Latest macroeconomic data clearly shows that the practical decision by the National Democratic Alliance (NDA) government to stimulate investments through public expenditure has been insufficient to counter the decline in private investments. And infrastructure constitutes the bulk of gross capital formation in the economy.
Clearly, there is no debate in pulling out all the stops to revive PPPs. In fact, a slew of infrastructure schemes - from cleaning the Ganga to highway development, inland waterways, renewables, ports and airports - have PPPs as their cornerstone. Moreover, in the last five years, enough research and analysis have been presented to document the various reasons why PPPs collapsed. Everybody knows why. The question now is what to do about it.
On September 9, 2016, a high-powered group from industry, government and think tanks congregated under the auspices of the Confederation of Indian Industry's National Committee on Infrastructure and PPP (chaired by this columnist) to deliberate and discuss steps for the future. The buzzword was "implementation"; and the conclave was able to prioritise the following seven steps as possibly the most impactful and desirable in the here and now.
3P India: This is the NDA government's own idea, which has been well received. But why is it not being implemented? This idea for a world-class institution has an allocation of Rs 500 crore to "provide support to mainstream PPP projects", and was announced in the finance minister's first Budget in July 2014 and widely acknowledged as a key initiative for PPP revival. 3P India is indeed the institutional solution that can take care of many issues afflicting PPPs and is well captured in the Kelkar report. These include measures to address obsolescing bargain, risk allocation, bespoke concession agreements, capacity-building and knowledge management. 3P India should also strive to bring about the necessary attitudinal and cultural changes required to move from a transactional to a partnership level.
Modifying prevention of the Corruption Act: It is well known that relevant and justified commercial decisions are not taken by even seasoned bureaucrats as they are afraid of investigative agencies questioning their decisions and the impact it might have on their careers (and now, even their retirement!). This "decision paralysis" has had a huge cost to the economy. Thus, it is imperative to amend the Prevention of Corruption Act, 1988, so that genuine commercial errors of judgement, or points of view argued logically, are not subjected to investigative harassment and penal actions. Attempts to bring PPPs under the oversight of government audits, Right to Information etc, should also be discouraged. PPPs are not sarkari and regulators should look into any untoward issues.
Dispute resolution: The Public Contracts (Resolution of Disputes) Bill, 2015, is expected to expedite PPP and construction-related disputes. The Bill was slated for introduction in the monsoon session of Parliament, but that did not happen. According to the draft Bill, a tribunal is to be set up to settle disputes that plague government contracts, including vital infrastructure projects. An expert committee, set up to examine modifications to the Specific Relief Act, 1963, has also submitted its report on June 20, 2016. These two should go a long way to meet the long-standing demand for an impartial, time-bound credible and transparent renegotiation process, over and above embedding re-negotiation clauses in the concession agreements themselves.
Asset recycling: There is "investment-hunger" from long-term foreign institutional investors for infrastructure projects in India. But they are for operating "brownfield" projects as distinct from uncertain new "greenfield" projects. Butterflies, not caterpillars are in demand. This is also PPP, and easily and immediately done. It is also politically expedient as the outcomes are near term and high impact. For this, the government must speed up its asset recycling strategy and identify public utilities and infra projects for sale. In this context, states and public sector undertakings could also be incentivised through tax and fiscal measures to get enthusiastic about this strategy. Such incentives could be linked to recycling the funds so obtained into fresh projects. This is a win-win strategy for all concerned.
State support agreement: Every PPP project requires a welter of issues handled at the state level, notable among them being land acquisition, environmental clearances, utilities removal, power purchase agreements, toll revenues collection assurance et al. More often than not it has been seen that stress in assets is caused by states failing to fulfil their obligations to provide the right operating ambience for PPPs. This is serious in India's federal context. There does exist a state support agreement for many PPPs. But they do not give the desired confidence. A new legal format that firmly binds the states to their committed support is needed.
Regulation: Since the early 2000s, the private sector has been asking for a level playing field for PPPs. The only way to achieve this is by having a robust system of independent regulators. The Kelkar Committee has unequivocally recommended the setting up of independent sector regulators with a unified mandate. After much to-ing and fro-ing on this during the United Progressive Alliance years, NITI Aayog has been asked to give finishing touches to the Regulatory Reforms Bill, following the finance minister's announcement in the 2015 Budget. Independent regulation is a necessary precursor to reviving PPP. It puts the horse before the cart and addresses key issues currently missing in the "partnership". Regulatory uncertainty and unpredictability have also been a major risk perception in the last 15 years.
A private-public joint task force: The final step would be for the Department of Economic Affairs of the finance ministry, which houses the PPP cell, to create a joint task force comprising both government and private representatives to prioritise and supervise the implementation of the Kelkar Committee and allied recommendations. Some of these recommendations need only executive orders by the government; some require laws to be changed; and some may not be politically feasible in the here and now. It is a justified request by private stakeholders to be invited to the head table to participate alongside the government in making PPP revival work - and bring private sector insights into shaping the implementation road map, and its execution and monitoring.
That would signal the true spirit of a partnership!
The author is chairman, Feedback Infra; vinayak.chatterjee@feedbackinfra.com;
Twitter: @Infra_VinayakCh