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Damodaram Sanjivayya National


Law
University

Transfer of Property Act Project


Infrastructure Development & Legal
Challenges

Mugdha Tomar
Sec B
IIIrd Sem

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201263

Certificate

This is to certify that Miss Mugdha Tomar with Reg.No 201263 of IIIrd semester prepared
the project on Infrastructure Development and Legal Challenges.In partial fulfilment of her
semester course in the subject Transfer of Property.During the academic year 2012-2013
under my supervision and guidance.

Signature of the Faculty

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Acknowledgement
I would like to thank Dr Laxmi Priya Vinjamuri our Law of Property teacher for giving me a
project on Infrastructure Development and Legal Challenges. The topic helped me
immensely in enhancing my knowledge about the topic.

Thank You

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Contents

Introduction.. 5-7
Infrastructure.8
Infrastructure Development Projects. 9
Infrastructure Laws in India. 10-14
Documentation Requirement in Implementation of Infrastructure
Projects 15-16
Challenges to Development of Infrastructure In India 17-21
Conclusion 22
Bibliography 23

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Introduction
Property as defined in Blacks Law Dictionary

Property has a very wider meaning in its real sense. It not only includes money and other
tangible things of value, but also includes any intangible right considered as a source or
element of income or wealth. The right and interest which a man has in lands and chattels to
the exclusion of others. It is the right to enjoy and to dispose of certain things in the most
absolute manner as he pleases, provided he makes no use of them prohibited by law.
In general sense, property is any physical or virtual entity that is owned by an individual or
jointly by a group of individuals. An owner of the property has the right. Human life is not
possible without property. It has economic, socio-political, sometimes religious and legal
implications. It is the legal domain, which institutes the idea of ownership. The basic
postulate of the idea is the exclusive control of an individual over some thing. Here the
most important aspect of the concept of ownership and property is the word thing, on which
a person has control for use. To consume, sell, rent, mortgage, transfer and exchange his
property. Property is any physical or intangible entity that is owned by a person or jointly by
a group of people. Depending on the nature of the property, an owner of property has the
right to consume, sell, rent, mortgage, transfer, exchange or destroy their property, and/or to
exclude others from doing these things.

There are some Traditional principles related to property rights which includes include:
1. Control over the use of the property.
2. Right to take any benefit from the property.

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3. Right to transfer or sell the property.


4. Right to exclude others from the property.
There are different definitions are given in different act as per there uses and needs. But in the
most important act which exclusively talks about the property and rights related to property
transfer of property act 1882 has no definite definition of the term property. But it is defined
in some other act as per their use and need. Those definitions are as follows:

Section 2(c) of the Benami Transactions (Prohibition) Act, 1988 defines property as:

Property means property of any kind, whether movable or immovable, tangible or


intangible, and includes any right or interest in such property.

Section 2 (11) of the Sale of Good Act, 1930 defines property as:

Property means the general property in goods, and not merely a special property.1

Transfer of Property
The Transfer of Property Act 1882 contains specific provisions regarding what constitutes
transfer and the conditions attached to it. According to the Act, 'transfer of property' means an
act by which a person conveys property to one or more persons, or himself and one or more
other persons. The act of transfer may be done in present or for future. The person may
include an individual, company or association or body of individuals, and any kind of
property may be transferred. includes transfer of Immovable Property. Section 3, the
Interpretation of the Act, says "Immovable Property does not includes standing timber,
1 http://www.legalservicesindia.com/article/article/definition-&-concept-of-property-502-1.html

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growing crops or grass". A comprehensive definition of Immovable Property is not given in


the Transfer of Property Act.A transfer of property passes forthwith to the transferee all the
interest which the transferor is then capable of passing in the property, unless a different
intention is expressed or implied.2

Transfer of Property as Defined in the Act Section 5 of the Transfer of Property Act,1882 defines Transfer of Property
In the following sections "transfer of property" means an act by which a living person
conveys property, in present or in future, to one or more other living persons, or to himself
and one or more other living persons; and "to transfer property" is to perform such act.
In this section "living person includes a company or association or body of individuals,
whether incorporated or not, but nothing herein contained shall affect any law for the time
being in force relating to transfer of property to or by companies, associations or bodies of
individuals.

