Project Funding

A host of Indian and international players have in recent times set up, or, are in the process of setting up infrastructure funds targeting India. Recently, State Bank of India -- the country's largest bank -- along with Macquarie Capital Group and IFC, announced its intention to raise a new $2-billion infrastructure fund. Citigroup and Blackstone, along with Infrastructure Development Finance Company (IDFC) and India Infrastructure Finance Company (IIFCL), are also setting up a $5-billion fund for financing infrastructure development. Vision Global has recently launched a $1-billion India infrastructure-focused fund. According to the government, an investment of over $500 billion would be required over the next five years in the infrastructure sector, one of the main reasons why a host of funds targeting India are being launched.

Internationally, a host of funds are tapping the market for investments into the infrastructure space. According to Private Equity Intelligence, funds are looking to raise $46 billion this year. GIP, an independent fund that invests in infrastructure assets worldwide, on Monday announced that it has completed fund-raising for its first flagship fund. It received total commitments of $5.64 billion. Credit Suisse and General Electric are the founding investors of GIP.

Morgan Stanley on Monday announced it had successfully closed Morgan Stanley Infrastructure Partners with $4.0 billion of equity commitments. The commitments exceeded the firm's initial target of $2.5 billion. It raised capital globally in North America, Europe, Australia, the Middle East and Asia. Investors include major pension funds, insurance companies, high net-worth individuals as well as Morgan Stanley and its employees.
Sadek Wahba, chief investment officer and global head of Morgan Stanley Infrastructure, said the fund could invest up to a quarter of its resources in developing countries by harnessing the bank's relationship in important markets such as China and India. "Developing markets includes Eastern Europe and Latin America but a bulk of the investments would go to India and China," he added.

John Myers, MD of the firm based in Hong Kong told ET, "China and India, combined, invested $300 billion in infrastructure in 2007. Across this high growth region, we see tremendous opportunities for the fund to invest in the upgrade and expansion of existing infrastructure and, perhaps more significantly, in new infrastructure initiatives. Much of our investing focus in Asia will be directed at the transportation, energy and utilities sectors." On the size of deals and the areas where the fund would invest, a Morgan Stanley spokesperson said: "The amounts invested in our deals to date have ranged from $100-$250 million, but we have the capability to provide capital for all types of opportunities. We are a sector-based fund focused on transportation, energy & utilities, communications and social infrastructure sectors. These are areas, in which we see both global and regional opportunities."

The company's profit after tax rose by about three fold in FY'08 to Rs 14.10 crore from Rs 3.47 crore in the year ago period, the company said in a statement.

IIFCL has signed memorandums of understanding with 24 banks and institutions for creating deal flows, appraisal, loan syndication and other financial services.

IIFCL's UK subsidiary, IIFC (UK), which commenced operations in last month, would be borrowing foreign currency funds from the Reserve Bank to lend to Indian companies engaged in development of infrastructure, it said.
Companies can use this fund to meet their capital expenditure for imports, solely for expenditure outside India, the company said.

Since its inception, IIFCL has provided financial assistance of Rs 16,969 crore to 78 infrastructure projects, the statement said.

The 78 projects are spread across 19 cities and involve a total project cost of Rs 1,18,703 crore, IIFCL's Chairman and Managing Director S S Kohli said in the statement.

Of the total 78 projects, 65 projects have achieved financial closure and documents have been signed while disbursements of Rs 1,684 crore have been made in 45 projects, it said.

The Government is reportedly contemplating a move to liberalise FDI norms for the real estate sector. According to a financial daily, the Commerce Ministry has proposed waiver of two conditions. One is the three-year lock-in on foreign investment and the second is the minimum investment criteria.

The recommendations have been put forward for real estate projects, including hotels in a bid to boost the tourism and hospitality sector, the business newspaper says. At present, 100% FDI is permitted in hotels and tourism as well as real estate, it adds.

However, there is a three-year lock-in on FDI in real estate projects. What's worse, if an investor wants to exit real estate projects before three years, it will have to take a prior approval of the Foreign Investment Promotion Board (FIPB).

Then there are other conditions such as development of at least 10 hectares of land, completion of at least 50% of the scheduled construction in five years in addition to the minimum capitalisation norms. These conditions do not apply to the hospitality sector, the financial daily says.

