<b>Vinayak Chatterjee:</b> The political economy of PPP

With each of the controversies over PPP being addressed, such partnerships are increasingly being seen as the best way forward.

The Public-Private Partnership (PPP) movement, seen from the perspective of an economic historian, is an inevitable outcome of the changing nature of India’s political economy. It is not just a bright new idea, pushed by liberal eager beavers. Its emergence was ordained as part of larger tectonic shifts in the country’s economic organisation; or as it is said, it was an idea whose time had come.

This column attempts to capture eight shifts in the political-economic landscape that have contributed to the gathering momentum for PPP.

1 The winds of change towards a market-led, private sector-involved structure from the socialist, commanding heights philosophy started with the opening up of the product-market economy in the early ’90s, popularly termed “delicensing”. This was followed by opening up of the financial sector — banks, insurance et al. It was inevitable that this would be followed by public utilities, or what is referred to as “core infrastructure”. It is also clear that this will be now followed by the opening up of the “social” infrastructure sector — viz, education and health. A continuum is visible, by default, if not entirely by design… but fairly logical in its sequencing.

2 The change in thinking, inevitably again, starts at the federal level and trickles down. Thus, the PPP movement gathered momentum in those sectors of infrastructure that constitutionally are in the federal list — viz, telecom, power generation, civil aviation, national highways, major ports, and some green shoots in railways. It is amply clear, that the forward- looking states like Gujarat, Maharashtra, Punjab and Andhra Pradesh have started emulating the Centre. And so have some visionary urban local bodies. So, the political economy at all three levels is catching on to PPP.

3 The PPP movement, logically again, has gained traction in those sectors where there is paying capacity for public goods, or where there has been a history of charging. So telecom and civil aviation are no-brainers. Indians have been used to paying toll on river-bridges; and highway tolling is largely restricted to commercial movement or car-owning classes. Predictably again, the difficulties being faced are natural in water, electricity and urban transport. Yet the creeping movement forward is visible.

4 Psephologists have shouted themselves hoarse during election-time that urban voting patterns are shifting away from roti-kapda-makaan (food-clothing-shelter) to bijli-sarak-paani (electricity-road-water). This signal in political economy terms is extremely significant. It flags public-utilities delivery as a vote-gathering issue at last and thus marks a turning point favouring PPP regimes where the state has clearly failed in delivery.

5 Central fiscal schemes are nudging the states towards PPP-adoption. Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY) in urban infrastructure and rural electricity distribution, respectively, urge adoption of PPP models. Viability Gap assistance to state-projects adopting PPP best practices are available. So are project development funds. Multilateral supported capacity-building schemes for PPP are now in existence in practically all state capitals. Thus fiscal dispensations and devolutions are getting aligned to the emerging political-economic reality of PPP.

6 The state giving up power voluntarily is difficult to achieve in a closely-knit political-bureaucratic nexus geared to enjoying the spoils of office together. Yet the setting up of independent regulatory authorities in sectors such as power, telecom, airports and similar strident demands for fuel, railways and highways are testimonies to the gathering forces of change where the state will soon be forced to cede ground to more independent, autonomous and publically-accountable bodies. The RTI is also a push in this direction where more and more questions are being asked about the functioning of public utilities. A Planning Commission white-paper argues cogently that the time has come to have an overarching legislation to revamp the entire independent regulatory structure.

7 As Amartya Sen has forcefully pointed out in The Argumentative Indian, the bedrock of democracy is not the ballot box but argument, debate and deliberation that shape thinking in a democratic set-up. Here the PPP movement has had its fair share of controversy, debate and discussion and thus signalled that it has come of age democratically. Note the controversies (and ultimate resolution) surrounding the Delhi Airport bid, dismissal of the Lanco ultra-mega bid, challenges in court on Delhi’s electricity distribution privatisation, the controversial award of the Hyderabad Metro to Maytas against real-estate development and the Chaturvedi Committee report liberalising the Model Concession Agreement (MCA) regime for highway developers. Amartya Sen should be pleased!

8 At the highest rungs of the national leadership, interventions have been made to align political-economy goals with the PPP movement. These include the chairmanship by the prime minister of the apex Committee on Infrastructure, as well as setting up of the India Infrastructure Finance Company for providing financial support for pushing the PPP agenda.

So, have all these changes in the political-economy led to a visible emergence of PPP as a 21st century “paradigm-shift” to alter India’s economic landscape? The answer is clearly yes. Consider the following from a paper published by the Planning Commission in June 2009:

 

 

During 2008-09, 63.2 per cent of the total investment in the telecom sector was contributed by the private sector. 
 

International airports at Hyderabad and Bangalore have been commissioned in 2008 and the airports at Delhi and Mumbai are undergoing a major programme of expansion and redevelopment, all led by the private sector. 
 

Construction of National Highways has seen a total expenditure of Rs 17,571 crore in the year 2008-09, of which about Rs 8,200 crore was by way of private investment. Private investment in the highway sector is expected to rise sharply, as a large number of projects are in the pipeline. 
 

In the ports sector, 12 port terminals are being developed through the PPP mode and 23 port terminals are likely to be awarded in the year 2009-10. 
 

In the power sector, during the period between 1999-00 and 2008-09, the private sector contributed 6,571 Mw or 14.5 per cent of the total generation capacity addition of 45,295 Mw. Compared to the Tenth Plan, private investment in the power sector is projected to double and reach a level of about Rs 185,500 crore during the Eleventh Plan period.

As Karl Marx said, “The ruling ideas of each age have ever been the ideas of its ruling class.” PPP has clearly found acceptance in any relevant formation of India’s ruling classes.

(The author is the Chairman of Feedback Ventures. He is also the Chairman of CII’s National Council on Infrastructure. Views expressedare personal.)