2 http://en.wikipedia.org/wiki/The_Transfer_of_Property_Act_1882

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Infrastructure
Infrastructure as defined in Blacks Law Dictionary
The underlying framework of a system; esp., public services and facilities ( such as
highways, schools, bridges, sewers, and water systems) needed to support commerce as well
as economic and residential development.

What is Infrastructure ?
Infrastructure is basic physical and organizational structures needed for the operation of
a society or enterprise, or the services and facilities necessary for an economy to function. It
can be generally defined as the set of interconnected structural elements that provide
framework supporting an entire structure of development. It is an important term for judging
a country or region's development.
The term typically refers to the technical structures that support a society, such as roads,
bridges, water supply, sewers, electrical grids,telecommunications, and so forth, and can be
defined as "the physical components of interrelated systems providing commodities and
services essential to enable, sustain, or enhance societal living conditions.
Viewed functionally, infrastructure facilitates the production of goods and services, and also
the distribution of finished products to markets, as well as basic social services such
as schools and hospitals; for example, roads enable the transport of raw materials to
a factory. In military parlance, the term refers to the buildings and permanent installations
necessary for the support, redeployment, and operation of military forces.

Types of Infrastructure

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There are two types of Infrastructure ,One being the hard and other being the soft
infrastructure."Hard" infrastructure refers to the large physical networks necessary for the
functioning of a modern industrial nation, whereas "soft" infrastructure refers to all
the institutions which are required to maintain the economic, health, and cultural and social
standards of a country, such as the financial system , the education system, the health care
system, the system of government, and law enforcement, as well as emergency services.

Infrastructure Development Projects


The term Infrastructure Development Projects is used generally to describe a project for the
development of an infrastructure facility involving private participation. The scope of the
term development includes activities such as design, construction, operation, maintenance
or renovation or upgradation of such infrastructure facility. At many places, the term
implementation is used in place of development to convey the same meaning.

Infrastructure Development Projects, differ from other industrial projects in the sense that
they are high investment, high risk, and long gestation period projects. In Infrastructure
Development Projects not only are there greater risks due to the large size of the project but
also due to the fact that generation of revenues from the use of the facility/services by the
consumers is highly uncertain. It is this characteristic that makes Infrastructure Development
Projects more risky than normal industrial ventures. In industrial ventures, the risk relates to
the possible market or utility of the product, but payment by the consumer is taken for
granted. In infrastructure development there is little doubt that the facility once developed
would be useful and be used, but whether the persons actually using or benefiting from the
facility would, in fact, pay the commercial rates required to make the project viable, is always
considered a risk factor. Consequently, the implementation and investment in infrastructure
development projects call for a different approach and perspective than that adopted in the
case of industrial projects.

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Development of infrastructure projects with private participation requires a distinct approach


that has to be project specific. This is because each project has its distinct investment
requirements, risk profile, user profile and gestation period. There can be no general approach
towards infrastructure development in various sectors, and even within the same sector each
project will require tailor made approaches specific to such project.3

Infrastructure Laws in India

The infrastructure sector in India has undergone major reforms with the aim of achieving
planned and consistent economic development. There has been a gradual shift from a
controlled to an open market economy where private players, including foreign investors,
have assumed a role.
The infrastructure sector is governed by specic statutes governing the specic sectors it
encompasses. These statutes clearly provide the modes and means of private participation.
Generally private participation is allowed through grant of licences to the private developer
or through contractual

relationship. The scope and extent of private participation is

determined by the state government concerned and can be of varying degrees, such as on a
build, own and operate (BOO) or build, operate and transfer (BOT) or build, lease and
transfer (BLT) basis. These are just a few of the popular modes.

In brief, the legal framework within which the infrastructure sectors operate is described
below

3 Piyush Joshi, Law Relating to Infrastructure Projects,Lexis Nexis Butterworths, New Delhi; 2nd Ed.Pg no
2,3

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Power
India has taken radical steps towards the restructuring of its power sector. The entire legal
framework governing this sector has undergone change with the passing of the Electricity
Act 2003 in June. The new act replaced the prevailing legislations, namely the Indian
Electricity Act 1910, the Electricity

(Supply) Act 1948 and the Electricity Regulatory

Commission Act 1998.