The proposal may face resistance from the Reserve Bank of India ( RBI) and the Finance Ministry, the newspaper report says. The RBI has been seeking curbs on FDI in real estate and had written to the Finance Ministry asking it to make FIPB approval mandatory for foreign investment in the sector, it adds

    There would be one school in every block offering classes up to XIIth standard, informed sources told ET.

    The proposed schools are expected to change the way education is imparted in the country, particularly in rural areas. "We would want the schools to be a model for others to emulate. We would do everything to provide the best faculty and facilities in the schools. While schools would be set up across the country, there would be an emphasis on rural areas," a source said.

    The ministries of higher education and finance are working on the norms to bring together private sector's efficiency and the government's commitment to society. "The corporate sector could contribute in many ways. Under the proposed norms, the corporate sector could partner the government either in offering select facilities in a school or in running it on their own. They may also participate by providing just the physical assets," a source said.

    The norms would promise a decent return on investment for the private players. The scheme would also allow the private partner to leverage the idle assets in government facilities to raise additional revenues and provide better services to students. They would also be entitled to government grants.

    To give a boost to the social sector, the government intends spending Rs 34,400 crore in the next fiscal, 20% more that the funds earmarked for the current fiscal. It had also announced in this year's Union Budget a plan to set up several thousands of high-quality model schools with Rs 650 crore. The government plan is to increase enrolment at the primary level and enhance access to secondary and higher secondary levels.

The six press notes are as follows -

GUIDELINES FOR FOREIGN INVESTMENT IN CREDIT INFORMATION COMPANIES

Press Note

On a review of the extant policy on Foreign Direct Investment, Government of India has decided to allow foreign investment in Credit Information Companies (CICs) as under.

2.Definitions
In terms of the Credit Information Companies (Regulation) Act, 2005-
(a) "credit information" means any information relating to--
(i)  the amounts and the nature of loans or advances, amounts outstanding under credit cards and other credit facilities granted or to be granted, by a credit institution to any borrower;
(ii) the nature of security taken or proposed to be taken by a credit institution from any borrower for credit facilities granted or proposed to be granted to him;
(iii) the guarantee furnished or any other non-fund based facility granted or proposed to be granted by a credit institution for any of its borrowers;
(iv) the creditworthiness of any borrower of a credit institution;
(v) any other matter which the Reserve Bank may, consider necessary for inclusion in the credit information to be collected and maintained by credit information companies, and, specify, by notification, in this behalf;
(b) "credit information company" means a company formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration under sub-section (2) of Section 5.

3.   Policy for foreign investment in Credit Information Companies
3.1    Foreign investment in Credit Information Companies is subject to the Credit Information Companies (Regulation) Act, 2005.
3.2    Foreign investment i.e. Foreign Direct Investment (FDI) under the FDI Scheme incorporated as Schedule 1 under regulation 5 (1) of the Foreign Exchange Management (Transfer or Issue of Security By a Person Resident Outside India) Regulations, 2000 (FEMA Regulations) + investment by registered Foreign Institutional Investors (FII) under the Portfolio Investment Scheme incorporated as Schedule 2 under Regulation 5(2) of the FEMA Regulations, is allowed up to 49% with prior approval of the Government and regulatory clearance from RBI.
3.3   Investment by a registered FII under the Portfolio Investment Scheme would be permitted up to 24% only in the CICs listed at the Stock Exchanges, within the overall limit of 49% for foreign investment.
3.4    Such FII investment would be permitted subject to the conditions that:
(a)   No single entity should directly or indirectly hold more than 10% equity.
(b)  Any acquisition in excess of 1% will have to be reported to RBI as a reporting requirement; and
(c)   FIIs investing in CICs shall not seek a representation on the Board of  Directors based upon their shareholding.

4.    Change in Policy for FDI in NBFC activities
In pursuance of the policy as at 3 above, Government of India has decided to delete 'Credit Reference Agencies' from the list of NBFC activities in col. 20 of the Annex to Press Note 4(2006) dated 10.2.2006.

5.    FDI Policy announced vide Annex to Press Note 4 (2006) dated 10th February 2006 stands modified to the above extent.

