DMIC project hits funding roadblock

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New Delhi: India's largest infrastructure project, the $90 billion Delhi-Mumbai Industrial Corridor, which was initiated by Prime Minister Manmohan Singh, appears to be heading for a dead-end, with Japan setting tough conditions to finance the project.

The conditions include a comprehensive sovereign guarantee by India that will also extend to penal interest and overdue charges in case of late repayments as well as payment of components, including taxes and duties.

The Indian government is, instead, mulling roping in more partner countries to get the project going.

DMIC Development Corporation, the company undertaking this project, has a minority ownership of the government. Hence India had initially refused to provide any guarantee for the Japanese loan terming it as a ‘commercial loan’. The government has a 49% stake in the corporation, while infrastructure companies private firms IL&FS and IDFC own 41% and 10%, respectively.

In its negotiations with Japan, India had instead suggested that it would give a loan to the state-owned India Infrastructure Finance Company Ltd (IIFCL), which will then on-lend this amount to the DMIC project. Since there is an automatic sovereign support for any loans raised by government-owned companies, this would have, from India’s point of view, offered a similar comfort level. The other advantage is that it would have cut the cost of providing the guarantee that a loan of such size entailed.

However, Japan in the latest round of discussions has said routing of the loan through IIFCL was not acceptable to it. The chief representative of JBIC, through which Tokyo has supported the project, Kurihara told FE, “We are still negotiating the loan agreement with the government of India and the guarantee part of it. (India) has provided the guarantee letter but the guarantee is very limited. So we are insistent to change the coverage (of guarantee)”.

According to him, besides principal and nominal interest, the guarantee should also cover default cover, penal interest and tax imposed on transactions in India. “It is a very important project for Japan and it should not get stuck,” he said.

But New Delhi feels that the conditions that Tokyo has set are so tough that it is considering involving more partner countries like Singapore, Taiwan, Malaysia and Korea. Noting that progress has come to a standstill due to the face-off, India is also considering taking e responsibility of shelling out the full cost of the fund, government officials said.