Problematic partnerships

Finance Minister Jaswant Singh has been a proponent of the idea of public-private partnership in developing big infrastructure projects.

Indeed, in his Budget speech last year, he envisaged over Rs 60,000 crore of roadways, airports, seaports and other such projects coming up in this manner.

So far, however, there has been more of public than private funding in the infrastructure sector, even in the Prime Minister's fairly successful highways programme, where the part that involves risk-taking by the private sector (that is, without government funding being involved) is quite small.

Indeed, the dilemma of India's infrastructure sector, right from the time Dr Manmohan Singh began withdrawing the public sector from it, is that the private sector has refused to step in, in any meaningful manner.

So, what's a finance minister supposed to do under the circumstances? In this interim Budget, though he lacked the power to grant any concessions, Jaswant Singh has sought to assure potential private sector investors in the power and shipping sectors, for instance, that the government will extend tax and other sops to them.

In the case of power, he's proposed that, if the NDA comes back to power, tax holidays available for new projects be extended to 2012, from the present 2006, and that this should also be available in cases of transmission/distribution networks bought from existing state electricity boards (SEB).

He's also promised to consider solutions proposed by the N K Singh Committee on power reforms. And in the shipping sector, the minister has said he is in favour of considering a tonnage tax scheme for Indian shippers "" which will dramatically lower tax rates for the industry.

But while the measures will be welcomed, once they are actually notified after a new government comes in, it will take a lot more than just tax breaks to get investors to invest in high-risk long-gestation projects.

For that, you need certainty of policy, and the correction of distortions. Not pushing open access in the power sector, for instance, is something that will make investors wary, as it leaves them open to the mercies of changing government policy.

Getting the right to distribute electricity in new areas, for instance, is not going to be automatic without open access being an integral part of the law. Similarly, unless SEBs are brought in line, there is going to be precious little investment.

In Kerala, the newly appointed regulator created history when he allowed a manufacturing firm to buy power from a private firm, bypassing the SEB, but the SEB retaliated by imposing such a high "wheeling charge", that the project doesn't make sense any more.