Department of Industrial Policy & Promotion, Ministry of Commerce & Industry
New Delhi, 12th March, 2008 (Press Note No.1/2008)

**

GUIDELINES FOR FOREIGN INVESTMENT IN COMMODITY EXCHANGES
Press Note

Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market.  With a view to infuse globally acceptable best practices, modern management skills and latest technology, it has been decided to allow foreign investment in Commodity Exchanges.
2.      Definitions
2.1   "Commodity Exchange" is a recognized association under the provisions of the Forward Contracts (Regulation) Act, 1952, as amended from time to time, to provide exchange platform for trading in forward contracts in commodities.
2.2   In terms of the Forward Contracts (Regulation) Act, 1952-
(a)    "recognized association" means an association to which recognition for the time being has been granted by the Central Government under Section 6 of the Forward Contracts (Regulation) Act, 1952.
(b)    "association" means any body of individuals, whether incorporated or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative.
(c)    "forward contract" means a contract for the delivery of goods and which is not a ready delivery contract.
(d) "commodity derivative" means-
(i)     a contract for delivery of goods, which is not a ready delivery contract; or
(ii)   a contract for differences which derives its value from prices or indices of prices of such underlying goods or activities, services, rights, interests and events, as may be notified in consultation with the Forward Markets Commission by the Central Government, but does not include securities.

3.   Policy for foreign investment in Commodity Exchanges
3.1   Foreign investment will be allowed through a composite ceiling i.e. Foreign Direct Investment (FDI) under the FDI Scheme incorporated as Schedule 1 under regulation 5 (1) of the Foreign Exchange Management (Transfer or Issue of Security By a Person Resident Outside India) Regulations, 2000 (FEMA Regulations) + investment by registered Foreign Institutional Investors (FII) under the Portfolio Investment Scheme incorporated as Schedule 2 under Regulation 5(2) of the FEMA Regulations, is allowed up to 49%.
3.2   FDI will be allowed with specific prior approval of the Government .
3.3   Investment by registered FII under the Portfolio Investment Scheme will be limited to 23% and investment under the FDI Scheme will be limited to 26%.
3.4   FII purchases shall be restricted to secondary market only.
3.5   No foreign investor/ entity, including persons acting in concert, will hold more than 5% of the equity in these companies.

 Department of Industrial Policy & Promotion, Ministry of Commerce & Industry
New Delhi, 12th March, 2008 (Press Note No.2/2008)

**

GUIDELINES FOR FOREIGN DIRECT INVESTMENT IN INDUSTRIAL PARKS

Press Note
            FDI up to 100% was permitted under the automatic route in Industrial Parks vide Government of India Press Note 2(2000).

2.     In 2005, vide Press Note 2(2005), the Government of India permitted FDI up to 100% on the automatic route in Construction development projects, etc. prescribing therein, inter-alia, the conditions for minimum capitalization, minimum area requirements and lock-in of original investment.
   
3.     The Government has considered the issue of whether the conditions prescribed for construction development projects vide Press Note 2(2005) should apply to Industrial Parks where FDI up to 100% was permitted since 2000.
   
4.     Definitions
   

4.4   "Allocable area" in the Industrial Park means-
(a) in the case of plots of developed land- the net site area available for allocation to the units, excluding the area for common facilities.
(b) in the case of built up space- the floor area and built up space utilized for providing common facilities.
(c) in the case of a combination of developed land and built-up space- the net site and floor area available for allocation to the units excluding the site area and built up space utilized for providing common facilities.
4.5  "Industrial Activity" means manufacturing, electricity, gas and water supply, post and telecommunications, software publishing, consultancy and supply, data processing, database activities and distribution of electronic content,  other computer related activities, Research and experimental development on natural sciences and engineering, Business and management consultancy activities and Architectural, engineering and other technical activities.
Guidelines for FDI in Industrial Parks
5.   Government of India has now decided to issue the following guidelines to clarify that FDI up to 100% under the automatic route would be allowed both in setting up and in established industrial parks and would not be subject to the conditionalities spelt out in Press Note 2(2005) provided the Industrial Parks meet with the under-mentioned conditions:
i.     it would comprise of a minimum of 10 units and no single unit shall occupy more than 50% of the allocable area;
ii.    the minimum percentage of the area to be allocated for industrial activity shall not be less than 66% of the total allocable area.

