How To Fix Our Infra PPProblems

Context: An overview of the importance of the Public-Private Partnership (PPP) model in filling the investment gap to achieve Sustainable Development Goals (SDGs) and the key issues plaguing the Indian PPP paradigm.

Investment gap highlighting the importance of PPP model

• According to the United Nations Conference on Trade and Development (UNCTAD), to meet SDGs by 2030, annual investments of $4.5 trillion needed in developing countries.
  • At the current level of spending, there is an annual financing gap of $2.5 trillion.
• As per the International Monetary Fund (IMF): Additional private and annual public spending of $528 billion for low and lower-middle-income countries, and $2.1 trillion for emerging countries, will be required for meeting SDGs in five priority areas — education, health, roads, electricity, and water and sanitation,
• According to Standard Chartered SDG Investment Map, India requires a $2.64 trillion investment to achieve SDGs. Public finances are falling short by around $1.5 trillion.

Issues with the Indian PPP paradigm

• Issues with long-term partnerships: Long-term partnerships that rest on a principle of equality is very hard to achieve when one of the partners in the state.
• Sketchy experience: due to following issues -
  • ‘Plagued lack of clarity about outcomes, shifting goalposts, policy uncertainty, judicial interference and ignorance, the reluctance of the consumer to pay, and incapacity of the government to fulfil its commitments.
  • Lack of private sector capacity, aggressive forecasting, overleveraging, and efforts at regulatory capture.
• Market volatility and unpredictability: Especially impacting long term (25-30 years life) projects.
• Non-optimal maintenance of assets: Payments are affected by non-optimal maintenance and changing performance standards due to technological advancements.
• Changes in the public policy: While relatively stable public policies can be achieved, it can’t be assured that these can remain predictable over long concession periods, as policies must reflect the needs of the people, which also change with time.
• Affordability of services to ensure inclusiveness: E.g. In Railways, the tariff for passenger always subject to affordability test.
  • In the case of drinking water, education and health, affordability is in direct conflict with commercial viability.
• Issues with long term financing: Banks are not in a position to provide long-term finance and capital market instruments like rupee-denominated masala bonds, municipal bonds, real estate investment trusts and infrastructure investment trusts etc., are yet to take off.

Way Forward:

• PPP projects have to be carefully designed with a proper mix of user charges and government subsidies while ensuring standards are not compromised.
• Dynamic policy changes: Policies must reflect the needs of the people, which also change with time.
• Need for innovative financing instrument: specially designed for SDG- related projects. A dedicated team should be instituted in the finance ministry working full time on reinvigorating the PPP framework