The act has laid a foundation for the rapid development of the electricity industry by:
promoting competition; decreasing the amount of regulatory
introducing uniform licensing for electricity

approvals necessary;

distribution, transmission and trading;

rationalising electricity tariffs; and providing transparent policies regarding subsidies. It


provides statutory basis for the restructuring of state electricity boards.

Private participation in generating companies and captive generating plants is allowed


without a licence. However, activities pertaining to transmission, distribution and trading of
electrical energy is subject to the possession of a licence from the appropriate electricity
regulatory commission (ERC). The licence can be procured subject to fullment of certain
terms and conditions and is valid for 25 years.

The regulatory functions have been delegated to the Central ERC, State ERC, the Joint
Commission and Appellate Tribunal constituted under the act. There are also monitoring
agencies and agencies for governing operational aspects of the electricity system.

Total foreign direct investment (FDI) is permitted for hydroelectric power plants, coal/lignitebased thermal power plants and oil and gas based thermal power plants projects. Fiscal
incentives like a 100% tax holiday for new power projects in any block of 10 years within
the first 15 years of operations, tax exemption for interest/dividend, long-term capital gains,
concession rates of import duties and deemed export benets are available.

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Airports
The governments Policy on Airport Infrastructure 1997 contemplates preparation of detailed
masterplans for the development and upgrading of all selected airports in line with the
standards and recommended practices of the International

Civil Aviation Organisation.

Greeneld airports projects may be permitted in the public or private sector or as a joint
venture without the approval of the government. However, for other categories of airports
run by private operators, the approval of the director general of civil aviation is required.

The policy recognises the importance of private participation for a sustained development of
airport infrastructure. It seeks to achieve this by corporatising airports with the aim of
divesting the government holding in the future. The airports can be owned by the central or
state governments, public sector units, urban local bodies, private companies and individuals
or through joint ventures. The management of airports or parts of airports can be on BOT,
BLT, BOO, LDO, joint venture, management contract or on a wrap- around addition basis.

Establishment of private airports and leasing

out of airports to private entities is now

permitted subject to approval of the central government. FDI, in joint ventures relating to
airport infrastructure, is permitted up to 74% under the automatic route and up to 100% with
prior approval. The equity participation can be made by foreign airport authorities.

Airports are governed by the Airports Authority of India Act 1994, the Aircraft Act 1934 and
the Aircraft Rules 1937. The above legislations allow private participation through issuance
of license for an airport other than those owned by the Central Government and formation of
joint ventures with the Airports Authority of India.

Fiscal incentives like 100% deduction in prots for the rst ve years followed by 30%
deduction for next ve, full deduction to run for a continuous 10 out of 20 scal years of the

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assessors choice and deduction of 40% of the prot to nancial institutions from long-term
nancing of infrastructure projects is available.

Roads
National highways are governed by the National Highways Act 1956 and the National
Highways Authority of India Act 1988. The functions relating to development, maintenance
and management of national highways are carried out by the National Highways Authority of
India.

FDI up to 100% (with total foreign equity up to 1500 crore) is permitted in construction and
maintenance of roads, highways, toll roads, vehicular tunnels, rail beds, non-vehicular
bridges, non-vehicular tunnels, pipelines, ropeways and runways.

Fiscal incentives include duty free imports, 10 years of corporate tax holiday within 20 years
of commissioning the project, exemption on prots of nancing institutions, exemption on
long-term capital gains of investors, concession period up to 30 years and toll rates indexed to
the wholesale price index.

Water
The government of India has massive plans to utilise its large rivers for providing less
expensive, pollution free and relatively more efcient methods of transport. The National
Water Policy 2002 encourages private sector participation in planning, development and
management of water resources projects for diverse uses, wherever feasible. With ambitious
plans to connect rivers within the country, this sector offers major investment opportunities.

Railways

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Railways are the principal mode of transport in India. Railway transport is covered in the list
of industries reserved for the public sector and is therefore not exempt from industrial
licensing requirements. However, several railway components have had licences removed.
FDI in the railway sector has been allowed with sectoral caps. FDI up to 51% is permitted
for the manufacture of railway containers used in container trafc. FDI up to 74% is
permitted in construction and maintenance of railbeds, bridges and tunnels under automatic
route.

