Moody's Investors Service today said that improvement in India's public-private partnership (PPP) model could help attract more private sector investment in infrastructure projects.
The global ratings agency said that the exercise can help address the country's infrastructure requirements.
"The enhancement of India's PPP model could help attract more private sector investment towards infrastructure projects, and thus help address the country's very large infrastructure needs," it said in a statement.
The historical under-investment and rapid economic growth are straining India's existing infrastructure, said Abhishek Tyagi, Moody's VP and Senior Analyst.
While the country's PPP model has seen reasonable success in some sectors over the last 20 years, PPP activity has been low in the last four fiscal years due to challenges with the PPP model, he added.
"As such, India's PPP framework will benefit if it is developed further to address key issues regarding (1) improved risk allocation; (2) the ability to renegotiate unpredictable factors in the bid documents and (3) a move away from project awards based on one metric, such as estimated revenues," Tyagi said.
Moody's said that there has been a large decline in private investments in PPP projects in recent years for a number of reasons, including delays in project approvals and land purchases by government, complicated dispute resolution mechanisms in concession agreements and lower than expected revenues due to aggressive assumptions.
"Delays in project completion have resulted in cost overruns and revenue losses to private concession owners. These factors have impacted the financial viability of some projects and their ability to service debt," it added.
The poor performance of some infrastructure projects, including PPP, has been a source of stress for both developers and the Indian banking system, it said.
The June 2016 Financial Stability Report (FSR) of the Reserve Bank of India stated that infrastructure, which accounted for 14.2 per cent of total advances of the banking sector, accounted for 34.4 per cent of restructured standard advances and 13.9 per cent of gross non-performing assets of commercial banks in India, it added.
"In that regard, Moody's points out that more developed PPP markets, such as in the UK, Canada and Australia, use both availability-payment and demand risk PPP models and relatively standardised bid documents -- features that could address some of the bottlenecks in India's PPP framework," it explained.
It further said: "Adjustments to the PPP framework in India to align it more with those of more mature PPP markets could help attract new private investment.
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