The Public Private Partnership Framework of India is in dire need of robust Governmental intervention at a policy and implementation level. Considering this, the 3P India Plan by Late Mr. Arun Jaitley germinated in 2014. This Plan would be responsible for the regulation, management, and financial structures of Public Private Partnership Projects in India. Although the 3P India Plan's building blocks were laid via the 2016 Budget, the same remained incomplete due to lackluster efforts by the then Government. However, efforts for this Plan were renewed via the 2019 Budget, whose results are yet to be seen and thoroughly scrutinized.
Thus, in this Blog Post, firstly, the Author provides a detailed background of the 3P India Plan. Secondly, the Author explores the effects of 2015 Kelkar Committee's Report on 3P India Plan. Thirdly, the Author discusses the challenges faced in the current Public Private Partnership Model and proposes solutions for the same. Fourthly and lastly, the Author discusses how the Infrastructure Finance Secretariat would be a boon for Public Private Partnership Projects in India.
Public Private Partnerships (PPP) have become an intrinsic aspect of global infrastructural development. Within the club of countries that are openly promoting PPP projects, India has rowed its boat toward becoming a hub of allowing private companies to bag government projects, thereby catalyzing substantial developments within the nation. However, even after a plethora of ongoing and completed projects, the PPP framework in India is famished for sophistication and formulation.
The reality and importance of a framework and institution for aiding the PPP dream were initially highlighted by Late Mr Arun Jaitley, during his term as the Finance Minister. His idea of introducing the “3P India” plan and providing certain powers to banks and agencies was not only considered revolutionary but was also an innovative and desired step towards the future of Indian infrastructure. In fact, the objective and future he envisioned would have placed India on a high pedestal within the global spectrum and might have even led to an enhanced infrastructural development.
During his budget speech in 2016, Late Mr Jaitley specified the need for the establishment of an institution under the name of “3P India” which would intake a corpus of Rs.500 crores and would have had the primary objective of promoting and aiding all the PPP projects within the nation. According to the detailed plan of the then government of India, the 3P India entity would have been responsible for the examination of issues relating to regulation, financing structure, management of contracts and stressed PPPs.
The design and plan of the institution made it an innovative, powerful and distinct entity which was proposed to have enough strength to inculcate the entire galaxy of PPP technicalities and further define infrastructural developments in an entirely distinct manner.
Impact of the Kelkar Committee Report
After the announcement of the 2016 budget and the 3P India plan, the Kelkar Committee was constituted to provide recommendations to the Parliament to aid in the achieving the goals mentioned above. The Kelkar Committee sought to revisit and revitalize the PPP model of infrastructure and highlighted several methods through which India would have been able to attain a successful implementation of its PPP model. Some of these recommendations have been enumerated below:
- The Report specified that, in consonance with the demographic transition (2014), and the consequent growing need for better infrastructure, it had become essential for India to implement an enhanced and mature version of its PPP model.
- It further stated that PPP projects require private partners, public sector undertakings, and state owned enterprises must not be permitted to participate in the bid processes.
- On account of risk allocation, the committee mentioned that there should be optimal risk management and allocation in PPP contracts. Such management was recommended to be made possible by way of guidelines for authorities.
- An important aspect of the Kelkar Report was the recommendation pertaining to the formulation of a law which would govern and regulate PPP contracts and to further bring appropriate amendments to the Prevention of Corruption Act, 1988, to clearly differentiate between genuine errors in decision-making and acts of corruption.
It is needless to mention that even though the Kelkar Report as well as the overall plan laid down by Mr Jaitley and his associates were idiosyncratic, the inefficacious implementation by the then ruling party converted a projected success into an ascertained failure. By virtue of multiple delays and laches, the dream of establishing 3P India remained just that.
However, as Chaucer rightfully said, “For better than never is late; never to succeed would be too long a period”, 2019 brought a renewed front when the Government belonging to the same party as Late Mr Jaitley realised the importance of PPP projects and revamped the entire 3P India plan to suit the present situations of the projects currently ongoing and anticipated within the nation. The change in the stance of the Union may also be prima facie observed by a mere perusal of the 2019 budget presented by Ms Nirmala Sitharaman (Union Finance Minister or UFM). At the very inception of the budget, Ms Sitharaman reignited the fire of the PPP discussion within the Parliament. She emphasized the need for private participation to fulfil the requirement of an Rs.100 lakh crore investment proposed for the infrastructural development of the next five years in India.