 Department of Industrial Policy & Promotion, Ministry of Commerce & Industry
New Delhi, 12th March, 2008 (Press Note No.3/2008)

**

FDI POLICY FOR THE CIVIL AVIATION SECTOR

Press Note
       The present policy of FDI in the Civil Aviation sector covers Airports and Air Transport Services. The Civil Aviation sector, however, includes Airports, Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services / Seaplane services, Ground Handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions.  It has now been decided to amplify and lay down the policy for Foreign Direct Investment (FDI) for the Civil Aviation sector.
2.   Definitions
The policy for FDI in the Civil Aviation Sector would be subject to the Aircraft Rules, 1934 as amended from time to time, Civil Aviation Requirements, and Aeronautical Information Circulars as notified by the Ministry of Civil Aviation. In terms of these Rules/Circulars:-
(a)   "Airport" means a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934;
(b)  "Aerodrome" means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or appertaining thereto;
(c)  "Air transport service" means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights.
(d) "Air Transport Undertaking" means an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward.
(e) "Aircraft component" means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment;
(f)  "Helicopter" means a heavier-than -air aircraft supported in flight by the reactions of the air on one or more power driven rotors on substantially vertical axis;
(g) "Scheduled air transport service", means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognisably systematic series, each flight being open to use by members of the public.
(h)  "Non-Scheduled Air Transport service" means any service which is not a scheduled air transport service and will include Chartered and Cargo airlines.
(i)  "Chartered" and "Cargo" airlines would mean such airlines which meet the conditions as given in the Civil Aviation Requirements issued by the Ministry of Civil Aviation.
(j)  "Seaplane" means an aeroplane capable normally of taking off from and alighting solely on water;
(k)  "Ground Handling" means (i) ramp handling , (ii) traffic handling  both of which shall include the activities as specified by the Ministry of Civil Aviation through the Aeronautical Information Circulars from time to time,  and (iii) any other activity specified by the Central Government to be a part of either ramp handling or traffic handling.

3.   Policy for FDI in Civil Aviation sector
3.1  Airports: As per the policy notified vide Press Note 4 (2006)-
(a)  Greenfield projects- FDI upto 100% is allowed under the automatic route.
(b)  Existing projects- FDI upto 100% is allowed with prior approval of the Government for FDI beyond 74%.
3.2  Air Transport  Services:
(a) Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-Scheduled Airlines; Chartered Airlines; Cargo Airlines; helicopter and seaplane services.
(b) No foreign airlines would be allowed to participate directly or indirectly in the equity of an Air Transport Undertaking engaged in operating Scheduled, Non-Scheduled, and Chartered airlines.
(c)  Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services.

3.3 FDI  ceilings in Air Transport Services:
(a) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline - FDI up to 49% and investment by Non-resident Indians (NRI) up to 100% allowed on the automatic route.
(b) Non-Scheduled Air Transport Service/ Non-Scheduled airlines, Chartered airlines, and Cargo airlines- FDI up to 74% and investment by Non-resident Indians (NRI) up to 100% allowed on the automatic route.
(c) Helicopter services/seaplane services requiring DGCA approval- FDI up to 100% allowed on the automatic route.

3.4 FDI ceilings in other services under Civil Aviation sector
(a) Ground Handling Services- FDI up to 74% and investment by Non-resident Indians (NRI) up to 100% allowed on the automatic route. This will be subject to sectoral regulations and security clearance.
(b) Maintenance and Repair organizations; flying training institutes; and technical training institutions - FDI up to 100% allowed on the automatic route.

4.  FDI Policy announced vide Annex to Press Note 4(2006) dated 10th February 2006 stands modified to the above extent.

Department of Industrial Policy & Promotion, Ministry of Commerce & Industry
New Delhi, 12th March, 2008 (Press Note No.4/2008)

**
RATIONALISATION OF FDI POLICY FOR THE PETROLEUM AND NATURAL GAS SECTOR
Press Note

The present policy on FDI in the Petroleum & Natural Gas sector vide Press Note 1(2004) and Press Note 4(2006) permits FDI up to 100% under the automatic route in exploration, petroleum product marketing, petroleum product pipelines, Natural Gas/LNG pipelines, and Petroleum refining in the private sector.  FDI up to 26% is permitted with prior Government approval in petroleum refining by the Public Sector Undertakings (PSU). In the case of actual trading and marketing of petroleum products, FDI is allowed up to 100% with the condition that 26% foreign equity would be divested in favour of Indian partner/public within 5 years.
2.        On a review of the extant policy for the Petroleum & Natural Gas sector, it has been decided to -
i)         delete the condition of compulsory divestment of up to 26% equity within  5 years for actual trading and marketing of petroleum products; and
ii)        allow FDI up to 49%, with prior approval of FIPB, in petroleum refining by PSUs without involving any divestment of dilution of domestic equity in the  existing PSUs.

