Dissertation On Major Issue In Infrastructure Projects Delay Construction Essay

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The IRDA vide their notification dated 14th July 2000, regarding Registration of Indian Insurance Companies Regulation, 2000 stipulates that every insurer in the business of life insurance shall invest and at all time keep invested not less than 15% of his controlled funds in Infrastructure and Social sector. Besides, those insurers who are in the business of General Insurance (i.e. non-life insurance) are required to invest and at all time keep invested not less than 10% of their controlled funds in Infrastructure and Social sector. For this purpose, IRDA defines infrastructure to include road, highway, bridges, airport, port, railways including BOLT, road transport system, water supply project, water treatment system, solid waste management system, irrigation project, industrial parks, sanitation and sewerage system, generation-transmission-distribution of power, telecom, project for housing, or any other public facility as may be notified in the official gazette.

For an infrastructure company, Section 80-IA of the Income Tax allows deduction of 100% profit from its income during initial 5 years of operation and then 30% deduction of profit from income during another 5 years. For this purpose infrastructure covers electricity, water supply, sewerage, telecom, roads & bridges, ports, airports, railways, irrigation, storage (at ports) and industrial parks/SEZ.

Mega projects (primarily infrastructure) receive a sizable investment (~10%) of the gross fixed capital formation in India. Land acquisition has been the major reason for delays in the projects. However, there has been a steady increase in the proportion of projects running on schedule and a sharp decline in the proportion of projects with cost overruns. These accomplishments have been achieved due to better financing, project management, and reform in the regulatory frameworks related land acquisition aspects.

The acceptance of a user fee and development of alternate sources of revenue have helped attract larger investments in mega projects. With increasing private sector participation, delays due to project management are expected to reduce. The modifications in the regulatory framework on land acquisition issue is move in the right direction. However, methods used for assessments related to land acquisition is still manual, making the whole process time consuming. Technology could be a good instrument in reducing the time required for these assessments as well as in bringing transparency in the system. Decentralization with capacity building at the state level would also help in the long run in reducing these delays.

The National Highways Act of 1956 had provisions for acquiring land through a competent authority (a person authorized by the central government by notification in the official gazette). Under the Act, publication of the intent of the government to acquire land, surveys, hearings of objections, and the declaration of acquisition were to be completed within a year. This Act reduced the time frame significantly. This Act included provisions for compensation to only the title holders based on the market value of the land, additional payments for trees, crops, houses, or other immovable properties, and payments for damage due to severing of land, residence, or place of business.

Poor compensation and undervalued market price of land have led to many disputes by the affected population. The undervaluation was as high as four to ten times, due to both regulatory arbitrage (government has to provide clearance for land use change) and information asymmetry (title holders may be difficult to identify due to poor record keeping). As of November 2008, the central government was considering the modification of the prevalent Land Acquisition Act by modifying the definition of “public purpose,” increasing the compensation package, imposing restrictions on non-used land, and simplifying the process of dispute resolution.

The villagers are not permitting the construction contractor appointed by RVNL to undertake the activity of earthwork and bridge construction on the land already acquired, both private and government. The reason for agitation by villagers is that in some of the villages, the rates paid for state government land are 10 to 20 times higher than that for private land. For a comparative statement of price (village-wise) of the Rayati land and government land is enclosed (see Annexure Table A18.1). Such a wide variation in the pricing of land has resulted in resentment among the private landowners. The villagers are demanding the same rate for compensation as is being given for government land. The District Collector, as per the Orissa Government Settlement Rules, should have determined the price of the government land on the basis of transactions made for the private land in the vicinity. Instead,

In some areas, even the government land is in possession of farmers who are raising crop on this land without payment of any taxes or levies. They are now demanding compensation at the same levels as those given to other title holders of private land. Since they do not have title to the land, it is obviously not possible to grant them compensation. Similarly, the forest department had permitted project-related construction on some forest land, which lacked tree cover. However, it is found that this land is also being cultivated by non-title holders and they are not permitting the construction without compensation.

Tehsildars have levied cess for government land being acquired at the rate of 75 per cent of the capitalized value, which works out to Rs 10 lakhs per acre. As a result of the above difficulties in acquiring land for the project, the work progress has been slow and the revised cost of acquiring the land is now estimated at Rs 54.5 crore, which is way above the original estimated cost (as in April 2005) of Rs 23.7 crore. This has had an adverse impact on the project financials. The main lesson from this case is that in the absence of full cooperation of the state government and its functionaries, railway projects can be unduly delayed and viability affected.