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An Explanation


#MumbaiMetroMess

Dear Readers,

Thank you for all your kind enquiries about my wellbeing.Let me hasten to add that all is well with me.The reason I have been blogging in so sporadic a fashion on wealthymatters is my preoccupation with #MumbaiMetroMess.

Last September I met Vinit Goenka during the BigRock-Indiblogger event.I am interested in governace and thought I might go see what his e-governance was all about.I was disappointed to discover that his vision of e-governance was nothing but e-government and that too of a very centralized,top-down variety.But I happened to discover the digital citizen’s movement-#MumbaiMetroMess then. Read more of this post

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Virtual Equity


wealthymattersHave you ever wondered how billion dollar infrastructure projects are financed by the private sector in India? Here is the story:

Say there is a Rs.10,000-crore project, with a 70:30 debt-equity ratio. The promoter needs to put up Rs 3,000 crore as equity . Suppose he can scrape together Rs 1,000 crore. He will inflate the project cost to 15,000 crore.

His required  equity contribution now goes up to Rs 4,500 crore but he gets credit worth Rs 10,500 crore, more than enough to finance the entire project.

During implementation through promoter-owned companies, money will be taken out of the project, to fund a part of his equity contribution and to grease the palms that allow such an inflated project cost to go not just unchallenged, but actually blessed.

While implementing the project, he will start another project, take money out of it to fund the remaining part of the original project’s equity contribution and to service the loan on the first project once its construction is over. Then he will start yet other projects, to actually finance the second project, and so on. The first project will turn into a cash cow, if this string of loan-financed projects can continue to mushroom long enough for the loan on the first project to be fully paid off. Read more of this post

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