The government should create an enabling environment in the form of policy changes to attract more private investment into the education and health sector that can be implemented under the public private partnership (PPP) model in the country.
“While the infrastructure sector like a road or power project gets long-term lending facility of 20-25 years, education and health sectors don’t receive that kind of financial treatment,” Sanjay Rai, Sector head- urban infrastructure, health care and education, Axis Bank said.
He also said that government should arrange for the ‘viability gap’ funding faced by this sector.
Viability gap funding is provided by the government to infrastructure projects undertaken through PPP mode to make it commercially viable.
Usually, this funding is required to meet the operational expenditure of an enterprise in the initial stage.
While this kind of funding is availed by infrastructure projects, projects implemented under PPP mode in social sector like education and health are not eligible for this.
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“The regulatory mechanism doesn’t provide for any subsidy to education sector, where there is a huge need of quality education in this country. Further, financing a capital intensive project like a medical college, there is a need for an infrastructure model to make it viable,” he added.
He also said that a vibrant corporate bond market would also help in long-term funding of these projects.
Corporate bonds, which usually meet companies’ long-term funding requirement, are not actively traded in India as compared to western economies.
A vibrant bond market can solve the issue of funding gap in the social infrastructure projects, Rai said.
Education and health sector in the country need huge investment from the private sector as the state of social infrastructure in rural areas is poor as compared to the urban areas.
“In healthcare sector, we should not look to create infrastructure, but try to improve what we already have,” Vikesh Mehta, Head- advisory practice of Grant Thornton said.
If we take out the infrastructure and working capital cost from a social infra project, the service part could be taken care up by the companies, he added.
He also said that risk transfer model would boost social infrastructure projects in the country.