P3 and the Nation,,,,,,,

Public-Private Partnership in India

How uncanny it is to find the frequency with which we come across the term “PRIVATE” in the modern corporate arena provided that almost a decade ago this very term had any existence in the Indian context. The fact that after China, India has been the fastest growing economy in the modern times; itself is perhaps the biggest testimony to the success of the New Economic Policy.
Though the “Public-Private Partnership” was existent during British times, when few British companies were allowed to invest in construction of rail roads but it was rather during the post NEP epoch that the PPP model flourished. From just 2 PPP projects in 2001, in the form of New Kochi International Airport and New Container Terminal of Mumbai port, to the nearly 758 such projects amounting to about 4000 billion INR; the Indian PPP story has till now been a golden one. Moreover adding to the above statistics, India is house to about 50% of the PPP projects in the emerging economies!!

The emergence and success of the PPP model is mainly due to the successful implementation of the amended National Highways Authority of India Act (1995), the Electricity Act (1993), the Special Economic Zone Act (2005), Land Acquisitions Bill. Adding to the above legislations, setting up of suitable financial institutions like Indian Infrastructure Finance Company and Infrastructure Development Finance Company also developed the PPP story forward. Innovative financial interventions like viability gap funding, annuity models and stimulation of debt for infra have also added fiscal punch. The effect of the coordinated effort from government institutions like The Planning Commission, Department of Economics and PMO has done a commending job in developing, maintaining and sustaining PPP projects in India.

Now there might be questions as to why the PPP model was at all required? The answer to this extremely critical question is based upon the moral and political obligations that a government has to provide its citizens with the adequate services in diversified fields like infrastructure, education, health care, tourism, etc. In most of the occasions government agencies find it tough to provide such gargantuan services due to lack of technology or fiscal or both. In such a situation applying for loans from agencies like World Bank or IMF adds to the vicious cycle of debt reimbursement that every country would like to avoid. So PPP model came as a messiah in such a situation, here one could collaborate the technological know-how of private sector with the public needs.

A lot said about public needs and obligations of government let us now turn our focus to the second partner in the partnership, the private partner. What does the private partner has to gain from such an agreement? The private partner obviously does not come to the table of agreement with philanthropic objectives, it has only one thing on its agenda; the profit it could make out of the projects it would work upon. The revenue model of most of the PPP projects depends upon the user based fee structures but in few cases the government also acquiesces to partly bear the project cost to enhance the return of investment for the private party. So the PPP model has proved to be a win-win situation for all the stakeholders.
Though it seems everything silver in this model but the challenges faced by these are numerous in count. The following are some major problems faced by PPPs in India:-

§ Lack of logistics in data collection regarding potential users.

§ Lack of regulatory authorities to look after irregularities in such projects and deals.

§ Problems with environment clearances and land acquisition not only lead to reduction in interests of private players but also lead to indefinite delays and mispricing.

§ Funding of PPP projects by commercial banks has been getting tougher and tougher as the time progresses.

Like every question owns its answer so does every problem has its solutions to ponder upon. To sustain PPP models government requires reconsidering the terms of risk management .Moreover the agreement should be more flexible such that few changes can be accommodated in the agreement paper if required, otherwise cases like DMRC-RInfra would continue to soar and thus proving detrimental to success of such models. Though the red tape problems have been reduced considerably but still there are substantial ‘crony capitalism’ cases out in the open which needs immediate attention. On a concluding note, PPP has been a great boon to the rise of Indian economy but still the job is far from done. So hopefully the problems faced by the various sectors implementing PPP models be resolved sooner or later so that India restores its lost status of “Golden Bird”