3.       FDI Policy announced vide Annex to Press Note 4(2006) dated 10th February 2006 stands modified to the above extent.

Department of Industrial Policy & Promotion, Ministry of Commerce & Industry
New Delhi, 12th March, 2008 (Press Note No.5/2008)

***

FDI POLICY FOR MINING OF TITANIUM BEARING MINERALS & ORES
Press Note

India has large reserves of beach sand minerals in the coastal stretches around the country.  Titanium bearing minerals viz. Ilmenite, rutile and leucoxene, and Zirconium bearing minerals including zircon are some of the beach sand minerals which have been classified as "prescribed substances" under the Atomic Energy Act, 1962.

2.        Under the Industrial Policy Statement 1991, mining and production of minerals classified as "prescribed substances" and specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 were included in the list of industries reserved for the public sector. Vide Government of India Resolution No. 8/1(1)/97-PSU/1422 dated 6th October 1998 issued by the Department of Atomic Energy laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon). FDI up to 74% was permitted with prior approval of the Government in pure value addition projects without mining and mineral separation as well as integrated projects comprising both mining & mineral separation and value addition.

3.        Vide Government of India Notification No. S.O.61(E) dated 18.1.2006, the Department of Atomic Energy re-notified the list of "prescribed substances" under the Atomic Energy Act 1962. Titanium bearing ores and concentrates (Ilmenite, Rutile and Leucoxene) and Zirconium, its alloys and compounds and minerals/cpmcentrates including Zircon, were removed from the list of "prescribed substances".

4.        On a review of the extant policy on FDI, Government of India has now decided as under:
   

5.        FDI will not be allowed in mining of "prescribed substances" listed in the Government of India Notification No. S.O. 61(E) dated 18.1.2006 issued by the Department of Atomic Energy.

4.        FDI Policy announced vide Annex to Press Note 4(2006) dated 10th February 2006 stands modified to the above extent.

All the departments concerned have conveyed its support to the proposal which was put forward by the department of industrial policy & promotion (Dipp) last October, highly-placed government sources said. This would enable the CCEA to exempt industrial parks from the conditions specified for FDI in real estate under Press Note 2, they added. The proposal has been pending for three months due to differences of opinion within the government.

Apart from a minimum capitalisation of $10 million for subsidiaries of foreign companies and $5 million for joint ventures, Press Note 2 also specifies that FDI in real estate projects would be allowed only in the case of projects spread over 10 hectares in the case of serviced housing plots. In the case of construction projects, the minimum built-up area has been specified as 50,000 sq m. A three-year lock-in is also mandatory.

In the case of industrial parks, the condition for allowing 100% FDI through the automatic route is construction of at least 10 units out of which no one should occupy more than 50% of the allotted area. At least, 66% of the total area should be allocated for industrial activities like manufacturing, telecom, software, data processing, consultancy and other computer-related businesses. Power, gas and water supply would also be allowed in such industrial parks. Business and management consultancy, engineering, architectural and R&D activities in natural sciences is also allowed.

Apart from industrial parks, the agenda pending before the CCEA includes permission for FDI in commodity exchanges, credit information companies, and liberalisation of foreign investment in titanium mining, civil aviation and petroleum & natural gas. The Dipp has proposed that 49% FDI should be allowed in commodity exchanges and credit information companies, with FII investment capped at 24%. No single entity should hold more than 10% in these two sectors, the department has said.

The irony is that the TRP system will defeat the Intended purpose of TRP where TRP was supposed to visit a assessee and prepare a return there itself. Now he requires full setup for preparing Returns and thus need loan from banks as capital

Further the TRP were trained by IT Deptt on Saral 2D which now stands withdrawn and new forms were introduced for A.Y. 2007-08. The TRP them self admit that it is not possible for them to use these forms without more training.

