Political & financial woes block state-level infra PPPs

Written by Rajat Arora | Subhash Narayan | New Delhi | Updated: Dec 29 2012, 05:40am hrs
Despite Prime Minister Manmohan Singhs optimism about the role of private investment in realising the 12th Plan goal of $1-trillion investment in infrastructure, states bogged down by naxalism, insurgency, political turmoil and empty coffers dont expect private investments to flow in.

State chief ministers and chief secretaries with whom FE interacted on the sidelines of the National Development Council meeting on Thursday were of the unanimous view that in most cases, attracting private investments wont be a viable option for creating infrastructure and the Centre has to pitch in with the lions share of funds. They want the Centre to step up public spending in infrastructure.

Jharkhand CM Arjun Munda said: For a state like ours which is naxal-infested, private players dont want to invest in infrastructure. How will we create infrastructure then The UPA government says the stress has to be on the PPP model in building infrastructure but I dont think it would be viable for us. Anyway, we are demanding a special status for our state.

The Planing Commission had said that out of $1-trillion investments envisaged during the current Plan, 50% must come from the private sector as the government faced severe resource problems. A lot of these private investments have to come in state-sector projects.

Though the public private partnership (PPP) model has performed well in our state, public spending in infrastructure must be increased by the Centre by giving us (states) a higher share from their tax revenues, Bihar chief minister Nitish Kumar said.

As per the devolution formula proposed by the 13th Finance Commission, 32% of central tax revenue must be shared with states. The commission, while prescribing different fiscal paths for individual states, has also set a fiscal deficit target of 3% of GDP to be achieved by 2014-15 by all states. This inevitably limits the scope for states to mobilise debt resources; so they have to look at improving revenue realisation and controlling non-Plan expenditure. The states feel, in this scenario, that central funds will be critical in infrastructure.

Private investors havent shown enthusiasm in our state. Building roads remains a critical ingredient of Chhattisgarh development. The Centre has to pitch in with funds for the development of infrastructure as too much dependence on private investment in the 12th Plan wont help my state, Chhattisgarh additional chief secretary DS Mishra said.

States such as Chhattisgarh, Jharkhand, Orissa and parts of Bihar are affected by naxalism while in many northeastern states, theres a growing problem of insurgency and despite the central governments Look East policy for the development of these areas, there has been little change on ground.

In northeastern states, I dont think any private player is interested in infrastructure as the areas have wide-ranging problems. We have tried the PPP model, but it has failed to take off, SK Panda, chief secretary, Tripura said.

Meghalya chief minister Mukul Sangma shared the same view. PPP cannot be done for every projects. In Shillong, we have successfully built a hospital on PPP but if we try the same project in any other city of Meghalaya, it may not be successful. The same is true for road projects, he said.

However, the central government is of the firm view that due to severe shortage of funds, private investment remains the only way as infrastructure projects are capital-intensive. If CMs feel that the thrust on PPP wont help their states and the Centre should pitch in for help, I think they should take it up with the PM, minister of state for planning Rajiv Shukla told FE.

As per the 12th Plan document, the central share in the overall infrastructure investment is likely to decline from 34.30% in the 11th Plan to 28.91% in the 12th Plan, and the states share is likely to decline to 22.90% compared to 28.50% in the 11th Plan. The share of the private sector is expected to increase from 37.20% in the 11th Plan to 48.19% in the 12th Plan.

The total public sector investment in infrastructure envisaged in the 12th Plan is Rs 1628129 crore by the Centre and `Rs 1289709 crore by the States.

Investment by the private sector, which includes PPP projects, makes up the balance of Rs `2713853 crore. In the case of States, Rs 730569 crore is expected from budgetary resources, while about Rs 559140 crore is expected from their internal and extra budgetary resources (IEBR). This would require a much higher scale of effort by the public sector undertakings especially for raising debt on commercial terms, the Plan document said.