| India's growing realisation of the sheer enormity of the infrastructure deficit and the desperate desire for its partial amelioration through private capital is a fairly recent phenomenon. |
| Consider the following steps leading up to the rude awakening. Just three years ago, in a speech at the New York Stock Exchange, Prime Minister Manmohan Singh (then a few months into the new job, and no doubt also assisted by a new speech writer!) declared to the world: "In the next 10 years, we must invest at least $150 billion to modernise and expand India's infrastructure." Two years later, in June 2006, the Approach Paper to the 11th Five Year Plan announced that the country needed an outlay of $350 billion across the 11th Plan Period. Come August 2007, and the finance minister, drawing from the recently submitted Deepak Parekh Committee Report, mentions that "India will need an investment of $475 billion during the 11th Plan Period...so as to sustain an economic growth of 9 per cent every year." Incidentally, the difference between $350 billion and $475 billion has only to do with the strengthening value of the rupee and factoring in inflation to reflect the estimates at "current prices". |
| Now in a detailed Consultation Paper (September 2007), the Planning Commission has projected a figure of $490 billion. This is the middle figure between a top-down estimate of $488 billion and bottom-up estimate of $492 billion "" both at 2006-07 prices. The Planning Commission document is a well-researched paper and merits a separate comprehensive response. For the purposes of this discussion on public-private partnerships (PPPs), let us take on board its prognosis that 30 per cent of the requirements are to be met from private capital. This is a whopping $142 billion from now till March 31, 2012. (Incidentally, this 30 per cent assumption requires serious questioning as the contribution of private capital is assumed to suddenly rise phoenix-like from an estimated 17 per cent level in 2006-07 to levels of 27, 28, 29, 30 and 31 per cent in the five years of the 11th Plan.) So, will the ugly duckling of the socialist era now be able to lay 142 billion dollar eggs? |
| Unlike public expenditure in infrastructure, private capital will necessarily have to seek out 'bankable projects'. And this is where the problem lies. While a lot of noise is made from time to time about the inadequacy of debt and equity funds, the truth is that not a single 'bankable' PPP project is documented to have languished on account of paucity of investible funds. All infra-market pundits unanimously agree that today, there is more money chasing too few "bankable" infrastructure projects. |
| So what does the dipstick on bankable projects show? The finance minister, at a Conference on PPP for Chief Secretaries in July 2007, shared the following statistics. |
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| When you consider that infrastructure projects typically take three-four years to complete, it does not augur well for the 11th Plan to have only $25 billion cooked and cooking PPPs as in August 2007. An informed guess would be that with this kind of a pipeline we may be able to achieve only around $50 billion of the $142 billion target for the 11th Plan Period. |
| Other indicators of the deepening of the PPP market do not look too robust either. Two years after the government introduced the 'Viability Gap Fund' to provide financial assistance through grants for PPPs in commercially unviable infrastructure projects, not a single rupee of the approved sum of Rs 4,000-odd crore has been disbursed. The India Infrastructure Finance Company Ltd (IIFCL) "" the government's Special Purpose Vehicle for infrastructure financing "" which began its operations in April 2006, is reported to have actually disbursed just a little above Rs 300 crore. |
| All this should be a source of significant worry for the nation considering that serious doubts have anyway been expressed about the capacity of the fiscal system to meet its share of the public expenditure burden for infrastructure. But irrespective of whether one sees the PPP glass as currently two-thirds empty or one-third full, one has to commend the central government for single-mindedly pursuing PPPs. For this, two arms of the government require appreciation. |
| One is the Planning Commission, which itself serves as the Secretariat of the PM-chaired Committee on Infrastructure. Its aggressive advocacy of PPP as the right framework going forward has certainly hit the mark. The Planning Commission has been using every vehicle possible from the large-format Vigyan Bhawan conferences to framing model concession agreements, to egging on states and line ministries, to clamouring for transparency and accountability in the award of PPP contracts, and above all, in using the persuasiveness of its erudite Deputy Chairman to plug away at PPP. |
| The other arm that requires recognition and accolades is the department of economic affairs in the ministry of finance, where its energetic and committed 'team infrastructure' is responsible for unleashing a variety of schemes leading up to rapidly building a PPP consciousness across the country and an enabling environment for PPP. It is worth summarising the key interventions conceived and developed. These are: |
| Add to the above, the recommendations of the Deepak Parekh Committee on infrastructure financing and the report and recommendations of the committee on the "Launch of Dedicated Infra-Funds by Mutual Funds". Both these have been commissioned by the ministry of finance and are currently under active consideration. In sum, all the ingredients are being put in place for a potentially hearty PPP meal at a national level. |
| But the kitchen and the cooks are mostly in the 29 state governments. So unless the states now pick up the gauntlet, PPP may well be a mayamriga. |
| The author is the Chairman of Feedback Ventures. He is also the Co-Chairman of CII's National Council on Infrastructure. The views are personal |
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