Ports
Both the central and state governments have taken several incentives to encourage private
investment in this sector through open competitive bidding.Ports are governed by the Major
Ports Trusts Act 1963 and amendments thereof. FDI up to 100% is allowed. A tax holiday is
provided for the rst ve years followed by a 30% rebate on the earnings in the next ve,
which may be used within 12 years of the commissioning of the project.

Oil and Natural Gas


Natural gas is projected to be a critical component of Indias energy market in the near future.
In exploration and production, Indian oil and gas elds are open to the private sector and for
foreign participation up to the prescribed limit under production sharing contracts. In the
rening sector, 100% FDI is allowed under the automatic route in the private sector.
However, FDI up to 26% is permitted where the joint venture is with public sector
undertaking. FDI up to 51% is permitted for petroleum products and the pipeline sector.

Fiscal incentives like corporate tax deductions and allowances, seven-year tax holidays and
deduction of expenses are allowed. Divestment of government holding in the oil sector has
further enhanced the scope in the sector.4

4 http://www.dubeypartners.com/articles/infrastructure_laws_india.pdf , Last visited on 28.10.13

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Documentation Requirement in Implementation of


Infrastructure Projects

The natural consequence of the presence of a vast number of participants in the development
of an infrastructure project with private participation is the complex web of legal
documentation evolving around each such project. Simply stated, the bare essential
documents required for the purpose of developing of an infrastructure project with private
participation would include :
(i)An agreement with the government granting the right to the project vehicle for the
implementation of the project. This can be in the nature of a license or an authorisation. It is
generally referred to as the Concession of Agreement.
(ii)The agreement among the sponsors and the various investors relating to the management
of the project vehicle and the development of the project is generally referred to as the
Shareholders Agreement.
(iii)The agreement between the project vehicle and the construction contractor for the
construction of infrastructure facility is generally referred to as the Engineering Procurement
and Construction Contract or EPC Contract,

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(iv) The agreement between the project vehicle, and the main the operation and maintenance
contractor for the operation and maintenance of the infrastructure facility is generally referred
to as the O & M Contract.
(v)The agreement between the project vehicle and the main consumers or users of the facility
or service offered by the facility is generally referred to as the bulk supply contracts or the
bulk offtake contracts.
(vi)Agreement with other contractors for undertaking suppliers necessary for the continued
operation of the facility.
(vii)Other commercial agreements to provide additional revenue streams to the project.

Each of these documents gets it distinct form, substance and acquires a life of its own during
the course of each project and each project requires a distinct set of documentation for
protecting the various interests involved in its implementation and ensuring binding
commitments from each participant in the project5.

5 Piyush Joshi, Law Relating to Infrastructure Projects,Lexis Nexis Butterworths, New Delhi; 2nd Ed.Pg no-41

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Challenges to the Development of Infrastructure in


India
Financing
For a variety of reasons the infrastructure development has been predominantly public sector.
The reasons for this include the public good nature of infrastructure services which imply
nonexcludability, elements of natural monopoly in the sectors and the need for long-term
investments before commercially viable returns could accrue given the highly capitalintensive nature of the sector. Though with the change in the policy regime in the early 1990s,
also led to a change in the strategies for infrastructure development. Private sector
participation in infrastructure development was actively pursued, first in the electricity and
telecommunicationssectors.
However, we still find infrastructure financing an underdeveloped sector in India. The
Government of India has encouraged private sector investment, both domestic and foreign, in
almost all infrastructure units through the PPP mode. Today the debate is no longer focused
on the conflict between public and private sectors, but rather on the most efficient way of
sharing risks, joint financing and achieving balanced partnership.

