India is gung-ho about public-private partnerships, but neither the Centre nor private sector is having it easy raising funds.
Among recent contrivances, the public-private partnership (PPP) is one that few know what to make of. On paper, it is yet another idea whose time has come. According to an ADB report on PPPs, since India’s Independence, ‘the interplay of ‘welfare’ objectives ‘in the operation of economic activity’ has invariably led to fiscal difficulties resulting in significant subsidy burdens and budgetary constraints on government’, making it important for a cash-strapped State to use private funds for public projects, especially in the infrastructure sector. If profit-motivated efficiency is brought to bear on their execution, so much the better.
To that end, over the past decade, India has awarded 758 PPP projects, requiring a total outlay of some Rs 3.8 lakh crore. But neither the Centre nor private sector is having it easy raising funds. With an estimated Rs 50 lakh crore needed over the next five years for infrastructure alone, the going will get tougher still. In the words of Prakash Rao, an expert at Feedback Infra Services, “Convincing financiers [to fund such projects] is the most challenging task.” Banks are grudging lenders since these projects take a decade or more to show returns, and there is not enough money committed to banks for the long-term. “Floating rate loans with short reset periods escalate costs,” says Hemant Kanoria, managing director of Srei Infrastructure Finance Ltd, “by increasing the interest burden in a rising rate regime.” If that’s not bad enough, the corporate debt market is in its infancy, with few takers for long-dated bonds.
Overall, India might yet have the funds. “The huge corpus of domestic savings—about 35 per cent of GDP—can open a wide spectrum of funding for long-gestation infrastructure projects,” says Neeraj Bansal, an expert with KPMG. What keeps the money from reaching these projects is the rickety structure of typical PPP ventures—with little clarity on anything, from timelines to viability. If environmental and other clearances are obtained before bids are invited, say some analysts, problems of project delays and mispricing could perhaps be tackled.
The Government is working out a new PPP policy, and India Infrastructure Finance Company Ltd might be given a renewed mandate to garner funds for projects and plug ‘viability gaps’. But it is also clear that India’s insurance and pension sectors would need a big boost for long-term funds to become available. This requires wide-ranging reforms of India’s financial sector. Else, China will remain an object of envy instead of rivalry.