Employment Bond Sample India

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					3L series (Life long learning)


 Infrastructure Development in
  India with special reference to
              Kerala
                     By

         Shri Babu Jacob
      (Former Chief Secretary to GoK &
              Advisor to GoK)


                                         1
Infrastructure definitions
Oxford dictionary
 Basic structural foundation of a society or enterprise.
 roads, bridges, sewers etc regarded as a countrys’
   economic foundation.
Infrastructure services*
       – have some elements of public good
         in them
       – generally exhibit significant positive
         externalities*
       – difficult to price fully to cover all
         costs
       – contain elements of monopoly
*Externality (Microecon by Walter/Nicholson)
An externality is said to exist when the activities of one agent directly af f ect the utility of production possibilities of a nother
        agent.
Positive and negative externalities
-India Inf rastructure Report by Rakesh Mohan 1996
                                                                                                                                    2
– high up-front costs, long pay-back periods.
 typically bulky and lumpy investments –
  large initial capital, large pay-back periods,
  long-term finance



  The manner in which infrastructure
  investments are selected, designed,
  funded, implemented and finally operated
  would impart on the quality of the services
  and have major macro-economic
  implications for the country

                                                   3
According to Tenth five year plan documents,

 a) Social infrastructure – education, health
 b) economic infrastructure – energy, transport
   infrastructure

Urban Infrastructure        Transport
   Infrastructure
   Water Supply                Roads
   Sewage & Sanitation         Railways
   Urban Roads                 Ports
   Drainage                    Airports
   Solid Waste Management      Inland Water
   Transport

                                                  4
    Improving Transport Services to Facilitate Economic Growth



   Excessive time/money spent on moving people and goods [with annual
    GDP growth of 6.0-6.5%]

   Economic losses from congestion/poor roads high at [120-300 billion
    rupees (equivalent to US$2.6-6.5 billion) a year].

   Exports less competitive due to inefficient and unreliable transport/
    logistics systems.

   India’s infrastructure, a hindrance to business [2/3 respondents of 1999 CII
    survey].

   Negative effects of poor transport felt by general pubic - social
    isolation/traffic accidents/motor vehicle emissions.


                                                                            5
                      Road Transport and Highways


   Growing demand for door-to-door transport to boost road transport.

   Increased demand for road transport due to the inherent competitive
    advantage of road transport.

               and partly due to failure of other modes, especially rail, to attract
                the demand (that would otherwise be more suitable for them).

   Geographic coverage of India’s highway network, [0.66 km of highway per
    square km of land area] almost identical to United States’ [0.65]

           and much higher than that of China (0.16), Mexico (0.16), and Brazil
            (0.20).

   Comparison very poor for India in terms of lane capacity/surface quality.




                                                                                 6
                  Demand for Transport and Transport Infrastructure

   40% of India’s 661,000 rural villages not having all-weather access to markets and
    social services.

   1990s - India’s economy grew by 6 to 7 percent a year, transport demand by 10
    percent

                   demand to continue at 10% growth rate.

   The road sector, [80 percent share of land transport demand] grew @ 12 percent
    (freight) and 8 percent (passenger).

   Rail transport demand growth slower at 1.4 percent (freight) and 3.6 percent
    (passenger).

   This is not surprising: all over the world, rail transport stagnates as a result of
    intense competition from road.

   Capacity of Infrastructure Support to expand

                   to meet this high transport growth demand.

   Increasing demand for high-quality of services further enhances the level of
    infrastructure support.
                                                                                  7
             Importance of Highways
 Essential for economic growth.
 Trade facilitation, export growth and globalization.
 Improve agricultural/industrial productivity.
 Improve living standards.
 Increase accessibility.
 Poverty reduction.
 Just in time inventory system, and fast service
  delivery.
 Better private sector productivity.
 Better health, education and community services.