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An essential aspect of the sustained development of infrastructure is financing arrangements


for development. As per the 12th Five Year Plan document, as much as 50% of the new
investments in infrastructure are expected to be from the private sector. While private sector
investorswould look for the commercial viability of investments, public investments would
have to look for the overall economic growth outcome of the investments to make new
investments sustainable. Conserving fiscal resources for infrastructure development is
essential for maintaining the momentum of infrastructure development.
The crucial role infrastructure development plays in easing supply side constraints to
economic growth has well been recognized. According to the 12th Plan, as much as US$ 1
Trillion is required for investment in infrastructure. Certainly this is not a small number and
much has to be done including capital market reforms that would facilitate easier borrowings.
The corporate bond market in India is still in its infancy. There is an increasing reliance on
private sector for developing and maintaining infrastructure, however, such projects are
largely capital intensive and have a high gestation period. Most large developers have overleveraged their balance sheets to raise debt and their cash flows do not permit them to raise
fresh debt to fund new projects. It is because of this we are witnessing delay in achieving
financial closure. In FY12, Concession Agreements were signed for more than 25 projects,
but financial closure of 15 projects is still pending. This problem is further compounded with
most commercial banks and financial institutions having reached their exposure limits for
funding infrastructure. Their ability to lend is further constrained by the slow mobilization of
deposit, as compared to the growth in credit and the asset-liability mismatch in commercial
banks.

Land Acquisition
One of the single largest roadblocks for development of infrastructure would be the issue of
land acquisition. Resistance from local communities has proven to be a potent force and has
led to delays in infra projects. There is generally a huge difference between the registered
value offered and the actual market value, which results in disputes and litigation. Moreover,
valuations are conducted on the basis of the current status of land, and the system does not
capture the appreciation after the construction of the project.

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Land being a pre-requisite for any infrastructure project, acquiring land has become a curse
for many potential projects. Local communities feel cheated out from the path of
development, which leads to distrust and disputes. In addition, rehabilitation packages are not
planned meticulously and execution is inefficient. For instance, the National Highway
Authority of India (NHAI) bids out highway projects even when it has acquired only 10-15%
of the land, or even less, assuming that the balance land will be acquired by the time financial
closure of the project is achieved. Almost 70% of PPP road projects witness delayed financial
closure and commencement of construction.
Lack of proper dispute resolution mechanism adds to the delays. Disputes often lead to
lengthy litigation and substantial project delays. Taking possession of land for large projects
is botcontentious and time consuming issue. There were weaknesses in the laws governing
land acquisition and, right now, a process of securing political consensus on the amendment
to existing legislation is in progress. There is a need to reduce the time needed for land
acquisition while recognizing the competing demands on scare resource. Infrastructure
projects require an efficient process of land acquisition to be in place with adequate checks
and balances for considerations of equity and justice.
A new bill, the Land Acquisition and Rehabilitation & Resettlement Bill (LARR), has been
introduced in the Parliament. The Bill may ease the process of land acquisition and reduce the
number of litigations due to the Governments detailed and improved provisions for
compensation and rehabilitation, but this will also substantially increase the cost of acquiring
land. This could be detrimental to private investments in the long term, since viability of
projects may be affected.

Regulatory Framework
Most of the infrastructure projects in India suffer from delays in completion. This is mainly
due to an inadequate regulatory framework and inefficiency in the approval process.
Infrastructure projects require multiple sequential clearances at various levels of government.
As an illustration, more than two years were needed for the Gujarat Pipavav port project to
receive the necessary clearances after achieving financial closure. Moreover, most of the
large projects

involve dealings with various ministries. Often, the perspectives of the

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different ministries/departments vary and co-ordination remains inefficient (World Bank,


2006).
The various categories of approvals required across the project cycle at every stage, right
from the pre-tendering stage to post construction. While it is important to have a rigorous
procedure that ensure transparency and quality, bureaucratic complexities and the protracted
procedure for securing approvals are often considered serious disincentives for developers
and contractors.
Environmental safeguards and guidelines have proven to be one of the major reasons for
delay in infrastructure projects, especially in the power sector. While new projects need to
comply with these regulations, even a project under construction may need to comply with
revised standards midway through the execution stage. While the concerned Ministry states
that the delays areprimarily due to non-compliance with the procedures of Environment
Impact Assessment (EIA) notifications and circulars issued, the terms of compliance involve
a complex and timeconsumingprocedure.

Governance Related Constraints


Infrastructure projects are affected by governance-relatedconstraints in several ways. Project
award process has to be transparent. The experience ofcontract award process in telecom
should help improve the process in the other sectors. Giventhe wide rural-urban divide in
the infrastructure services, the general budgetary support in the form of measures such as tax
incentives, viability gap funding or direct allocations to make infrastructure services more
widely available may be necessary over the long-term.
Upgrading Indias infrastructure to the best global standards as a strategic requirement has
provided the context for the current strategies. Recent developments in the global economy
would suggest that accelerated growth of the Indian economy would benefit not only large
disadvantaged sections of the countrys own population but also would be necessary for
sustained global growth.

