Key Issues

Part 5

DMIC Summit – Developing Hub for Investors

DMIC Financing

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.

DMIC Financing

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.

DMIC Financing

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.

DMIC Financing

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.

DMIC Financing

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.

DMIC Financing

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 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 Financing

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.

DMIC Financing

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.

DMIC Financing

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.

DMIC Financing

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.

DMIC Financing

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

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.

DMIC Financing

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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