The viability of PPP model

Starting from the tenth five-year plan, the government tried to rope in the private sector for major investments. The public-private partnership (PPP) model was one of the alternatives facilitated by the government. While, PPP model was a success in certain sectors like airport infrastructure, other areas like roadways and power faced numerous difficulties in the execution of projects.

What were the reasons behind the failure of PPP projects? First, PPP projects in infrastructure sector have long gestation periods. Further, the procedural delays in land-acquisition and environmental clearances lead to time and cost-overrun resulting in exponential rise in the time period for project completion. India already ranks low in the index of doing business due to the inability to obtain requisite clearances in a hassle-free manner.

Second, there is no transparency and accountability in risk allocation between the public and private sector. That said, the government instead of being an equal partner with the private party in the execution of project, allocates the risks disproportionately to the private sector. Further, the revenue-earning initiatives for the private party run into rough weather once the project is completed. For instance, the toll booths for the collection of toll tax in the road sector face numerous hurdles in tax collection and it also leads to traffic congestion in peak hours.

The government is therefore prepared to fund major infrastructural projects through Engineering, Procurement and Construction (EPC) model. In this model, a private contractor would be provided with funds and resources to complete the projects in due time. Moreover, it has been realized that it is the public sector that can initially provide a platform for the private sector to invest in. That said, the private sector would be incentivized to invest only when there is an already-built up basic infrastructure in place, which the government has to facilitate.