Efficient Pricing of Infrastructure

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There is unequivocal linkage between problems of attracting private investment in


infrastructure and price fixation of infrastructure services. This represents a major challenge
for the policy strategy during the Eleventh Plan and Twelfth Five Year Plan.
The broad policy approach relies on independent regulation. This is the case with the four
major infrastructure sectors such as: telecom, power, airports and ports. Roads where pricing
is of limited application and railways where all services are priced but prices continue to be
set by the operator are the exceptions. Irrigation remains complex sector where power and
water pricing for agriculture are yet to achieve resources even for maintenance of services.
The regulator in Telecom is fully empowered, but as forces of competition have taken over
much of the sector, the prices ruling are well below the ceilings set. The regulator for airport
services has just come into position, which is a positive development. Pricing issues will
come to the fore in the sector when more players enter the field through green field projects
or JVs with AAI. Potential for large gains from pricing efficiencies are expected in power and
railways, because the pricing regime continues to be highly inefficient in both. A comparison
of pricing of retail power supply in China and in India shows that the price ratio ranges
between consumer groups within 1.8 in China while in India it is as high as 7.8. The National
Tariff Policy stipulates that the tariff differentials should be brought down to a range of 2 in
phases, but the progress has been slow6.

6 Geethanjali Natrajan,Infrastructure Challenges in India : The Role of Public Private Partnerships.Pg no


15 19

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Conclusion

India is the fourth largest economy in the world. However, one factor which is a drag on its
development is the lack of adequate infrastructure. Infact, there are estimates suggesting that
the lack of proper infrastructure pulls down India's GDP growth by 1-2 per cent every year.
Physical infrastructure has a direct impact on the growth and overall development of an
economy. While strategies to accelerate economic growth did anticipate the need for faster
development of infrastructure as well, the fast growth of the Indian economy in recent years
has placed increasing stress on physical infrastructure. Sectors such as electricity, railways,
roads, ports, airports, irrigation, and urban and rural water supply and sanitation, continue to
experience the pressure of rising demand for services even as they suffer from a substantial
initial deficit. The goals of inclusive and high level of economic growth can be achieved only
if this infrastructure deficit is overcome. Infrastructure development would also help in
creating a better investment climate in India. To develop infrastructure, there is a continuing
need to revisit the issues of budgetary allocation, tariff policy, fiscal incentives, private sector
participation and publicprivate partnerships to ensure that required infrastructure
development takes place.

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India has to proceed with caution with respect to PPPs, ensuring necessary checks and
balances because the benefits of private-sector efficiencies will come at a price. In this
context, the suggestion for independent regulatory bodies in core infrastructure sectors such
as the transport sector comprising highways, railways, ports and airports is a welcome
suggestion for future reforms. Measures also need to be taken to make existing regulatory
agencies in the power sector more effective. To make PPPs a success, state governments need
to establish full-fledged PPP departments mandated with developing the core competencies,
policy framework and public discourse. Rigorous assessment of the costs and benefits of the
large projects would also be critical for achieving broader public support for the completion
of projects to show results in both the Centre and the State sectors.
In sum, the infrastructure development in India will continue to be mainly demand led and
therefore efficient use of existing infrastructure and efficient construction of new assets will
be critical in the pursuit of higher economic growth. Fiscal support will continue to be
dominant for infrastructure development but equally important would be the enabling policies
that could lead to streamlining of procedures and protecting interests of both investors and
consumers.

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Bibliography
- Piyush Joshi, Law Relating to Infrastructure Projects,Lexis Nexis
Butterworths, New Delhi; 2nd Ed.
- Geethanjali Natrajan,Infrastructure Challenges in India : The Role of
Public Private Partnerships.
- Bryan A Garner, Blacks Law Dictionary, 9th Ed. West (Thomson
Reuters),USA.
- Mulla,The Transfer of Property,Lexis Nexis Butterworths Wadhwa,New
Delhi.