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PPP in Indian Infrastructure : challenges & opportunities
For decades, local and foreign investors have been interested in India’s infrastructure. There has been significant growth in the number public private partnerships (PPPs) in India for the past 15 years, making the country one of the leading PPP markets in the world.
According to the Department of Economic Affairs, Ministry of Finance, there are more than 700 PPP projects, amounting to more than Rs 3,000 billion, in the country.
Close to 53 percent of these 700 PPP projects focus on the development of roads, 20 percent look into urban development and approximately 10 percent of the projects are related to the development of ports, railways and airports.
A PPP is essentially an agreement between the public sector, which is the government, and the private sector to provide infrastructure or public services. With a common vision to enhance the infrastructure of the country, both the parties bring their strengths and expertise to the table.
The reason why the Indian government focuses immensely on PPP projects is because PPP projects take less time to be completed, without the government being responsible for cost overruns. This way, the government can leverage upon the limited public resources, and at the same time, improve service quality and efficiency.
At the moment, Karnataka, Madhya Pradesh and Andhra Pradesh are the leading states in India in terms of the number and value of PPPs.
The Planning Commission of India has planned extensive expansion of ports, airports, highways and roads, which provide ample opportunities for engineering and construction companies.
Indian roads are becoming more and more congested with each passing day. And the annual growth is estimated at approximately 12 percent for passenger traffic and approximately 15 percent for cargo traffic.
To meet these requirements, the Indian government is seeking funds from the private and public sectors. The Indian government, through the National Highway Development Program (NHDP), has planned over 200 projects, which represent 13,000 km of roads.
The opportunities do not stop here. More than 10 states in India are looking into the development of their highways, which each project being valued at Rs 5,954 million (US$ 100 million).
Indian Railways too is working closely with private partners to modernize railway stations so that they are on par with international standards. In addition, the Indian government is looking into projects which will increase the connectivity of railway stations with ports.
In an attempt to enhance investors’ sentiments, Indian Prime Minister Manmohan Singh set an investment target of Rs 1.5 lakh crore on June 28, 2013, for PPP projects in the next six months.
These proposals include the Mumbai elevated rail corridor worth Rs 30,000 crore and two international airports in Imphal and Bhubaneswar worth Rs 20,000 crore. The opportunities for PPP projects in India are plenty, but there are also a number of challenges in this arena.
One of the challenges is in the regulatory environment. As of now, there is no independent PPP regulator. In order to attract more local and foreign funding, it is important to have a robust regulatory environment and an independent regulator.
Currently, there is no transparency in the PPP program. Potential PPP bidders are unaware of the status of various clearances and land acquisitions. By having an online database of all project documents and feasibility reports, potential and current investors will be aware of the projects in the pipeline and their status.
Another challenge in the PPP market in India is the difficulty of raising funds. The private sector is heavily dependent on commercial banks to raise funds for PPP projects.
Commercial banks have reached the sectoral exposure limit and with large infrastructure companies being highly leveraged, it has become difficult to attain funds for PPP projects.
These are some of the challenges and opportunities present in the Indian infrastructure sector with regard to PPP projects. It is hoped that the government will address the challenges to improve the infrastructure sector in the country and enhance the sentiments of both local and foreign investors.