A few state-owned banks are working on a scheme to provide soft loans to newly-minted tax return preparers (TRPs) to buy office equipment such as personal computers to help them start business in the current assessment year.

TRPs are unique as they would receive a financial incentive from the income-tax department to bring in new tax assessees, the first time in the department's history that outsiders are to be paid to widen the tax base.

Currently, 3,545 people have qualified as TRPs. As many as 1,254 people who underwent TRP training, but did not clear the final test the first time around, would get another crack at the test soon, the offcial said.

The training for TRPs was completely funded by the government, which held a qualifying exam last year to shortlist people for the training. The income-tax department plans to constantly monitor the quality of work done by TRPs.

Work on the TRP scheme started in earnest after finance minister P. Chidambaram, during his Budget 2006 speech, said it would be introduced.
Chartered accountants (CAs) generally help individual taxpayers to file their income-tax returns if they choose not to do it on their own.

The Institute of Chartered Accountants of India (ICAI) is unhappy with the TRP scheme. It has asked the income-tax department to take a relook at the scheme.

ICAI feels that only CAs have the training and requisite skills to handle tax returns, said Ved Jain, the institute's vice-president. TRPs, unlike CAs, will not be allowed to take up statutory audits such as the ones that need to be filed by companies. In addition, the income-tax department has restricted TRPs' potential client base and capped the fees they can charge.

Against the backdrop of the real estate boom and a shortage of contractors resulting in work overload, realty firms have lost the edge of being able to negotiate their fee with contractors.

"Contractors have been able to improve their margins by 15 per cent year-on-year. There is a reversal in trend now -- it is the developer who has started chasing the contractor," says Sanjay Chandra, managing director, Unitech.

Factor in the rise in cement and steel prices, and the total cost of construction has gone up by as much as 15-20 per cent.

While developers have had to absorb some of this cost, a significant portion is also being passed on to the consumer.

"We factor in all these increasing costs at the time of launching a project. Our final price to the consumer is based on the projections of construction becoming more expensive," says Pranav Ansal, director, Ansal Properties and Infrastructure.

"When I told my contractor that I was planning a commercial project, he told me to quickly place the order. My architects had not even designed the building, but the contractor still wanted me to hire him. He warned me that if I took too much time, his work load might not let him do my construction. That is how serious the problem is," says a large builder from Kolkata.

With contractors having their order books full, industry experts say that they are able to literally pick and choose the projects they want to execute. In this scenario, it is the small developers who are suffering the most.

"Three years ago, I had launched 1,400 square feet apartments in Gurgaon at Rs 1,600 a square foot. But now, the cost of construction has escalated to roughly Rs 1,700 per square foot. My margins have almost disappeared," laments a Delhi-based developer.

Another small realty firm, the Delhi-based Best Group, has seen its returns decline from about 25 per cent to between 8-10 per cent net on account of increasing costs.

Chandra says contractors prefer the bigger developers as they get to work on larger projects which have better returns. "They would rather have fewer orders of big buildings and townships, as opposed to a larger number of small buildings," he says.

To combat the problem posed by the lack of contractors, a few realty firms have forged joint ventures (JV) with foreign construction companies. DLF Ltd last year set up a 50:50 JV with Laing O'Rourke, an infrastructure-cum-construction company based out of the United Kingdom. Recently, Emaar MGF forged a JV with Leighton, an Australian construction company.

Ansal Properties and Infrastructure is now scouting for a JV partner. "We need to address the problem of contractors having too much workload. This is why we have decided on a foreign joint venture," says Ansal.

Although ECBs are not permitted for the real estate sector, such borrowing was allowed for integrated townships of 100 acres or more. “It has been decided to withdraw the exemption accorded to development of integrated townships as a permissible end-use of ECBs,” a finance ministry release said. Citing an upgrade to the country’s sovereign credit ratings, the ministry also decided to reduce the all-in-cost ceilings for ECBs. The changes, applicable to ECBs under the automatic as well as approval route, will be effective from the date the RBI notifies the amendments to Foreign Exchange Management Act, 1999.

The implications of this ban are significant for the country’s booming real estate business.