                                                         8
 National Highway Development Programme (NHDP)


Golden Quadrilateral (GQ)        – 5846 km
North-South East-West (NSEW)     – 7300 km
                                  13146 km
                       Rupees billion
      - fuel cess        200
      - MLA assistance   200
       Market borrowing 100
       PSP                40
             Total         540
   Addl. market borrowing 20
      PSP                 20
                           580

Re.1 /litre fuel cess = Rs.340 b in 6 years [97–98 to 02–03]

                                                          9
 Fuel cess raised to Rs.1.50 per litre in 2003-04
  to raise additional Rs. 60 billion per year, distributed as
   follows
                         split of 60 b /year
       PMGSY                        25
       NHDP                         20
       State highways               10
       Indian railways              5

 Additional new 10,000 km 4 lining of new corridors
 Private sector participation 1358 km/ over 30 projects
  out of total of 7595 km of 146 projects
 GQ will save the economy Rs.80 b/annum



                                                           10
China Roads and Highways                            *
   GDP growth ranging 15% to 8%, 1990 to 2002
   Trend towards high value production
   Why road? – for economic development
   China’s road density low, 18.4km /100m2



                                China     World


            Population    21.0          100

            Road length   5.0           100




* Li Xinghua DDG, Ministry of Communications, PRC       11
 Total length 1.76 million km. Better than 2nd
  class: 250,000 km.
 China is behind India, 89% road under quality
 51% rural roads very poor
 World’s No.1 in road accidents

       Automobile production              In million
       1956-1996                              1
       1996-2000                              2
       2001-2002                              3
       2003                       4, world’s 4th largest
       2008                           largest in world

                                                            12
1970s Cycles

1980s Motor cycles

1990s Motor cars




  1990s - rapid increase in investment on roads
  Since 1995, still greater emphasis on road development
  1995-1998 highways investment doubled, equivalent to
  previous 30 years investment.

                                                      13
                                      India

    27% people live in Urban areas
    Higher population growth rate in Urban areas
    57% of non-agro employment is provided by urban areas

                                                       Growth rate of   % of
                 Population in million
                                         % of Urban        population     perso
       Year
                                               pop.                         ns
                   Total      Urban                   Total     Urban      BPL
        (1)         (2)         (3)          (4)       (5)       (6)     (7)
       1971         548         109         19.91     24.8      38.23     -
       1981         683         159         23.34     24.66     46.14     -
       1983          -           -            -         -         -     40.79
       1991         846         217         25.71     23.86     36.47     -
       1993          -           -            -         -         -     32.36
       2001          -          285         27.78     21.34     31.13   23.62
       2021          -          550         40.00       -         -       -


                                                                                14
    Source: Urban Statistics Handbook 2000, NIUA
STRATEGIES AFTER 1998


   Expressway development
   Extension of highways to rural areas
   Linkage to backward areas
   Uniform national free way systems
   Improve capacity to create new technologies,
     reduce costs, increase safety.
 Expressways
      Year       Length km
  1991              571
  2001             25000
                                                   15
 170,000 km highways being built, and
  3000-4000 km of expressways annually.
 Special Emphasis on Urban Roads
 By 2008, Beijing to have 5 ring roads
  (against Tokyo planning 3 by 2011).
 Financing
   Government/Local body financing
   Loans – National bonds 30% for road
    construction
   Foreign investments


                                          16
   China’s road network smaller than India’s, but it comprises over 25,000km
    four/six-lane access-controlled expressways linking the major cities, all built
    during the last 10 years.

   No expressway linkages for major economic centers in India.

   National highways are two/single/intermediate lane capacity – only        3,000 km
    four-laned.

   State highways, 1% four-lane, 22% two-lane, and rest single/intermediate lane.

   other roads mostly single-lane.

                 A quarter surfaced with (bitumen) / concrete,

                 a fifth water-bound macadam

                 rest unpaved.

   National highways

                 over 25% in poor surface condition,

                 Over 50% of state highways in poor / very poor condition.


                                                                                     17
                                       Ports

   India has 12 “major” ports (handling 76% sea-borne traffic) (2001)

                 and 140 non-major ports in 9 States & 4 UTs.

                 Aggregate capacity of major ports – 389.5 MTPA

   Coastal shipping limited

   Rated capacities 50-60 % lower than ports elsewhere in Asia.

   Turnaround time high

                 Equipment use on berths low-about 30-35 percent.

                 Handling costs high - productivity of equipment being low.

   Mother container ships (Main line vessels) not able to call at Indian ports,

                 adding to transport costs of exports and imports.

