New Delhi: The Planning Commission doesn’t want the Delhi Mumbai Industrial Corridor (DMIC) to hold its corpus in a trust, arguing the structure isn’t transparent enough for a public project.
India and Japan have promised to invest $4.5 billion each in the industrial corridor. The government’s money will be held in the trust and further invested in the special purpose vehicles (SPVs) of the states that are to build the trunk infrastructure for the project.
The Planning Commission raised its objections in a recent letter to the Department of Industrial Policy and Promotion (DIPP).
A government official aware of the development said the apex planning body is against having a trust form for DMIC.
“This structure is not transparent,” said the official, declining to be identified. “Trusts are more suited to charitable bodies, not government agencies as there are accountability issues involved.”
In a reference to India’s apex audit body pointing out flaws in government policies such as on spectrum and coal block allocations, the official added that public money should not be held in a trust, which has low regulatory oversight, unless there was a debate and a clear policy decision that cannot be questioned by the government watchdogs.
DIPP, however, is standing firm, saying the trust structure for DMIC was approved by the Cabinet and only a Cabinet decision can change it. “We are replying to their (Planning Commission’s) observations. They are a member to the trust, so we have to convince them,” said a DIPP official, who also did not want to be identified.
The trust is headed by the secretary of the department of economic affairs in the ministry of finance.
The official said the concern may have arisen due to the fact that a trust would mean making the trustees responsible for the corpus. “But there are enough trusts floating around; National Skills Development Council is a trust,” this official said.
He added that as funds from the trust would go to state-controlled SPVs, the money would not be much out of the purview of the government.
Ajay Dua, former secretary of DIPP, said that as Delhi Mumbai Industrial Corridor Development Corp. Ltd (DMICDC) is a private company—the government’s shareholding in it is 49%—the government couldn’t have invested in it directly. The Japanese government, too, had concerns about investing in a private entity, he said.
“The idea of a trust was to basically get over the structure of a private body. However, trusts are not governed by the same set of principals as other government bodies are,” Dua said, adding the government should perhaps acquire a majority holding in DMICDC to tide over the situation.
DMIC, announced in 2006, is billed the largest infrastructure project in the world with an estimated $90-100 billion required only to set up the infrastructure over 30 years.
Manish Agarwal, executive director-infrastructure at audit and consultancy firm PricewaterhouseCoopers Pvt. Ltd, said the merits of having a trust can be decided by looking at the governance structure around it.
“One has to look at it in entirety as the corpus of the fund is too large,” he said. Agarwal added that if regular government procedure is followed then for every new project that DMIC commissions, it would have to go through various inter-ministerial approval processes, which may delay the project.
In August, the Cabinet approved giving a 26% equity stake in DMICDC to Japan to ensure the nation’s commitment to the project.
India also wants Japanese state-owned agencies—Japan Bank for International Cooperation (JBIC) and Japan International Cooperation Agency (JICA)—to look at the basic infrastructure requirements of the project in the initial stages of its implementation.
JBIC will lend $3 billion and JICA will provide an additional $1.5 billion through official development assistance to DMIC over five years.
DMIC proposes to develop self-sustainable, so-called smart cities on either side of the 1,483km western dedicated rail freight corridor between Dadri in Uttar Pradesh and Jawaharlal Nehru Port Trust in Navi Mumbai.
The corridor will run across six states—Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Gujarat and Maharashtra—and a majority of the projects in the corridor are envisaged to be implemented through public-private partnerships.
The Cabinet, in a meeting last September, approved allocation of Rs.17,500 crore over five years to provide assistance through debt or equity to the SPVs and for the development of trunk infrastructure in the industrial cities along the corridor. The cabinet also approved financial assistance of Rs.1,000 crore over five years for further project development.