• “It is no longer possible to structure foreign funding as debt. Builders developing integrated townships of 100 acres or more will now have to offload equity in their projects to foreign players if they want to access their capital,” says Pradeep Jain, chairman, Parsvnath Developers.
• FDI up to 100 per cent, under the automatic route, is allowed for the development of integrated townships including housing projects, commercial premises, hotels and resorts, among others.
• Niranjan Hiranandani, MD, Hiranandani Constructions says "When the economy is growing at 8 per cent and incomes are growing at 20-25 per cent, demand for housing is very high. India is the only economy where the central bank and finance ministry are cutting supply and leading to an increase in prices."

The finance ministry recently also classified partially convertible and non-convertible preference shares as external commercial borrowings (ECBs), thereby closing one more window of borrowing for builders.

“The RBI has been sitting on ECB applications filed by some developers for almost six months. This guideline only makes their intention official,” said a leading developer.

However, to achieve the target, a substantial increase in capacity building is needed in the area of domestic textile machinery manufacturing sector, says a vision statement of Confederation Indian Textile Industry (CITI).

 Currently, the installed capacity of textile machinery industry is Rs 3,050 crore, which was Rs 2,212 crore in 2005-06 and Rs 1,684 crore in the previous year.

Machinery imports during this period stood at Rs 7,100 crore and Rs 3,393 crore, respectively.

The figures, according to the industry, clearly show that demand in the sector has doubled, the domestic production of the machinery has fallen from 33% to 24%, the document states.

Though domestic production has registered a growth of 31%, lack of technology upgradation in some areas has failed to benefit the sector.

BLUE PRINT

• A substantial increase in capacity building is needed in domestic textile machinery manufacturing
  
• The 11th Plan will seen an investment of Rs 5,000 cr in plant and machinery
  
• The textile ministry, to encourage modernisation, will release more funds under TUF Scheme
  

To achieve the objective, the textile ministry has charted out a programme to encourage modernisation by releasing more funds under TUF Scheme.

The scheme, which was to expire on March 31, has been made co-terminus with the 11th Plan by the finance minister in the 2007-08 Budget. Customs duty on man-made fibres (MMF) has been slashed and central sales tax has been brought to 3%. This will help reduce fabric production and transaction costs.

Similarly, TUF scheme has been extended to handloom sector, which will increase the competitive edge of the sector.

This is probably the first instance of construction and infrastructure companies setting up such a fund. Recently, financial institutions Citigroup-Blackstone-IIFCL-IDFC set up a $ 5 billion infrastructure fund.

Laing O'Rourke is a European infrastructure and real estate company based out of the United Kingdom. It signed a 50:50 joint venture with DLF at an initial investment of Rs 500 crore. The venture is currently developing 100 million square feet of DLF's projects across India.

"The fund will invest not only in infrastructure projects undertaken by DLF Laing O'Rourke, but projects of other companies that we think would offer high returns," said Ray O'Rourke, chairman and chief executive officer, Laing O'Rourke.

"We will invest in an array of projects, including railways, national highways, airports and oil, gas, water pipelines," said Dhiraj Singh, country head, Laing O'Rourke.

Meeting challenges
Enhanced allocation of Rs 425 crore for textile parks under the Scheme for Integrated Textile Parks has been announced.
The Government proposes to develop an additional 100-150 handloom clusters in 2007-08.

New Delhi Feb. 28 In line with the textile sector's long-pending demand, the Union Finance Minister, Mr P. Chidambaram, today announced a five-year extension for the Technology Upgradation Fund Scheme (TUFS). Customs duty on polyester fibre and yarns, as well as manmade fibre raw materials, has also been slashed in the Budget.

"A rejuvenated textile industry is geared to meet the global challenge. TUFS will be continued during the Eleventh Plan and against a provision of Rs 535 crore in 2006-07, Rs 911 crore would be provided for TUFS in 2007-08," Mr Chidambaram said while presenting the Budget.

Enhanced Allocation

The scheme, launched in 1999 to provide interest and capital subsidy for modernisation of the textile sector, was slated to expire in March 2007.

After the Empowered Group of Ministers lifted the cap of 150 zones, the BoA will hold its first meeting on September 21 to consider proposals for ratification and requests for conversion of in-principle approvals to formal approvals.

The next meeting on September 28 will take up the proposals from Chandigarh, Dadra and Nagar Haveli, Goa, Himachal Pradesh, Jharkhand, Maharashtra, Orissa and Punjab.