by DMICDC are implemented.”[11]
“When initially we thought about DMIC, we did not think of building new cities, but later we realized without world-class cities, no industrial hub can thrive,” Amitabh Kant, the CEO of DMICDC and a 1980 batch IAS officer of Kerala cadre, was quoted as saying.
Kant also said, “Around 80 per cent of these cities will be developed through the PPP model while the government has to build the basic infrastructure.”
(On April 30, 2010, DMICDC signed MoUs with selected Japanese consultants and governments of Haryana, Gujarat and Maharashtra for building “smart communities” or “eco cities” in the Manesar-Bawal region in Haryana, Dahej and Changodar in Gujarat and Shendra industrial region in Maharashtra.)
Kant’s statements betray the following two important features of the DMIC scheme as a whole.

(1) Using taxpayers’ money to build what is classified as “infrastructure” that will serve the larger purpose of supporting private investments and profits.

(2) Using the PPP mode to build cities that will give extra-legal and extra-constitutional role to private companies at the cost of citizens’ rights and liberties.

The following is an elaboration of these two features.

(1) Since the entire DMIC rides on the western DFC, it is important to take a holistic look at the two schemes in terms of their total cost, which will be Rs 3,86,124 crore (Rs 3.60 lakh crore for DMIC plus Rs 26,124 crore for western DFC).
The entire cost of the two DFCs, i.e. about Rs 40,000 crore, has been planned to be defrayed by public funds --- “a combination of debt from bilateral/multilateral agencies and equity from the ministry of railways.”[12]
Thus, the public sector will ultimately bear the entire expenditure on western DFC, which is Rs 26,124 crore.
The government will also finance “trunk infrastructure” of DMIC, representing 35 per cent of the total cost of the scheme; the rest of the money will be generated through public-private partnerships, according to a PTI report of October 06, 2010, quoting Amitabh Kant, the CEO of DMICDC[13]. That puts an expenditure of Rs 1.26 lakh crore – 35 per cent of Rs 3.60 lakh crore -- purely for the taxpayers to bear.
Next comes Rs 2.34 lakh crore that is to be defrayed through the PPP mode.
Let us assume, conservatively, an average debt-equity ratio of 75:25 for Rs 2.34 lakh crore of the cost to be defrayed through the PPP projects. That allocates Rs 1,75,500 crore to the debt portion and Rs 58,500 crore to the equity.
Assuming, conservatively, that the public sector will be willing to contribute 30 per cent of Rs 58, 500 crore through equity and viability gap funding or VGF (which is upfront grant, providing the comfort of equity), one can safely put Rs 17,550 crore for the taxpayers’ to bear.
As for the debt portion, the public sector seems to have been shouldering onerous responsibilities in the conduct of the entire PPP policy, accounting for 88.6 per cent to Rs 3,80,122 crore lent by all financial institutions to infrastructure projects in the year 2009-10, according to government data cited in the media[14].
Assuming, again conservatively, that the public-sector banks and financial institutions will account for 75 per cent of the total debt requirement of Rs 1,75,500 crore, one can add another Rs 1,31,625 crore to the public sector’s share of the costs.
The total public-sector contribution in debt and equity for the DMIC and the western DFC, thus, amounts to Rs 3,01,299 crore, i.e. a whopping 78 per cent of the total cost of Rs 3,86,124 crore!
The trick is simple: classify everything that you want taxpayers to pay for as “infrastructure” and then plan your investment around that infrastructure to make big bucks.
The PPP policy will also dutifully allow the private companies to get most of their equity and debt-based investment underwritten by the public sector, including through government guarantees (whose details follow in the subsequent paras).