                 61% of Indian export/import containers transshipped offshore, in

                     Colombo, Singapore and Salalah
                                                                                     18
Cargo handling at 4 major ports (2004-05) – 383.7 MTP

                   A growth of 11.3%

    Chennai, Mumbai, New Mangalore, Paradip, Tuticorin, Kolkata traffic
     growth >15%

    Traffic growth of major and non major ports projected high container

    JNPT (established 1990) growing at 25% p.a

    55% (in TEUs) of India’s container traffic through JNPT

    New Mangalore (15 % p.a) and Paradip (11% p.a) also growing fast.

            Non major Ports’ Share of Traffic

            1991 – 92           2003 – 04
              8%                 25.4%

Gujarat non-major ports (60) handle 74% of non-major port traffic
Forecasts

    Traffic through Indian Ports projected to grow 4 to 6 times in 25 years

                                                                               19
                                   Railways
   Rail carries mostly bulk freight

                 such as iron, steel, grain and cement.

   Non-bulk freight just 2-3% % of ton-km

   With trunk highways improving, competition from road transport to intensify.

   Capacity constraints faced on high-density corridors.

   Dedicated freight corridors being planned between Metro Cities.

   Increasing maintenance backlog publics operational efficiency down

                 arrears in track renewal up from 3,500 km to 12,200 km in 10 years.

   Insufficient track and rolling stock maintenance accidents levels/derailing/operating
    costs.

   Speed of freight trains low [average of 23 km an hour,]

                 speed to have increased to 40-50 km an hour. (with electrification and
                  modern locomotives)
                                                                                        20
                      India
                   Sanitation - 1


According to WHO, Improved Water Supply and
adequate sanitation would give

   25 to 33% fall in diarrhoeal diseases in
    developing countries [4 billion cases are reported
    every year]
   decreased incidence of intestinal worm
    infestation [10% of population resulting in
    affected in developing counties],
       — malnutrition, anemic & retarded growth
   controlling blindness due to trachoma
                                                  21
                             India
                        Sanitation – 2

 Poor hygiene & sanitation – cause of 9% of all deaths
 2nd largest contributor to the burden of disease in
  India
 70% of all diseases are water-borne
 A big economic burden on people
 Among 180 countries, India ranks
      – 133rd in water availability, and
      – 120th in water quality

 Water Supply in Urban areas - 70.1% coverage
 Sanitation in Urban areas            - 25.5% of households
  do not have a latrine
 Toilets connected to sewerage system in Urban areas
  – 22.5 % (Rural – 1%)
                                                          22
                         India
                    Sanitation – 3

Survey of 7 major Indian cities


 only 2 had fully covered UG sewerage system and
   high sewage network densities.
 3 have no functioning STP.
 4 treat only 48-59 % of waste water
 untreated water finds its way into tanks, lakes and
   rivers.




                                                        23
                                 Kerala
                              Urban Population
                 Trend of Urban Population - 1971-2001

           Population in                      Growth rate of     % of
                Million         % of Urban       population        pers
 Year
                                      pop.   Total   Urban          ons
          Total       Urban                                        BPL
  (1)      (2)         (3)         (4)        (5)         (6)     (7)
 1971      21          3.4        16.24      26.29         -       -
 1981      25          4.7        18.74      19.24       37.89     -
 1983       -           -           -            -         -     45.68
 1991      29          7.6        26.39      14.32       60.17

1993-94     -           -           -            -         -     24.55

1999-00     -           -           -            -         -     20.27

 2001      31          8.2        25.97      9.42         7.6      -
                                                                        24
                   Kerala’s Cities

Poor householder’s satisfaction levels

         Public transport             -    73%
         Water                        -    60%
         Sanitation                   -    55%
         Road infrastructure          -    54%
         Solid waste management systems-   46%
         Drainage facilities          -    16%


based on baseline socio-economic primary data
  collected through extensive sample household
  survey

                                                  25
                    Kerala’s Cities – 1
          [Thiruvananthapuram, Kollam, Kochi,
                  Thrissur, Kozhikode]

                           Water supply

   Water high priority for all households across five cities
   In Thrissur the poor rank water as second priority and the
    non-poor rank water as fourth priority.
   The poor categories of Thiruvananthapuram and Kollam also
    rank water as first priority
       In Thiruvananthapuram, about 59% of households have
        household water connections. But in Kollam only 14%.
       54% of the poor in five cities depend on a public water
        facility
       Only 18% of the poor in five cities have their own water
        facility compared to 61% of the non-poor category. 28%
        of the poor in five cities depend on a neighborhood facility
        for water whereas only 15% of the non-poor depend on
        such a facility.
                                                                  26
             Kerala’s Cities – 2

            Sewerage and Sanitation

 Sewerage and sanitation is ranked as the third most
  desired service in all the five cities,
 Proportion of households with

      Own toilets        –      79%

 the poor in Thrissur and the non-poor in
  Thiruvananthapuram ranked it as second in priority.




