Views of Amitabh Kant: “Successful PPPs need more empowered and stronger public counterparties”

“Successful PPPs need more empowered and stronger public counterparties”

India’s GDP has been growing at about 7 per cent per annum over the past few years. In order to lift a vast segment of the population above the poverty line, the country needs to achieve higher growth rates of 9 to 10 per cent. Significant private investment and ramping up of the public investment to GDP ratio will be critical factors to achieve this growth target. Also, a sustainable acceleration of public-private partnerships (PPPs) in infrastructure is absolutely vital for growth. Equally critical is the requirement for redrafting the existing PPP framework.

At the India Infrastructure Forum 2019, Amitabh Kant, chief executive officer, NITI Aayog, shared his views on the performance of the infrastructure sector, discussed the emerging areas of growth in the near future and suggested ways of increasing private sector investment and participation. Excerpts…

Infrastructure development in India: Current state, role of the private sector and recommendations for improvement

The infrastructure sector in India has suffered on account of underinvestment for a long time. Unquestionably, in the past, the government had put in a lot of resources in building infrastructure to make up for the private sector investment gap. However, the project development capacity of government institutions in India is extremely poor. The more the government invests in infrastructure the more inefficient infrastructure it will create.

Therefore, first of all, the government should step up the skills and rigour required for project development. Instead of being involved in infrastructure creation, the government should focus on bidding out/auctioning special purpose vehicles (SPVs) with all the necessary approvals and clearances in place. This will not only attract good quality private sector investment but will also help in building a pipeline of bankable projects. Second, a wide range of PPP formats and models with calibrated risk sharing and balanced contracts are required to be developed and tested. The government should look beyond the conventional PPP models and explore newer models such as annuity- and performance-based management contracts.

Further, it will not be possible to have successful PPPs unless we have more empowered and stronger public counterparties. Utilities, particularly in the water, transport and power sectors, should be made financially strong. Political commitment, continuous reforms and the role of state governments will be critical in this transformation. Last, but not the least, the newer models that have been adopted by the government, such as reverse build-operate-transfer (BOT) in the road sector, should be adopted in other infrastructure segments as well.

The government should get out of operations and maintenance of projects and make way for the private sector. Private sector participation in some areas such as operation of trains, infrastructure modernisation, development of logistic hubs and railway station management is critical to improving efficiency and operational performance.

Also, there is a need to create supply-side enablers to delve deeper into the debt market. Private sector investment cannot take place with a major chunk of the funding coming from banks alone, given the large mismatch between assets and liabilities. Therefore, development of a deep and diversified financing ecosystem would be vital to allow infrastructure companies to raise long-term funds from the market.

Today, the biggest set of reforms that are required in the infrastructure domain is in the railway sector, which is one of the key drivers of economic growth. In railways, there are a number of areas where we can push for privatisation. However, this task will be difficult to undertake unless we have the political will to push for better efficiency in the sector.

Further, there is a need for some radical decision-making in the power sector. The government should take a set of PPP and privatisation initiatives in the power distribution segment. The franchisee model for privatisation of power distribution would serve as a good basis. Also, at present, there are high levels of inefficiency in water supply and waste management in Indian cities. To begin with, we should target achieving 24×7 water supply services and 100 per cent waste water reclamation in all the state capitals.

Shifting focus: Sunrise areas in infrastructure

The world is in the midst of some of the biggest disruptions – these are going to take place in the renewable and conventional energy sectors. E-mobility and energy storage are some of the key sunrise segments with huge growth potential. Another big disruption will be in the technology space. Therefore, there is a wide range of opportunities available for Indian entrepreneurs.

Further, in the oil and gas sector, the government has formed a high-powered committee for enhancing domestic oil and gas exploration. The committee in its report has made several specific recommendations such as providing freedom to national oil companies to choose field-specific implementation models as well as pricing and marketing freedom for any new field development plan. The idea is to push for a more liberal regime in the sector.

The government had also constituted a high-level committee for liberalisation of the mining and coal sectors. The next big step is to create an efficient railway network which is totally managed by the private sector. To this end, Indian Railways should push for fostering competition among the zonal railways.

Next steps for the government

Currently, carrying out greenfield projects in India is a complex process as sufficient preliminary study or research is not carried out while designing a project. The development of a viable/profitable project should involve three to four years of hard work in terms of acquiring land and securing the requisite approvals. Further, instead of focusing on maximisation of profit and revenue of the government, the bidding criteria for PPP projects should focus on efficiency maximisation of the asset and minimisation of consumer costs. Also, the government should consider increasing the time limit for bid submission to a minimum of 90 days. Unless these steps are taken in a time-bound manner, it will be very difficult for the government to attract private investment in infrastructure projects.