(2) The ‘eco city’ or ‘smart community’ component of DMIC sets a dangerous precedent: the central government interfering in the urban planning jurisdiction of the states and local bodies.
The Article 243W read with 12th Schedule of the Constitution provides for the states to devolve to the municipalities the “power and authority” for “urban planning including town planning.”
DMIC also disregards the local bodies’ constitutional role in planning for their economic and social development, as well as Article 243ZD that requires these plans to be consolidated by ‘district planning committees.’
DMIC, instead, gives this planning power to Japanese companies; Hitachi, Mitsubishi Corporation, Toshiba JGC, Itochu and Tokyo Electric Power Company will be part of the consortia that will conduct the feasibility studies for building three eco-cities in Haryana, Gujarat and Maharashtra.
The entire concept of ‘eco city’ or ‘smart community’ has been defined in economic terms without explaining how the PPP mode of their development will affect the rights of the citizens.
“A ‘smart community’ can be defined as a city in which citizens, business and government live, work and interact in a sustainable manner through delivery of integrated, low-carbon products and services,” media reports quote Kant as saying[15].
A report in foreign newspaper Financial Times of September 21, 2010, says: “The DMIC is expected to host at least five new cities – Dholera in Gujarat, Manesar-Bawal in Haryana, Indore-Mhow in Madhya Pradesh, and Dighi and Nasik-Igatpuri in Maharashtra – by about 2015. However, the government will have very little say or involvement in the development of these cities.”[16]
“Amitabh Kant, chief executive of DMIC Development Corporation, a private company that is 49 per cent state-owned, says they would be primarily owned by private companies,” goes the FT report.
“The five cities sprouting along the DMIC will be de facto huge corporate townships, in which the inhabitants would have very little say on the management of the urban centres,” the report adds in an unattributed statement.
While the FT report can be refuted by the government (it has not been refuted so far), the DMIC scheme clearly shows the over-weaning ambition and brazenness of the central government’s PPP policy in serving private interests at all costs, including citizens’ rights.

Sovereign guarantee for a ‘private company’
Another great example of how the government machinery is serving private interests at the cost of the taxpayers is provided by Rs 1000 crore ‘project development fund’ or PDF to be contributed to equally by the governments of India and Japan for DMICDC to prepare ‘master plans’ and feasibility studies of various projects.
(Since they do not generate any private profits, except for the hired consultants, master plans and feasibility studies seem to be good candidates for public funding! The government, however, claims that the PDF is being used as a ‘revolving fund’ whose cost would be recovered from successful bidders.
It is also important to note that cost of developing various projects under phase one and two of DMIC has been estimated to be US dollars 2-2.5 billion or Rs 800-1000 crore, according to the DMIC concept paper.[17])
In addition to contributing Rs 330 crore to PDF as its share for the 11th Plan period, the Centre, in a highly dubious move, has extended sovereign guarantee to a 75 million US dollar (about Rs 330 crore) loan from Japan Bank for International Cooperation (JBIC) to IIFCL for on-lending to DMICDC.
The loan agreement was signed between JBIC, IIFCL and DMICDC in December 2009.
Owned 51 per cent by IL&FS and IDFC and 49 per cent by the government, DMICDC is designated as a ‘private company’ under government guidelines. The General Financial Rules (GFR 2005) of the central government clearly say that the “government guarantees shall not be provided to the private sector.”[18]
“It should be out of question to extend sovereign guarantee to a loan that will benefit a private company and yet the government has done it; it’s a dangerous precedent,” a senior Planning Commission official told this writer.
What is interesting is that the finance ministry had earlier “told the JBIC that it would not be possible to extend such a guarantee as the project will be handled by a private company,” according to a July 2008 report in The Economic Times[19].
Later, on the intervention of the prime minister’s office (PMO), it was decided that the loan would be routed through a government agency (IIFCL) in order to make it acceptable to the finance ministry, reports The Economic Times in October 2008[20]. Routing the loan through public-sector IIFCL is thus a barely veiled and silly ruse to make the sovereign guarantee and the loan appear as conforming to the rules.
Interestingly, DMICDC, the ‘private company’, has been functioning from Udyog Bhavan, Delhi, headquarters of the ministry of industry!!
(The MoU between JBIC, IIFCL and DMICDC for the 75 million US dollar loan deal cites DMICDC’s address as 135 Udyog Bhavan, New Delhi.[21])
Also, while the Japanese have laid down that the money from their account (created separately) under PDF, “shall only be used for payment towards project preparatory/development expenses,” no such strict criteria has been laid down for money in the Indian account.
How that money will be used is anybody’s guess.
(End of the matter)

[1] The Hindu Business Line, 17 September 2009, Viewed on 21 November 2010

[2] Dedicated Freight Corridor Corporation, Viewed on 21 November 2010 (!ut/p/c1/04_SB8K8xLLM9MSSzPy8xBz9CP0os3iT0JAAQ09LYwMD3zBHA08Dp0A_MzdnYwtDI6B8pFm8gYWRr6-Psae7s4G7p6eXiamPoQEEENAdDrIPv36wPA7gaKDv55Gfm6ofqR9ljtMeDwP9yJzU9MTkSv2C3AiDLJNQRQDchdL8/dl2/d1/L0lJSklna2shL0lCakFBTXlBQkVSQ0lBISEvWUZOQTFOSTUwLXchLzdfNFVUUDFJOTMwME1WQTBJMEJRTjZGQzM4SDA!/?WCM_PORTLET=PC_7_4UTP1I9300MVA0I0BQN6FC38H0_WCM&WCM_GLOBAL_CONTEXT=/wps/wcm/connect/DFCCLibrary/dfccil/dfcc_project/project+funding)

