The road to nowhere

No power cuts, no water shortage. Public transportation will be available at no more than a 10-minute walk and environment-friendly ways of transportation — cycling, for instance, or even walking — will be encouraged through dedicated tracks by the roads. All utilities will be underground — whether it is parking for vehicles, sewage disposal, water and electricity lines, TV or telephone cables. Water harvesting, recycling and the use of solar energy will be a defining feature of these ‘live-work-play’ communities. Houses, hospitals, schools, offices, airports, convention centres and mass rapid transit systems — name the amenity you want and you’ll find it here.

Where is ‘here’? China, or some place in the Gulf? What if we said these are plans for India? Because that’s what the master plan for the $90-billion Delhi-Mumbai Industrial Corridor (DMIC) envisages — futuristic industrial cities, logistical hubs and residential townships that can compete with the best in the world — right alongside the 1,483-km stretch of the dedicated railway freight corridor. If the DMIC’s plans come to fruition, Shanghai — the city that Indian agglomerations should aspire to be when they grow up, according to our politicians and developers — will seem like a little two-horse town in the middle of nowhere.

Work on one of the largest infrastructure projects ever undertaken in the world will start next year, seven years after it was first conceptualised. According to the grand plan, 24 greenfield investment regions will be carved out in six states through which the freight corridor passes, completely transforming India’s industrial sector. The ‘smart’ cities that will come up in these regions will attract people and companies and boost exports four-fold to $720 billion in less than a decade from now. Sounds impressive? There’s more. These regions, varying in size from 84 sq km to over 900 sq km, will come up with a combined investment of $90-100 billion. 

The choice of states should definitely help. The six states under the DMIC — Uttar Pradesh, Haryana, Rajasthan, Gujarat, Madhya Pradesh and Maharashtra — already account for 43% of the country’s GDP, 57% of the value of exports, 45% of the factories in the country and 45% of the workers. Creating hubs or investment regions should only add to the output from these regions. Some of these investment nodes have been modelled on the lines of planned cities such as the Tianjin Eco-city in China, which came up on non-arable land and involved minimal rehabilitation and resettlement. In the first phase, seven such regions have been identified .

A total of five consortia of international consultants have drawn out master plans, which have been notified at the state level. The plan involves creating industrial and urban cities interlinked with mass rapid transit corridors. “Building just these seven new investment regions will involve an area covering 2,396 sq km, with the Dholera region (920 sq km) being larger than Singapore (716 sq km) alone. This is a highly complex project that has never been attempted anywhere in the world,” says Amitabh Kant, CEO of the Delhi-Mumbai Industrial Corridor Development Corporation (DMICDC), at its swank corporate office on the third floor of The Ashok, one of the oldest five-star hotels in New Delhi. Not surprising then that the DMICDC office is refreshingly different from rest of the hotel and, in a way, a reminder of what the entity has been mandated to do. 

The genesis

The concept of the DMIC was cleared in 2007 by the Centre with the intention of developing it as a global manufacturing and trading hub as part of a joint economic cooperation initiative with Japan. The idea was to piggyback on the greenfield Delhi-Mumbai freight corridor project being set up by the railways to move goods between industries located near the corridor to the ports. The freight corridor, too, passes through Maharashtra, Gujarat, Rajasthan, Haryana and Uttar Pradesh, starting at Dadri in UP and ending at the Jawaharlal Nehru Port Trust in Mumbai.

Post World War II, industrial development in Japan happened around the Tokyo-Nagoya-Osaka belt, as business cities were linked with ports and connected with high-speed passenger trains. In India, the need is not for high-speed passenger trains but for a separate freight corridor to move goods. Over time, freight traffic, which brings in money for Indian Railways, has been systematically ignored. The freight project will segregate passenger traffic from freight, leading to faster movement of goods and making railways more competitive vis-a-vis road transportation. Dedicated corridors will be constructed to sustain speeds of 100 kmph and loads up to 15,000 tonne.