The rising Need for a New Policy
Although, much like her predecessor, the ideas presented by the UFM paint a rosy picture of the Government's intention to refocus a substantial investment on regulations for PPP projects, the question as to whether such intention would be converted into an actual implementation is a one that forms the fact of the matter.
While it is an important factor to consider that since 2014, the advent and inclusion of PPP projects in India has only increased, it is also pertinent to mention that with a complete absence of any formulation, the benefits of such an increase have only been half accrued. The increase, as specified is also apparent from the 2021 World Bank Report titled “Private Participation in Infrastructure (PPI)” which highlights a sharp increase of 49% in investment commitments in 2021 compared to 2020. According to the 2021 World Bank Report, India stood amongst the top five countries that attracted the most significant PPI investments, constituting 66% of the total global PPI investments. It was further specified that, with USD 7.7 Billion in commitments across 25 projects, India was South Asia Region's (SAR) largest PPI investment destination.
Private Parties face numerous difficulties, such as the absence of refinancing options and procedures that might help cover individual liabilities, the complex procurement procedure, the absence of precise service output requirements, contractual uncertainties, and functional changes. Further, the procedural limitations highlight the dilemma faced by the investors and government participants at the execution stage. It includes delay and termination of specific projects induced through the introduction of contingencies and Government policies not predicted before. Thus, the importance of formulating a policy becomes even more vital than anticipated.
Considering the prevailing diversities, revamping the dispute resolution is one of the most reliable solutions. It will help resolve disputes quickly, recover expenses, and avoid degradation of available resources.
Despite the inherent inconsistencies in the proposed model, an insight into the world PPP market features India as an exceptional middle-income country shareholder and a significant contributor to the World Investment Forum.
India has managed to bag thousands of PPP projects as one of the leading players worldwide and has successfully executed the same with flourishing results. As mentioned above, India's 49% hike in private investment commitments helped it recover the losses incurred in the third year of the Covid-19 pandemic. However, it also scraped a significant share in local debt due to failure and stay-off on Noida Airport project, as per the 2021 World Bank. The same could be seen and has been considered a cover-up for multiple failures and stagnant PPP projects taken up by India.
Changes in the Present PPP Model and Proposed Solutions
With the initiation and growth witnessed through PPP projects in India, other obstacles were prefaced, including complexity, slow and delayed decision-making due to multiplicity of stakeholders, complicated exit procedures, and a high risk of cost overruns and scheduled delays. These shortcomings include extended project delays due to extensive clearance barriers and long land acquisition periods.
With attempts and frequent revisions made over the years, the present PPP policy model has remained inadequate. It has failed to overcome the challenges posed by emerging global market trends. It has been the main driving factor that compelled the present Government to refocus on the existing policy in an attempt to uplift India's economic development. Additionally, PPP projects governed by the current policy pose challenges to the public and private entities interested in establishing a relationship.
India believes in prospering rapidly in the infrastructural division through the involvement of PPPs. It has proved itself to be one of the most result-driven initiatives aspiring to drag economic growth and development of the nation. However, the uplift seen is neither absolute nor free from adversities. Infrastructure projects explicitly executed by PPI are not exempt from the challenges they face since entering the international market. Moreover, the established relationship makes it difficult for both public authorities and private partners to balance the pros and cons.
Taking inspiration from Kelkar Committee Report helps to surpass the difficulties mentioned above. The Kelkar Report has made a far-fetched observation of the existing shortcomings and has subsequently recommended ways to overcome them. Following the figures, India will shortly emerge as the most extensively accessible hub for PPP projects. Accordingly, India must prepare itself to be the same. Some of the most remarkable suggestions that India may adopt in the present times include:
- Fortify the key pillars surrounding the PPP framework, including Capacity, Institution and Governance, to ensure speedy execution.
- Suggest schemes and programs for banks and other financial institutions to increase private entities' involvement.
- Establish an advisory body for regular supervision of the existing methods and to provide timely suggestions to guarantee execution in line with the challenges that follow
- Introduce an independent yet regulated dispute redressal mechanism by establishing separate courts to handle and deliver speedy solutions so as to continue the execution of these projects.
- Define provisions for optimal allocation of risk management amongst the public and private sectors to manage and uphold decided execution.
