21.1.14

DMIC update

The government set the stage for commencement of work on the ambitious Delhi-Mumbai Industrial Corridor, approving a plan to raise concessional loans of $4.5 billion (around Rs.29,000 crore) from Japan, in addition to a new industrial hub along the Amritsar-Kolkata route. The CCEA also cleared industrial townships in Greater Noida and near Ujjain, along with a solar hub in Neemrana, in what is seen as a concrete movement towards building new cities along the 1,500 km corridor from Delhi to Mumbai.
The green light for Japanese assistance comes days ahead of Shinzo Abe’s visit and thumbs down an offensive mounted by the department of economic affairs (DEA), which said the loans were tied aid that will provide undue gains to companies from the Asian economic giant.
Although DEA was uncomfortable even with the modified plan, the CCEA decided on a Special Terms for Economic Partnership (Step) loan from Japan International Cooperation Agency (JICA). The 40-year loan, with a 10-year moratorium, will attract an interest rate of 0.1%. In contrast, other standard official development assistance (ODA) loans cost 0.8-1.4% with a repayment period of 15-30 years.
A Step loan requires at least 30% sourcing from Japanese companies, which was the main bone of contention with DEA. The approval came with the rider that at least two companies will participate in the “price discovery” mechanism, which in other words mean that even after bidding, the contract will not be awarded if there is only one bidder. In addition, as a special measure, JICA has agreed to treat companies where Japanese companies hold up to 10% as those eligible for the special sourcing arrangement. So, a joint venture, where an Indian partner holds a 90% stake and the rest with Japanese firm, will be eligible to be included in the 30% sourcing clause.
The Amritsar-Kolkata Industrial Corridor is proposed to be developed in a band of 150-200 kms on either side of Eastern Dedicated Freight Corridor (EDFC) and will include a belt of at least 5.5 lakh square kms in the seven states.

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