The private sector contribution to infrastructure is about Rs 20 trillion which is almost one-third of Rs 60 trillion total investment in the sector (between 2008 and 2017). It has declined sharply in recent years in terms of share of investment, from 37-38% to below 25% in fiscal 2018.
Component wise distribution –
- Renewables, which have seen brisk investments, are facing headwinds today. Private investments in thermal generation are already in deep trouble with stranded capacities, stressed loans and weak demand.
- Airports, ports and power transmission have robust engagement models, but the new investment activity in it is lukewarm.
- In railways, and urban infrastructure, private investments are negligible. It’s down sharply at the state level as well.
- National highways remain the only bright spot, where policy actions and the de-risked hybrid annuity model (HAM) have revived projects. The recent toll-operate-transfer (TOT) auction is a great example of asset monetisation and crowding-in of private capital.
Need of private investment –
- The spending by Centre and states saw a compound annual growth rate of 15% between fiscals 2013 and 2017. Yet it is merely 5.1 percent of GDP which needs to be further pushed.
- Private sector participation in infrastructure delivery helps deliver tangible benefits. In highways, airports, ports and renewables, the private sector’s role has been immense.
- The private sector has also delivered efficiently—both on project execution (where land and clearances have not been a constraint) as well as operations.
- Private participation enhances public accountability. When a public private partnership (PPP) contract is awarded, we tend to demand better services right away.
What should be done to encourage private investment in infrastructure?
- Empower public institutions to drive transformation – Public institutions, viz. city governments, power utilities, and bus transport corporations, barring a few, are incapacitated and need to be the epicentre of transformation efforts. Capable creditworthy public institutions are an essential prerequisite to attract private investment.
- Prepare shovel-ready projects along PPP models, rewire contracting frameworks – The government ought to build capacity to create a bankable pipeline of shovel-ready strategic projects worth $150 billion annually. Expediting creation of a PPP think-tank institution as recommended by the Kelkar committee could help. A new type of contracting model would require recalibrating risk-sharing, and reworking contracts with clear performance metrics and flexibility to handle changes and exits.
- Create supply-side enablers to deepen the infrastructure financing ecosystem – Stalled projects need to be dealt with steadfastly to nurse private developers and financial institutions to health. Building certainty and capacity to implement the Insolvency and Bankruptcy Code will be crucial. Allied guarantee instruments to strengthen bond markets and expeditious deployment of capital under the National Investment and Infrastructure Fund are facilitations that can help.
Revving the stalling private sector investments engine is crucial to sustain and accelerate the infrastructure build-up that India needs, aspires for, and deserves. Focusing on these three vectors would go a long way in meeting that goal.
Source – Livemint
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