INFRASTRUCTURE SECTOR IN INDIA: CRITICAL ANALYSIS

Indian retail & real estate sector of India are like ‘choli daman ka saath’ type of storyline. In last union budget of 2007-08, government provided huge support and backup to these sector esp. real estate and infrastructure sector. Today when I was reading a report on real estate industry I found a critical analysis given by C & W (CUSHMAN & WAKEFIELD INDIA) on every move and budget allocation of government for these sectors.

Infrastructure industry was accorded important space in the budget through extension of Bharat Nirman Scheme and the 31-per-cent increase in fund allocation to this scheme is expected to generate employment in semi-urban and rural areas, which can increase income levels of working people in these areas and increase the potential demand for housing finance.

Metropolitan cities like Mumbai and Delhi are poised to witness quality infrastructure development due to the forthcoming Commonwealth Games in Delhi and the promotion of Mumbai as “the world-class financial centre”. Government is providing various facilities like Tax holidays for five years in hotels and convention centres in NCR. Approval of Real Estate Mutual Fund (REMF) a perfect move to motivate investors toward real estate industry.

Critical Analysis of Union Budget 2007-08 with Cushman & Wakefield consultancy

Golden Quadrilateral Project

Government plan of action: It is nearly complete and there is considerable progress in the North-South, East-West corridor project, which is expected to be completed by 2009. NHDP-III, NHDP-V and NHDP-VI are in advanced stages of planning or implementation.

C&W analysis: The completion of these projects will improve connectivity and boost cargo movement by roads. Moreover, this will lead to improved access to major consumption centres and create opportunities for development of newer growth corridors.

The following will also be a likely impact of timely completion of these projects:

• Expanding the existing manufacturing bases

• Creation of warehousing and logistics centres

Jawaharlal Nehru National Urban Renewal Mission (JNNURM)

Government plan of action: Till date,538 projects with a total cost of Rs 23,950 crore have been sanctioned in sectors such as water supply, sanitation, transport, road and housing in many cities spread over several states.

C&W analysis: JNNURM is perhaps one of the most ambitious urban infrastructure programme and its having the potential to act as a growth catalyst for India's most important cities.

Public private partnership (PPP) model

Government plan of action: The budget announced the launch of the US$5 billion infrastructure financing initiative by Citigroup, Blackstone, IDFC and IIFCL. Government also proposes to promote the flow of investment to the infrastructure sector by Real Estate Mutual Fund (REMF).

C&W analysis: India requires approximately US$320 billion for infrastructure during the eleventh Five Year Plan. Such initiatives will create the necessary finance pool for speedy implementation of critical infrastructure projects in the country. Infrastructure projects require long-term funds and policy support in the form of tax and other concessions.

Tourism Infrastructure

Government plan of action: The budget proposes to increase the provision for building tourist infrastructure from Rs 423 crore in 2006-07 to Rs 520 crore in 2007-08 nearly 20% increase in total budget.

C&W analysis: This move is to encourage tourism in India and will eventually help the hospitality and other tourism-related sectors.

Gems & jewelery

Government plan of action: The budget proposes to bring down the duty on cut and polished diamonds from 5 per cent to 3 per cent; on rough synthetic stones from 12.5 per cent to 5 per cent; and on unworked corals from 30 per cent to 10 per cent.

C&W analysis: Such a move will provide impetus for Gems and Jewellery parks and Special Economic Zones.

E-Governance

Government plan of action: National e-governance programme funding increased to Rs 719 crore.

C&W analysis: This move will increase transparency in the real estate sector as it will allow easy access to land records as well as simplify procedures for property registrations, property tax, and land title checks.

As we have heard that proper infrastructure is basic mantra of success of any country and according to union budget 2007-08, our dream will come true.

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HIGH STREET DESTINATIONS

Corruption- Laggard in economic development of INDIA

Indian economy is like a banyan tree of thousand years of life having number of branches i.e society, culture, business, politics, education, industries etc. With the moving pace every branch grow up and provide assistance to the whole tree, but in case if one branch get infected with any of disease it affects whole tree.

If we see this 1000 year old tree, it is flourishing and covering large space of land means number of Indian natives & companies are spreading around the world and providing facilities to other countries & their citizens. In U.K & USA, Indians are doing exceptionally well in various fields i.e. politics, business, arts, literature etc (List of famous Indian personalities abroad..)

Factors behind corruption:

Political Patronage - In India, politicians means criminals. If you want to check out then simply look at the background of any local MLAs, MPs . More than 78% of MPs, MLAs are mafias, highly corrupted individuals, Old jamizaars “Landlords”, criminals or highly corrupted government official.

Administrative Labyrinth- Cumbersome and dilatory administrative procedures and practices are another major cause of corruption in India.

Bureaucracy: If you visit any public (government) office, you will some very simple commonalities i.e.

