Private players can offer relief to the transportation sector
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If the government is serious about improving infrastructure, it needs the private sector. To lure them to participate, it needs to rework its laws and the returns, says Shyamal Moghe
Recently the Planning Commission of India’s revision of estimate for infrastructure financing in India put the figure of $490 billion in the next five years to improve its infrastructure. The finance ministry in its annual Economic Survey 2007-08 reported an amount of $500 billion to maintain a growth rate of 9%. Praveen Sood, group CFO of HCC puts the figure at $1 trillion.
It is clear from the estimates that India needs a humongous investment in upgrading its infrastructure. One can easily corroborate the numbers seeing the poor state of the roads, the need for flyovers and bridges to ease traffic congestion in big cities, overcrowded ports and airports and a paucity of power supply across the country.
The socialist nature of the Indian economy until the end of the 1980s put the onus of building and maintaining infrastructure on the government. The liberalisation in the 1990s brought in the private sector in infrastructure development across the country.
It also for the first time introduced public-private partnerships (PPPs) in the infrastructure sector. According to Shashikant Hegde, director, Economic Research: “Indian private companies stayed away from infrastructure projects mainly because of the huge initial investment requirements, inordinate bureaucratic delays in project clearing, lack of transparent policies and delays in land acquisitions / transfer.”
To ease these apprehensions of the private sector towards government intentions and attract private funds and companies in infrastructure, a step needed to be taken.
In October 2002, the government of India set up a committee to identify and clear projects under the PPP model.
Under this scheme, after identifying a project, the government agencies proposed to do the preparatory work and assist private companies in achieving speedy financial closure. The aim was to ensure returns for the private sector at minimum risk.
Besides a PPP model ascertains a close monitoring of infrastructure projects and completion on time. Governments in developed countries have used this PPP model to successfully develop their social infrastructure like health and education. A case in point here is that of the UK which has a well developed PPP model in the health sector. The governments of UK, South Africa and Australia have special departments to look after PPP in infrastructure.
Lessons from the past
In the past decade the Indian government has privatised and commercialised roads, ports, airports, power and telecom. Post liberalisation, telecommunication has been the success story of the decade. It is a good example of what participation from the private sector and a hands-off policy by the government can help achieve.
According to the Indian Department of Telecommunication, as of July 2008, the total number of land lines in the country increased to 333.84 million from 18.6 million in March 1998. The total number of mobile connections in India, according to the Cellular Operators Association of India, is 296.8 million, and growing. The telecom penetration has been one of the fastest in the world.
This sector could be successful because of the liberalisation in the telecom sector which has attracted domestic and multinational telecom companies.
The government hopes to replicate the telecom success story to other infrastructure projects as well. The deputy commissioner in Rajasthan Ajay Dikshit says: “PPPs need not be restricted to one particular sector. It will be successful as long as the projects are commercially viable and can bring about operational and financial efficiency and improved services. As of now PPPs have become almost a norm in the construction of new highways.”
The success of the Mumbai-Pune expressway is a case in point. The government’s policy is to involve the private sector in infrastructure projects through three options. It can either completely privatise the projects i.e. sell them to the private companies, or allow a private enterprise to build, operate and transfer the projects for a certain number of years, or the government and the private companies could jointly develop and run the project.
This scheme of joint development of projects has found most favour since investments in infrastructure projects are huge and managing the financing can be cumbersome.
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