Redesign policy for private investment

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–

1. Contracts need to focus more on service delivery instead of fiscal benefits.
2. Better identification and allocation of risks between stakeholders.
3. Prudent utilization of viability gap funds where user charges cannot guarantee a robust revenue stream.
4. Improved fiscal reporting practices and careful monitoring of performance.
5. Report also included governance reform, institutional redesign, and capacity-building.

How government can redesign the PPP model?

1. 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.

2. 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.

Way forward-

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.