                                                        27
•   Sewerage non-existent or not functioning
    adequately.

•   Status of sanitation and sewerage poor in all
    cities.

     Three of the five project cities Kollam,
      Thrissur and Kozhikode don not have
      underground sewerage system

     Thiruvananthapuram and Kochi are
      inadequately covered (30-50%).

     On-plot sanitation and septic tanks are not
      maintained.


                                                    28
                 Kerala’s Cities – 3

                        Drainage

 No city having a designed, interconnected network of
  drainage channels with clear disposal points.
 Urban drains poorly maintained and often blocked by
  an accumulation of silt and un-collected municipal solid
  waste, causing water logging and flooding in congested
  city areas.
 The problem exacerbated by un-controlled development
  and encroachment in drainage channels and ineffective
  maintenance of the drainage/ sanitation facilities.




                                                       29
   Status of urban population in terms of
              basic services: 1991


Households with -         Existing situation in urban areas (%)

                            Kerala                    India

Pucca structures            69.10                     72.75
Semi-pucca structures       14.90                     17.69
Kutcha structures           16.00                     09.56
Access to electricity       67.70                     75.12
Access to safe drinking
                            38.70                     72.00
    water
Access to toilets           72.70                     64.00
                                                                  30
                         Kerala Cities
        Citizen perception of Infrastructure priorities

        Priorities   Categories   Water   Drainage   Sewerage   SWD   Road

                     Poor          1         2          3        4     5
Thiruvananthapuram
                     Non poor      4         1          2        3     5
                     Poor          1         2          3        4     5
Kollam
                     Non poor      3         1          3        2     4
                     Poor          1         2          3        4     5
Kochi
                     Non poor      1         2          3        4     5
                     Poor          4         1          2        3     5
Thrissur
                     Non poor      2         1          3        3     4
                     Poor          1         2          3        4     4
Kozhikode
                     Non poor      1         2          3        4     4
                                                                        31
       Municipal Accounting systems

 ULBs need a blend of Government and
  commercial (enterprise) accounting systems
 modern municipal financial accounting
  system being followed internationally
 Current practice in Indian ULBs –
 Only captures inflow and expense of cash
 Does not capture information on
      financial position and debt servicing capability
      asset – liability profile and efficiency
         Consequently, Risk – return profile of Municipal bond
          cannot be estimated

      Capital budgeting mechanism also absent
                                                              32
      Revamping Municipal Accounting System
                 TN experience

 Institution of Chartered Accountants of India (ICAI) has
  issued technical specifications for a new double-entry
  based accounting system for Municipal bodies.
 Most State Governments yet to implement.
 All Municipal bodies (5 city corporation + 102
  municipalities) converted from single entry cash based
  accounting system to double entry accrual based
  accounting system.
 done in 3 years (1998 – 2001)
 Third phase : conversion to fund based accounting
  system i.e. wedlocking between budget code and
  account code items.
 secondary markets to be created to facilitate cost
  analysis and cost at micro level

                                                        33
        Financing ULBs for Urban Infrastructure

   50% country’s GDP is from urban areas
                 ULB revenues   = 4.6% of Central revenue
                           = 8% of State’s revenue
                            = 0.6% of GDP
   Urban Infrastructure – Funding Requirement estimated at
    US$43 billion over 5 years (Rakesh Mohan Committee)
   Municipal bonds (MBs), the primary source of finance of ULBs
    in USA
   In India, of approximate 3700 ULBs, only 50 are credit –
    worthy enough to access domestic capital markets.
   The proposed Pooled Finance Development Scheme (PFDS) to
    support States to establish pooled financing structure

          -   To give credit enhancement

   Securitization of future flows
   a means of raising affordable –sustainable finance for Local
    Governments
   US AID’s Financial Institution Reforms & Expansion (FIRE)
    Project is working with Government of India to set up State
    level pooled finance mechanism for small and medium ULBs
    to access capital markets
                                                               34
                Kerala’s Cities

