In developing countries like India, Government has been traditionally responsible for providing social as well as economic infrastructure services. However,Government’s provision of services is characterized by inefficiency as well as budgetary constraints.In such a situation , Public Private Partnerships has been seen by many policy makers as a solution to India’s problem of under-investment and inefficiency in the infrastructure sector.However, India’s PPP experience has been mixed and much below the expectations that were built around it when it was introduced.So, what has led to such a fate of PPPs in India and why we need to take our PPP experience more seriously?
India’s PPP story can be understood by drawing parallel between ‘Road sector’ and ‘Power sector’, where it has been implemented in a big way. PPP in road sector has been a big success.India’s road network has aggressively expanded over the last two decades.Four -laning and six-laning of many highways in India has become a reality.Not only passenger traffic but also freight traffic today prefers road because of its better quality and reliability.To be very sure , travelling by roads on these PPP driven projects remain costly than other modes of transport but still they are able to attract traffic because of their quality services.The result is most of these projects are feasible, profitable and sustainable.They also mark a partnership between Government and Private sector for provisioning of quality public services to citizens.
The story in ‘Power sector’ is almost same as that of ‘Road sector’ with one major difference.The private power producers are today prominent in the list of Non performing assets.The unhealthy financial position of power sector is primarily because of the way the projects were conceived.Many states in order to become power surplus encouraged private sector by signing power purchase agreements with private power plants whereby government gave private players an ‘assured order book’ on the basis of futuristic demand.However, State Discoms are highly politicized bodies with virtually very less control over tariffs.The financial position of Discoms in India can hardly fulfill the obligations the state governments have entered into, leading to their default on payments to private power producers.The result is private players are defaulting on their loan payments.
The underlying lesson of the above parallel is PPP has to really be used at a time and in a manner in which it is really meant to be otherwise it may work into an entirely opposite direction.Firstly,a PPP project is to be initiated when there is a clear demand for a particular service and the government is unable to fulfill that demand.Secondly,there is a lack of under-investment and a clear indication that government doesn’t have money for taking up that activity.Thirdly, the Private player in PPP must have incentive to run its business in a professional manner.It is not government’s job to give order book to private players and then enter into legal commitment to fulfill that order book.The private players must have inbuilt incentive to find demand and then take a decision on the merit of the project.The government should only provide for viability gap funding where ever required but it should not itself turn into consumer because doing this turns the philosophy of PPP on its head.
India’s development dream hinges on the success of PPP in various sectors and thus, government should try to conceptualize Business-to-consumer projects like in road sector where user fees is charged and quality services is given.It must also avoid Business-to-Government projects as done in ‘Power sector’ because they are highly risky and may further increase the public debt which PPPs intended to reduce. In consumption economy like India, consumer is the wisest person and his wisdom should be trusted.The Business to consumer projects have strong incentive to perform whereas Business to Government projects lack that incentive and thus, are likely to fall into the trap of government’s whims and fancies.And thus,it is important to encourage B2C PPP projects rather than falling into temptation of signing B2G projects.