Incomplete infrastructure puzzle
Investment in PPP-powered infrastructural development is the missing piece in India’s infrastructure jigsaw.
A Public-Private Partnership (PPP) refers to a medium to long-term contract between the public and private sector with the objective of leveraging private sector resources and expertise in the development or management of asset or both. PPPs have immense potential for boosting India's economic development, particularly in the area of physical infrastructure. Since India first adopted PPP, it has come a long way in infrastructure development and growth. Experiencing an almost unparalleled re-emergence of PPPs in the past three decades and with over 1300 projects in different stages of implementation according to the World Bank, we still do not have a dedicated law governing it. The need for infrastructure creation to support the economy and its gigantic working population could not be emphasised enough. With over 18 million unemployed youth in 2017 as per the International Labour Organisation, India stands at the risk of its demographic dividend turning into a demographic curse. Decades of underinvestment have led us to the brink of this debilitating infrastructure deficit. Despite several failures, PPP projects have played a critical role in overhauling India's collapsing infrastructure, with still a long way to go.
With the youth all set to enter the workforce, India is hungry for world-class infrastructure to fuel its growth. Infrastructure development is expected to create massive employment opportunities and a foundation for a prosperous manufacturing sector. Estimates show that India would need a staggering investment equaling roughly half of its GDP (approximately over $ One trillion) over the next few years to overcome its deficit. Bridging this gap alone is beyond the ambit of the public sector. Thus, private sector participation, backed by a strong economic policy and legislation, exclusively dedicated to PPP, is the key.
The PPP environment has been dampened due to several reasons. Government data reveals that many projects have been stalled or terminated on account of red tape, inequitable risk sharing, renegotiation and so on. There is a loss of trust by private players to contract with public authorities. The absence of a strong policy and legislation governing PPP makes enforcement all the more difficult.
For PPP, new legislation has been enacted in certain sectors and institutions have been set up. However, sector-specific guidelines and legislation is no substitute for having an exclusive policy and an umbrella law for PPP that cuts across sectors. A law governing PPP in infrastructure as a whole would cater to issues like the settlement of disputes, uniform procedures for various modes of bidding contracts, and ensuring that the contract renegotiation is not misused. For instance, specific Tribunals for PPP related projects could be set up which would cater to only PPP related disputes. With so many model concession agreements created and innovative contractual and financing mechanisms being adopted every decade, we need an undisputed non-contradictory body of legislation backing economic policy. India is in its first stage of PPP, accelerating strongly into the second phase.
Research reveals that improper contractual norms and bidding procedures often result in delays, cost overruns, making projects financially or operationally unviable. Cases like Delhi Metro Rail Corporation and Reliance partnership in the Airport Metro line or the under-estimation of traffic on the Delhi-Gurgaon Expressway showcase how PPP projects can go wrong. Putting checks and balances in place would eliminate moral hazards and, thus, reduce incidences of aggressive bidding, understating costs, inequitable risk sharing and minimise opportunistic behaviour. PPP law should identify public authorities that will be permitted to award concessions and enter into PPP, keeping a check on silo operations. It should state the sectors wherein PPP may be adopted, giving impetus to priority sectors and keeping certain sectors out of the ambit of PPP. Regulatory competence should be entrusted upon independent bodies, free from political interference under the PPP law. With innovative contractual methods being adopted, like asset recycling, a law is required to create rules that apply to all contractual methods. Allowing duration, extension, termination of concession contracts and renegotiation to be governed by law, renegotiation would become limited to unforeseen and force majeure only. Legal provisions will ensure greater digitisation in payments and tax compliances. Furthermore, with the credit crunch, high risks of default in viability gap funding and the virtually absent corporate bond market, we must attract international funds through PPP. A legal framework in place would help make international institutional investors conducive towards contracting with public authorities. Moreover, India reserves around 20 per cent value of PPP contracts for SMEs in order to incentivise them and provide a level playing field through fair access. A legally backed provision regarding the same would help strengthen implementation.
Lastly, the settlement of disputes, both between concessionaire and contracting authority as well as users of the facility, can only be streamlined and expedited with a robust dispute resolution mechanism under PPP law. The presence of legal time limits would allow timely resolution and, thereby, increase the private sector's confidence in PPP contracts and encourage greater participation. Furthermore, a comprehensive exit policy in PPP law would be additionally required to create trust in procedures. With penalties guarding all facets, the foundation of PPP in India would be strengthened and revitalised in order to become the vehicle to pave India's path into a brighter future.
(The author is Young Professional, Advisory Council to Prime Minister, India. The views expressed are strictly personal)