                                                                  Rs. Crores
                                                   Item   Revenue     Capital
                                  Thiruvananthapuram
                                  receipts                 37.2         14.2
                                  expenditure              28.5         16.5
                                  surplus                   8.7        (2.2)
City Corporation Revenues         Thrissur
      Year 2002-2003              receipts                 18.8         20.3
                                  expenditure              13.4         11.9
                                  surplus                   5.4         8.4
                                  Kozhikode
                                  receipts                 24.9         13.2
                                  expenditure              19.3         8.6
                                  surplus                   5.6         4.6
                                  Kollam
                                  receipts                  9.2         9.1
                                  expenditure               7.5         10.0
                                  surplus                   1.7        (1.0)
                                  Kochi
                                  receipts                 51.2         46.6
                                  expenditure              26.6         37.2
                                  surplus                  24.7         9.4

                                                                               35
                    Municipal Bonds

 In 2001 Government of India announced this scheme
  of tax free MBs for infrastructure development
  -compulsory credit rating Amended IT Act 1961)
  - Minimum maturity 5 years exempted interest from
  bonds of MBs from IT

Only 11 ULBs have come forward to borrow a total of
   Rs.750 cr.




                                                      36
   First tax free MB issued by Ahamadabad Municipal
    Corporation (1998) – Rs. 100 cr.
   for water supply sanitation project
   first Municipal bond without a state guarantee
   first fully market based system of local government finance.
   Second bond by Hyderabad (2002) – Rs.82.5 cr. 7 year tenor,
    8.5% interest
Bonds since issued [Without State Government Guarantee]
   by
       – Nashik
       – Nagpur
       – Ludhiana
       – Indore
       – Madurai
                                                               37
    TN Water & Sanitation Pooled Fund
                 (WSPF)


 Rs.30.4 cr for 14 municipalities raised
  through pooled finance mechanism
 Only issue of its kind in Asia to finance
  small Water & Sanitation Projects
          9.2% annual interest rate
          15 year maturity
          15 year equal annual redemption
          puttable at 10 years


                                             38
  Multi Layered Credit Enhancement
              Mechanism
             WSPF model
 Each ULB to set apart monthly payment equal to
  1/9 of annual payments into escrow account and
  transfer to WSPF in 10th month
 WSPF can intercept State transfer payments
 2nd change: Bond Service Fund (BSF)
   a State funded Rs.6.9 cr reserve fund = 1.5 times
     annual debt service
 Third level of security
  US AID guarantee of 50% of bonds principal
  through DCA (Development Credit Authority) to
  replenish BSF if needed. The issue was privately
  placed.
 Escrow mechanism has Government guarantee
                                                  39
                           The Kerala Transport Project

            A Strategic Option Study (SOS) on road network of 5,700 km
            SOS identified 2,810 km of high priority roads

     Feasibility study of the technical, environmental and social aspects
      of the selected roads
     Analysis of feasibility to establish economic return for upgrading
     600 km identified out of 2810 kms for upgrading plus 1000 km for
      pavement improvement

    Contract No.                                 Section                     Length (km)
    Phase – 1
    KSTP – 1         NH 47 - Taikod-Kottarakkara-Chenganur-Alappuzha-        127.1
                     Changanassery
    KSTP – 3         Angamali-Muvattupuzha-Thodupuzha                        49.2
    KSTP – 4         Palakkad-Shornur/Thrissur-Kuttpuram                     78.4
    IWT –1           Pilot inland waterways upgrading – Kuttanad area                93.0

                     Total phase I                                           254.7
    Phase – 2
    KSTP – 5         Pilathara-Pappinissery/Kasargod-Kanhangad/Thalaserry-   102.9
                     Valuvapra
    KSTP – 6         Chengannur-Ettumanoor-Muvattupuzha                      90.0
    KSTP – 7         Punalur-Ponkunnam-Thodupuzha                            131.3         40
                     Total (Phase 1 + Phase 2)                               578.9
                         Inland Waterways


   Navigation length of 14,500 km of rivers and canals

   Inland water transport very limited, and declining in many states.



   Only 5,200 km of major rivers and 485 km of canals currently suitable for
    mechanized crafts.




                                                                                41
THANK YOU



            42

				
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