Source- The Indian Express
Syllabus – GS 3- Investment models.
Context- Partnerships with various stakeholders in the private sector is required for sustainable infrastructure creation in India
What is PPP investment model?
Public Private Partnership is a cooperative arrangement between public and private sectors. The PPP model displays three essential characteristics:
- Long term contractual arrangement.
- A significant level of responsibility and risk that is transferred from public to private sector.
- Contractual arrangements are built around performance based outcomes.
What are the challenges on ramping up private investments in infrastructure?
- Policy reforms– Refreshing institutions and policies for channeling financing.
- Stable ecosystem– Providing a stable, durable, and empowering ecosystem for private players to partner with government entities in the task of infrastructure-creation.
What are the recommendations of Vijay Kelkar Committee on Revisiting and Revitalizing PPP Model?
Vijay Kelkar Committee Finance Minister in the Union Budget 2015-16 announced that the PPP mode of infrastructure development has to be revisited and revitalized. Committee had put out a timely, practical, and balanced report on overhauling the PPP ecosystem.
Key recommendations of the committee–
- Contracts need to focus more on service delivery instead of fiscal benefits.
- Better identification and allocation of risks between stakeholders.
- Prudent utilization of viability gap funds where user charges cannot guarantee a robust revenue stream.
- Improved fiscal reporting practices and careful monitoring of performance.
- Report also included governance reform, institutional redesign, and capacity-building.
How government can redesign the PPP model?
- Redesign ecosystem–
- Overhaul the culture and attitude towards the conjoining of government entities and private partners for creating specific pieces of infrastructure.
- Plug and play– There needs to be an approach of give and take, instead of government interlocutors trying to adopt a purely transactional approach without adequate focus on outcomes.
- Minimizing risk– Passing on uncertain elements in a project like the land acquisition risk to the private partner.
- Incentives– The private partners also need to be incentivized to focus on project outcomes, with guard-rails in place to discourage rent-seeking behaviour.
- Regulatory front-
- Secure legislation– Promulgate a PPP legislation which can provide a robust legal ecosystem and procedural comfort to the various actors and stakeholders.
- Revenue flow assurance- The key to a successful PPP is to provide stable revenue flow assurances and a settled ecosystem to investors over long periods by means of policy stability, assurances possibly secured by law.
- Government partners in PPP arrangements need to ensure that open-ended arrangements that might entail unforeseeable risk are minimized for the private investor, including aspects such as land availability and community acceptance.
In a post COVID era, a focus area for public policy has to be the creation of a modern-day, sustainable and resilient infrastructure. Government needs to design a fresh approach and create a stable policy environment that provides comfort and incentives to private investors.