It is an accepted reality that the overhauling of infrastructure sector is a daunting task. It cannot be accomplished with the public intervention alone. There is need of aggressive private participation.
It is natural that the public investment in the infrastructure so far has been dominant, which still is the prevailing situation. Policy makers have been consistently emphasizing the private sector investment in infrastructure projects through PPP. However, it is interesting to note that in 2010, the share of public sector investment was 51.3 percent which actually rose to 59.3% in 2015. One reason could be that the rate of growth of overall public expenditure superseded the rate of growth of private investments. Nonetheless, there is definitely a gap between the policy guideline and the actual result in attracting the private participation. It needs to be addressed.
In addition to the domestic private participation, foreign investments also need to be looked into. The foreign institutions enter into any market or sector, with their funds having certain pre-decided time horizons and expected returns. It is imperative that they look for certainty in policy environment, both present and future. Otherwise, the risk of getting stuck in project can result to time overrun and cost escalation. This has been a big deterrent both for the domestic and foreign private investments in Indian infrastructure.
The government has already announced a series of steps to revitalize PPP. We need to see how these actually unfold over a period of time. The policies and announcements such as, Public Utility (Resolution of Disputes) Bill; Guidelines for renegotiation of PPP Concession Agreements; new credit rating system for infrastructure projects etc.
It is notable that RBI has relaxed external commercial borrowing (ECB) guidelines in consultation with the government after ‘taking into account prevailing external funding sources, particularly for long-term lending and the critical needs of infrastructure sector of the country’.
There are other certain implementation related issues restricting the private participation, which we need to look into separately.