PPPs in India: Sector-specific challenges and the way forward
Every significant step has a set of challenges and constraints that needs attention. But once the conditions are under control and the issues resolved, there would be an overwhelming flow of socio-economic benefits due to the project. It is crucial to talk about Public-Private Partnerships through this lens as it would help provide a comprehensive overview of major issues and struggles that PPP projects have to face from the very inception of a project to its accomplishment.
As the figure suggests, five major sectors utilize the potential of Public-Private Partnerships in India. Each of these sectors has various concerns regarding the implementation of projects in collaboration with private agencies. There are significant issues, especially under sectors like roads and highways, airports, and urban development, that need to be dealt with. In the category of roads and highways, most highway development projects have been taken up under PPPs on Build on Transfer (BOT) basis, Special Purpose Vehicle (SPV) basis, and Annuity basis. The constraints are mainly related to land acquisition, revenue distribution, risk management, and issues related to material transportation. Although many of these issues cannot have a single-dimensional solution, some policies on these issues could help in subsiding its effects. Policy changes like the establishment of a dedicated Road Fund may ease financial constraints.
In the context of Airports, the constraints include the substantial initial investment and the long gestation period for the project’s viability. Other issues are procedural hassles of government departments, land acquisition problems, and the ever-increasing uncertainty of risks. Due to the open sky policy, increasing air traffic in major airports has led to increased PPPs in the airport construction and infrastructure sector. The best way to tone down the situation is to conduct pre-feasibility studies before commencing any big or small projects and transfer smaller airports to private companies, thereby reducing the government’s management burden.
Under Urban development, the main challenges lie in its sole purpose of modernizing and expanding the water, electricity, and transport system of the nation’s cities. When it comes to increasing the quality of life of people living in cities, the primary constraints revolve around the common issues of financial management of resources involved in providing public services and land acquisition problems. The lack of space in cities is a massive problem in the development of urban infrastructure. Apart from that, problems related to tariff settings, risk sharing, disputes over contract resolution, and regulatory independence are other significant concerns. Moreover, to encourage partnerships with the private sector, the government must create an investor-friendly environment with commercial viability.
The honorable Prime Minister of India once clearly stated that ‘the government of India has no business to do business. This statement intently highlights the government’s stand in encouraging and providing a platform for the development of private sector investment in all sectors. The government favors Public-Private Partnerships and believes in their relevance in the current economic scenario. Thus a variety of quality steps have been taken towards realizing this goal. The government has put forth a set of guidelines that could help in promoting an innovative PPP atmosphere. Optimal risk allocation and protection of investor’s interests have been two essential pillars of policy legislation in the modern PPP framework. Examples include the Hybrid Annuity Model used in the construction and expansion of 60 major highways, and the use of strategies like the Toll-Operate-Transfer [TOT} model is monetizing public-owned roads worth 35,600 crore Rupees. Exit policies have been liberalized for concessionaires, which would help in the re-investment of equities, new policy measures have been established to implement the PPP mechanism in other sectors like in the construction of railway stations or in the health sector, and the amendment in the Arbitration and conciliation Act 1996 to make dispute resolution more cost-efficient are some innovative measures among many. Another significant step is establishing the National Infrastructure Investment fund to trap in the foreign institutional investments.
As a result of these measures, the major infrastructure companies, especially those associated with major airports and highways of India, have seen a financial improvement. Further, India has also performed significantly well with its EODB World Bank ranking rising to 100 (out of 190 nations)from 130 a year earlier.
There is still a lot more to be done, ranging from implementing the Kelkar committee report to expanding the potential of other sectors apart from infrastructure through the PPP framework. Greenfield investments would determine the future of India’s infrastructural development. The attraction of foreign institutional investors is what the government needs to put in. Encouragement of greenfield investments, provisions for risk management and transparent revenue distribution, etc., would pave the way for expanding PPPs through foreign investment channels. The most crucial of all efforts is creating a space where PPPs are seen to attract private money in public projects rather than putting public resources in personal projects.