• No cleanliness
• No fear “ DAD’s office” type of attitude of officials.
• Babu raj “ the peon of government officials looks more powerful than their bosses”.
• “No Bribe No work” principle

Lack of Punishment: “Justice delayed is justice denied in most cases of corruption”.

According to law ministry data of 2006, 33,635 cases were pending in Supreme court, nearly 34.2 lakhs cases were pending in high courts, Allahabad high court having highest pending cases of about 7.3 lakhs. In lower courts, nearly 2.3 crore cases were pending acroos the country. In India conviction rate is only 6%, average disposal time of case in court is 15-20 years.

Social Enviornment: The societal culture or societal environment has powerful impact on public administration. In present day India, corruption has found an acceptance in the social psyche and behaviour. Social evils like bribery, nepotism and favouritism have come to be accepted in the society. Other reasons may be:

Selfish attitude among Individuals: It's very common Indian tendency that if I am not able to do something then others will definitely don’t do it. May be its jealousy or arrogance but its there in Indian attitude & to show off and show down else an individual can do anything and can pay anything.

No time problem: Actually this factor also play a vital role in promoting corruption. Suppose you are new at any place and don’t know anybody in the city but you want to do your job done, then normally people ready to pay extra money than the value of product or service offers which prompts other people to generate extra money from newbie in the city or place.

Increasing worthiness of individuals- With the open economy, youths are earning 5 digits salary. So they never bother in wasting their salary in unfair means i.e. boozing, sex etc which sometimes tapped them in trouble and to come out from such situations they are ready to pay any amount of money to government authorities which also aggrandize the feeling of corruption among government authorities i.e. police etc

ex. Bangalore based IT employee who was caught by railway police in some unfair means and he paid Rs.20,000 for his freedom & to clear the case.

Corruption story:

Ex-SSP Pherurai booked in corruption case
Possesses wealth, property much beyond his means
Cash money- Rs 15 crore
Flats: Ludhiana, Jagraon, Chandigarh and Mohali. All flats in very posh location of cities.
The former SSP also owns a Swaraj tractor 735, another tractor HMT 5911 and Mohindra 575 and Ford 5630 apart from a combine Swaraj 8100 and many other luxurious cars i.e ford, Honda city etc.

According to annual survey of transparency International Corruption Perception Index 2006, by the Berlin-based organization Transparency International, Finland, Iceland, and New Zealand are perceived to be the world's least corrupt countries, and Haiti is perceived to be the most corrupt. In TICPI, India improved its rank from year of 2005 by few points even though its Index value is 3.3 and ranked 74 where CHINA ranked 71.(where 10 points means least corrupted country and 0 means highly corrupted country.)

Consequence of corruption:

According to Supreme court statement – " Corruption in a civilised society is like cancer, which if not detected in time is sure to malignise the polity of the country leading to disastrous consequences. It is termed as a plague which is not only contagious but if not controlled spreads like a fire in a jungle. Its virus is compared with HIV leading to AIDS, being incurable. It has also been termed as royal thievery. The socio-political system exposed to such a dreaded communicable disease is likely to crumble under its own weight. Corruption is opposed to democracy and social order, being not only anti-people, but also aimed and targeted at them. It affects the economy and destroys the cultural heritage".

For deep insight of corruption's affect on Indian economic development look at this article....

Economic Development: High corruption is manily associated with following factors:

• Higher public investment
• Lower government revenue
• Lower investment on operations & maintenance
• Ensuring low quality of public infrastructure

According to one of the studies following important points are extracted:

• Any corrupted country lowered its public investment by 5 % points compared to uncorrupted country.
  

• If our corruption level will decrease to scandivanian countries then our investments rates could increase annually by some 12 percent and the GDP growth rate by almost 1.5 percent each year.
  

• Corruption acts as an additional tax on investment by lowering the potential return to an investor on both the initial investment and on subsequent returns.
  

• Corruption also reduces the government’s resources and hence its capacity for investment, since tax revenues are depleted by tax evasion.

This has two adverse effects: first, shifts away from investments in development areas occur as bribe-takers are less likely to invest in activities with significant positive social benefits like education and health.

Second, overall investment levels may fall, since conspicuous consumption or flight of illegal earnings is probably higher than legal earnings. The high potential for capital flight of illegal earnings makes corruption more likely to be associated with a negative impact on the balance of payments

Social Welfare: corruption also has adverse effects on human development.

First, corruption reduces the availability and increases the cost of basic social services. Access to core social services can be easily restricted with the intention to make corrupt gains.

Second, in addition to a decrease in total government expenditure (due to tax evasion), corruption also shifts government expenditure from priority social sector spending to areas, where the opportunities for rent-seeking are greater and the possibilities for detection are lower.

COMBATING CORRUPTION

• Political Commitment
• Administrative Accountability
• Procedural Simplification
• Civil Society Participation