- Provide solutions to overcome the loss of bargaining power for private investors.
- Specify criteria and frequent revisions in Model Concession Agreement (MCA) with defined obligations and flexibility to overstep the "one-size-fits-all" approach.
Complementing the above suggestions, one of the most outstanding contributions is the introduction of the Infrastructure Finance Secretariat (IFS). It will help acknowledge the emerging need for a unified body to supervise and reform the existing PPP policy in India.
The proposed institution will be an extension of the Department of Economic Affairs, Ministry of Finance. It will be an operational body working under the infrastructural divisions of DEA, viz. Infrastructure Policy and Planning and Infrastructure Support and Development. The body has a broad scope of powers with no limitations to improve its executive efficiency. This institution will be composed of members from the private sector and other multilateral institutions, inculcating professionals from Asian Development Bank, World Bank and KPMG.
Infrastructure Finance Secretariat: Need of the Hour?
The IFS will be a nexus between the government and private sector enterprises. It will embody different sections, namely the Capacity building section, Sectorial Studies section and the Infrastructural Financing section. All three divisions will have distinct yet synchronized functions expected to yield desired results aiming toward “investment-led growth”.
Firstly, the Capacity building section will solitarily work towards creating training programs for the Governmental authorities and the private participants. In addition, they will try to educate the partakers of such consolidation, empowering them with a functional skillset.
Secondly, the Sectorial Studies division which will be in charge of surveying and identifying the needs and applicable requirements of different sectors. This division will actively work towards providing a coherent dispute resolution mechanism.
Lastly, the Infrastructure Financing sector will be crucial in trying to bridge the vent ostensibly. It will help attract finances from private and foreign investors to boost the industry's cash inflow. Part of this takes place through the system of asset monetization. It will adopt active measures for revenue generation from underutilized and unutilized public assets.
DEA's infrastructural divisions were recently repositioned from the North block and have been shifted to a new Janpath office to work independently. The Indian Government has manifested its desire to invest in this method to yield high outcomes. It will make every other possible effort to connect and induce growth that will help meet demands in the infrastructure sector. The idea executes with the ultimate goal of fusing functions to ease the PPP process.
All the before-mentioned challenges will be conquered by IFS in two ways exclusively. Primarily, scrutinization will ease to deduce approval layers and regulatory barriers, thereby combating delays and resulting in better implementation. Secondly, the simplification of the clearance procedure will be supported by cutting red tape, i.e. by reducing bureaucratic obstacles. It will also include the amendment in the Prevention of Corruption Act, 1988.
The arrangement (IFS) will also revise the Model Concession Agreement (MCA) for every infrastructural sector. This change will help the parties entering into PPP to tackle newly introduced issues and manage the same without missing out on the critical dimensions. It will also provide a tailor-made outline clause to handle the adversities of precision and predictability, unbundling of risks, allocation of risk and returns, symmetry of obligations, reduction of costs during the implementation of projects, and other similar advantages.
The functional unit will encourage the dispute resolution system primarily through arbitration, mediation and negotiation procedures to increase the operating frequency of these procedures. Among its responsibilities, the body will likely provide a structured toolkit to facilitate any PPP project's key steps and functions, guiding the chain of identification, assessment, development, procurement and surveillance over approved projects.
The regime of IFS is not an individual hustle. There are many other government initiation programs which will be of service to the organization. Institutionalization of the National Infrastructure Pipeline (NIP) is one such step to provide equitable infrastructure access to all parts of the nation, with an intent to hike the employment scale in the sector. In addition, it aims to modernize the present infrastructural establishments through foreign investments.
The IFS acts as the driving force toward India's long-term development goals. It will reassess and control PPP projects to bring it in terms of the Government's lineup. In addition, the newly proposed body seeks to create a unified front for the world, justifying and improving its position as one of the world's leading PPP markets.
A CAPEX target of 7.5 billion is set for 2023 to revamp existing regulations into a new framework. It aims to create an efficient investor-friendly mechanism that closes the funding gap in municipal bonds, real estate investment trusts (REITs), and infrastructure investment trusts (IVTs).
Thus, the above-detailed functions and activities of the new executive body prove the value of IFS. It has an unseen potential and ability to create an impact never seen before, bringing a revolution to how India's infrastructure industry is currently run.
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