And for this reason, the ministry of commerce wanted to leverage the potential of the freight corridor and create an investment hub around the new railway line up to 300 km away from the freight corridor. Apart from the five states through which the railway line is set to run, the area chosen for the industrial corridor sprawls over a sixth state — Madhya Pradesh.

One of the prime objectives behind creating a manufacturing hub along the railway line is providing an impetus for planned urbanisation. These seven new regions will house over 12 million people, creating employment for over five million. Usha Raghupathi, professor at the National Institute of Urban Affairs, feels that creating quality townships and regions would put in motion a ‘demonstration effect’. “Other cities within the state would want to come closer to these centres,” she explains. 

In order to bring the industrial corridor to life, the DMICDC was created, with the government holding 49% stake in it, the Japan Bank of International Cooperation (JBIC) holding 26% and the balance being held between the Housing and Urban Development Corporation (19.9%), the India Infrastructure Finance Company (4.1%) and the Life Insurance Corporation of India (1%). “We started with a corpus of barely ₹10 crore,” says Kant, an IAS officer of the Kerala cadre who is on deputation to DMICDC. “Under the initial plan, everything was to be done by the private sector, which was looking improbable. After 65 rounds of meetings, we were able to get ₹18,500 crore from the finance ministry to trigger the project. Later, we got Japan to commit $4.5 billion (around ₹28,000 crore),” he adds.

Even though the project was conceived in partnership with Japan, DMICDC executives point out that the projects in the investment regions (such as for manufacturing units) are open to investments from other companies as well. Currently, the Japan International Cooperation Agency (JICA) is involved as a bilateral donor agency along with JBIC (formerly, The Export-Import Bank of Japan). According to sources, while JBIC is expected to route about $3 billion into the project, JICA is supposed to lend around $1.5 billion. 

However, there is still no clarity on how the funding from JICA will take place. JICA India chief Shinya Ejima says, “Japan has committed to investing in the project, but the terms and conditions have not been decided yet.” Funds from JBIC, on the other hand, would either be used by Japanese firms to set up manufacturing facilities along the corridor or for some showcase projects, such as the model solar project at Neemrana industrial park in Rajasthan, an integrated logistics IT project for tracking container cargo movement and a desalination project at Dahej in Gujarat.  

Blueprint to business plan

While the DMIC will initially set up the basic infrastructure of each city, such as roads, power supplies and sewage treatment plants, it expects private investors to build factories and housing clusters. This, in turn, will provide revenues to be redeployed for further development. “We are not following the traditional model of states developing regions with municipalities,” adds Kant. There would be a special purpose vehicle (SPV) created for each of the zones, headed by a CEO. (see: Inside DMIC).

Initially, all the projects will be executed on a non-public-private partnership (non-PPP) mode, since there will be no users to pay for these projects then. Once funds start flowing into the area’s SPV and business starts picking up, the ‘PPPable’ projects will directly be undertaken by the regions’ SPV and those that overlap other regions will be handled by the Centre.

The rationale for ploughing back funds to the area SPV is to ensure that it can sustain operations without further government or state funding. As per the agreement with the Centre, the state government cannot dip into the revenues of the SPV. “For the first time, we have in place a state-support agreement and a shareholder’s agreement between the Centre and the states to develop these projects,” Kant explains. In the first phase, the largest exercise would kick off in Dholera in Gujarat next year and will cover 154 sq km. Establishing the basic infrastructure in this region is expected to cost around ₹20,000 crore. The first phase covers around 29% of the total developable area in Dholera and estimates indicate the total investment needed for the entire region would be around ₹70,000 crore. Ambitious? Certainly! Achievable? Well, that’s the $90-billion question everyone wants answered. 

Tied or untied?

There are no new beasts coming out of the closet — it’s all the same. The first challenge is to get past the inter-governmental tug-of-war and get the myriad clearances. 