[3] Department of Industrial Policy and Promotion (DIPP), the Ministry of Commerce and Industry, Viewed on 21 November 2010 (

[4] Infrastructure Leasing and Financial Services, Viewed on 21 November 2010 (

[5] Department of Industrial Policy and Promotion (DIPP), the Ministry of Commerce and Industry, Viewed on 21 November 2010 ( _ABOUT_DMIC)

[6] Zee News citing a report by the Press Trust of India, Viewed on 21 November 2010 (

[7] Department of Industrial Policy and Promotion (DIPP), the Ministry of Commerce and Industry, Viewed on 21 November 2010

[8] Department of Industrial Policy and Promotion (DIPP), the Ministry of Commerce and Industry, Viewed on 21 November 2010

[9] The Economic Times, 29 September 2010, Viewed on November 21, 2010

[10] The conflicting roles played by IL&FS as consultant and developer is illustrated by the Delhi-Noida toll bridge project. A case study of the project, commissioned by the Planning Commission, says: “IL&FS, a project sponsor, was full involved in (a) conceptualizing the project and (b) as a member of the steering committee that decided that the project should be implemented by a corporate entity promoted by itself. This involvement of the project sponsor in designing the structure and setting the technical specifications of the project would be considered a clear conflict of interest under public-sector contracting norms.”
Secretariat of Infrastructure, the Planning Commission, Viewed on 21 November 2010 (
IL&FS is also joint promoter, along with state governments, of some companies specially incorporated to “facilitate PPP projects”; one such company is PDCOR Ltd, jointly promoted by Rajasthan government and IL&FS. Why and how IL&FS became the PPP tycoon can be a separate subject of enquiry.

[11] Mint, 29 April 2010, Viewed on 21 November 2010

[12] Dedicated Freight Corridor Corporation, Viewed on 21 November 2010 (!ut/p/c1/04_SB8K8xLLM9MSSzPy8xBz9CP0os3iT0JAAQ09LYwMD3zBHA08Dp0A_MzdnYwtDI6B8pFm8gYWRr6-Psae7s4G7p6eXiamPoQEEENAdDrIPv36wPA7gaKDv55Gfm6ofqR9ljtMeDwP9yJzU9MTkSv2C3AiDLJNQRQDchdL8/dl2/d1/L0lJSklna2shL0lCakFBTXlBQkVSQ0lBISEvWUZOQTFOSTUwLXchLzdfNFVUUDFJOTMwME1WQTBJMEJRTjZGQzM4SDA!/?WCM_PORTLET=PC_7_4UTP1I9300MVA0I0BQN6FC38H0_WCM&WCM_GLOBAL_CONTEXT=/wps/wcm/connect/DFCCLibrary/dfccil/dfcc_project/project+funding)

[13] “Trunk infrastructure on the corridor will be funded by the government, which is approximately 35 per cent of the overall funding requirements,” Kant said while addressing a CII conference. He added that there is no shortage of funds and the rest of the funding requirements will be generated through the PPP mode.” Business Standard citing a Press Trust of India report, 06 October 2010, Viewed on 21 November 2010

[14] The Financial Express, 07 July 2010, Viewed on 21 November 2010 (

[15] The Times of India, 02 May 2010, Viewed on 21 November 2010 (

[16] Financial Times, 21 September 2010, Viewed on 21 November 2010

[17] Department of Industrial Policy and Promotion (DIPP), the Ministry of Commerce and Industry, Viewed on 21 November 2010 (

[18] Department of Expenditure, the Ministry of Finance, Viewed on 21 November 2010 (

[19] The Economic Times, 06 July 2008, Viewed on 21 November 2010 (

[20] The Economic Times, 05 October 2008, Viewed on 21 November 2010 (

[21] Department of Industrial Policy and Promotion (DIPP), the Ministry of Commerce and Industry, Viewed on 21 November 2010 (

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