[Answered] Evaluate the decline in public-private partnerships (PPPs) in urban infrastructure projects over the last decade. Suggest measures to enhance their viability and effectiveness.

India’s urban population is projected to grow significantly in the coming decades, from 400 million to 800 million by 2050, necessitating large-scale urban infrastructure investments. However, despite the critical need for financial resources, Public-Private Partnerships (PPPs) in urban infrastructure have seen a marked decline in the past decade.

Factors Contributing to the Decline of PPPs in Urban Infrastructure Projects

• Inadequate Municipal Finances: Municipal finances, which form a crucial part of urban infrastructure funding, have remained stagnant, contributing only 1% of India’s GDP over the past few decades.
• Revenue Collection Inefficiencies: Inefficiencies in tax collection, particularly property taxes, significantly impact municipal revenues.
• Low Absorptive Capacity: Even when funding is available, Indian cities struggle to utilize it effectively. The Fifteenth Finance Commission report indicates that about 23% of municipal revenue remains unspent. This indicates a lack of capacity to absorb available funds and manage large-scale urban infrastructure projects.
• Decline in PPP Investments: The viability of PPPs has been severely impacted by a lack of project-specific revenues, making it difficult to ensure the financial sustainability of these projects. Without strong financial backing, proper risk-sharing mechanisms, and guaranteed revenue streams, PPP projects have become less attractive to private investors.

Measures to Enhance the Viability and Effectiveness of PPPs

• Strengthening Municipal Finances: A key reform to enhance PPPs would involve improving municipal financial health. This includes empowering municipal governments with greater financial autonomy and ensuring they can raise revenue independently.
• Decoupling Project Preparation from Financial Assistance: Project preparation should be decoupled from financial assistance, ensuring that projects are well-thought-out, and addressing long-term sustainability and resilience, especially in the context of climate change.
• Leveraging Digital Public Infrastructure (DPI): To enhance the efficiency of urban service delivery, particularly in public transport, leveraging Digital Public Infrastructure (DPI) can be transformative.
• Reforming Regulatory and Policy Framework: A stable and predictable regulatory environment is essential to attract private investment in PPPs. Reforms should focus on simplifying the regulatory approval process, ensuring transparency, and reducing project delays.

Conclusion

By addressing these financial and structural challenges, India can revitalize its PPP framework and effectively meet the urban infrastructure needs of its growing cities, ensuring sustainable and inclusive urban development for the future.