The Delhi Development Authority has already put the brakes on the Dwarka Convention Centre project near the IGI Airport by refusing to transfer the land. The aerotropolis being planned south of Bhiwadi, on the other hand, needs approvals from various ministries before it sees the light of the day. On the metro rail front, the finance ministry is yet to decide how the Japanese aid can be deployed. 

Not surprising then that JIBC’s Ejima feels too much time is being spent on coordination, as there are a lot of ministries and agencies involved within the DMIC framework. If that is not enough, the marriage of convenience between the JICA and government of India also seems to be souring. The catch is that JICA lending to projects run by DMICDC (a deemed government company) comes as tied aid, that is, a portion of the funds should be used to purchase products from the parent country. This is not what the finance ministry would like.

The DMICDC wants the JICA funds to be deployed in projects identified for the seven investment regions, some of which include two MRTS projects, one waste water treatment plant in Ahmedabad and some small energy projects. It has also decided to showcase the entire project by announcing some ‘early-bird projects’ in these regions to attract investment.

A top official in the finance ministry points out that Japan is seeking step-down or conditional funding, where 30% of the funding will go towards Japanese companies investing in the projects. “Japanese products are more expensive than others and if the funding comes at cheaper rates, it would be nullified by the high-priced Japanese products,” says the official. The only exception where conditional funding was allowed was for the dedicated freight corridor. “This was a one-time exception, but conditional funding cannot become the norm,” adds the official. 

Actually, the lack of clarity over who executes the first round of projects itself is a dampener. “One vital thing missing in the plan so far is the absence of large manufacturing initiatives, such as a steel plant, which could have served as an anchor unit and helped create a township,” points out Abhaya Agrawal, partner at Ernst and Young. Yet, who funds the project and who executes it or which will be anchor industries become discussion points only after you are off the ground — literally. There are stumbling blocks there as well.  

Ground realty

Cut to Bhiwadi, less than 100 km away from the national capital region (NCR), where the Kushkhera-Bhiwadi-Neemrama node is being developed alongside the corridor. Just 30 km before you enter Bhiwadi, tall hoardings by builders, set up on each side of the National Highway 8, welcome you. The small town of Manesar has more real estate hoardings advertising investment opportunities in Bhiwadi than mobile towers.

As soon as you take a turn for Bhiwadi, the most noticeable sight is of young executives sitting under canopies with multiple brochures in hand. Ajay Chauhan, a 26-year-old local who has been selling flats and plots in the Bhiwadi-Neemrana region for the past three years, offers to show us three projects by BDI, Avalon and Terra Group. Adding to the merits of the builder and the property, the DMIC plan is shown as the icing on the cake.

A couple of miles ahead, the otherwise plain landscape is dotted with multi-storeyed buildings, with nothing around for miles. There is hardly any farmland in this Haryana-Rajasthan border region that has not been converted into prime real estate. Rajveer Chaudhary, COO of Kajaria Tiles, which has a huge manufacturing facility in Bhiwadi, points out that land prices have been booming in anticipation of the industrial corridor. “Prices have appreciated quite quickly in the Bhiwadi region, but I think they will stay put for some time now.” Over the past three years, ever since the DMIC plan went viral, land prices have shot up in the Neemrana-Gehlot belt from ₹3-5 lakh per bigha to over ₹50 lakh-1 crore per bigha (four bighas equal one acre).

The Bhiwadi-Alwar highway, also home to Honda’s manufacturing facility, is now a hub of real estate activity, with builders and agents alike feeding on the frenzy. Balwant Poonia, manager, Real Vista Consulting, a real estate consulting firm and a channel partner for developers, says, “Prices have appreciated 100%. We have roughly 7,000 flats in this area, but we will need close to 25,000 flats for workers after Honda’s expansion. Even if they don’t buy, they can rent,” says Poonia. Incidentally, four years ago, there was only one builder in the area, with flats being sold at ₹1,200 per square feet. Today, the going rate is ₹3,200 per sq feet.

RC Jain, senior regional manager, RIICO, which is overseeing the development of the proposed investment region, says land acquisition has already begun in the Khushkhera-Bhiwadi-Neemrana belt. “Sections 4 and 6 of the Land Acquisition Act have already been invoked for 1,500 hectares of land in 10 villages in Khushkhera. The compensation award will be declared after the state elections [due in December] according to the new Act recently enacted by the Centre.” Jain, however, feels the land acquisition cost will double or increase after the new Land Acquisition Act kicks in.

Before the new land Act came into existence, all states except Gujarat were following the traditional route of land acquisition. Gujarat, which has its own policy of land acquisition through pooling and town planning, has acquired the largest tract of land for the Dholera region, close to 154 sq km. The Dholera Special Investment Regional Development Authority (DSIRDA) is in charge of town planning for the project.

In the case of Madhya Pradesh, the government has been able to acquire around 1,200 acre of land around Ujjain. “But very little progress has been made in the Indore region, as most of the affected parties have gone to court against the acquisition process. They believe they can get more value, up to five times more, if they offer land to residential projects instead of an industrial project like the DMICDC,” says a senior state government official. With the new Act, the process would get only more complicated.

The land acquired by the Madhya Pradesh government falls short of the targeted 372 sq km. The situation is the same across the proposed industrial corridor. The total land acquired so far for the first phase is 154 sq km in Dholera, 24 sq km in Shendra, 1,100 acre in Gurgaon (global city land acquired by the Haryana state government), around 740 acre in greater Noida and 1,200 acre near Ujjain in Madhya Pradesh. Collectively, this is negligible compared to the 2,396 sq km required for phase 1. 

Bharat Kaushal, chief executive officer and managing director of Sumitomo Mitsui Banking Corporation India, while agreeing that the new land Act would have an impact on the project, feels that the brunt of the Act will be felt in the second phase. “There is enough land for the first phase,” says Kaushal. As per the plan, in the first phase, Dholera will be transformed from a barren land into a city with its own international airport and manufacturing hub that will house engineering, electronics and pharmaceutical firms.  

Though Kant cannot afford to be sceptical, he is cognisant of the problems that may be posed by the Land Acquisition Act. “The states have expressed concern that the process of land acquisition will now become very complex and, therefore, take more time than anticipated,” he admits. 

The road ahead

Till date, there have been just two instances where the country has managed to successfully execute infra projects on a large scale. One is the 2,800-km Hazira-Vijaipur-Jagdishpur pipeline set up by GAIL in 1991, after it was first proposed in 1986. The pipeline, which set up the foundation of India’s gas infrastructure, was the first cross-country project to run across the states of Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh, Haryana and Delhi.

The second notable project is the 5,846-km Golden Quadrilateral, which connects Delhi, Mumbai, Chennai
and Kolkata. The project, conceived in 1999 and to be completed by 2003, finally ended eight years later in 2012, with a cost overrun of ₹14,000-15,000 crore against the 9th Five-Year plan estimates of ₹20,000 crore. This was largely on account of land acquisition delays, tendering issues and shoddy work by contractors.

Though past performance is no guarantee of the future, Kant seems to be a die-hard optimist. “Even if we succeed in implementing what is in hand, it would be a great achievement.” However, Kant won’t be around to see the project through, as he will have to bow down to the government culture of not letting bureaucrats settle in a place for long. The DMICDC chief will soon have to vacate his plush office. So what will be the fate of the project and who will step into Kant’s shoes?

Answers to that will only be clear post the 2014 Lok Sabha elections. But no matter who replaces Kant, the DMICDC’s troubles aren’t going to disappear. Does that mean the industrial corridor will remain just another dream? Raghupathi of the National Institute of Urban Affairs is not writing off the project yet. “Any project needs a good plan and the DMICDC has a good one in place,” she says. Agrees Ernst & Young’s Agrawal. “The manufacturing-led story for the DMIC is not a short-term one but a long-term idea,” he says. 

Point taken, but at the end of the day, the industrial corridor is still a plan. And going by Keynesian logic, in the long term, we will all be dead.