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  1. How to get infrastructure in India on track with PPP falling to 10-yr low

How to get infrastructure in India on track with PPP falling to 10-yr low

As investments in private sector are not throwing up conclusive benefits, Narendra Modi Government is looking to step up infrastructure investment through the budget-though whether this is going to be enough is still unclear.

By: | Updated: June 20, 2016 1:06 PM
paradip port There has been sharp declines in areas like ports and roads too where PPI took place through PPP route. (Reuters)

As investments in private sector are not throwing up conclusive benefits, Narendra Modi Government is looking to step up infrastructure investment through the budget-though whether this is going to be enough is still unclear.

A World Bank report says private participation in infrastructure has gone down to $ 4.2 billion in 2015 which was $ 73.7 billion in 2010. The interesting fact is, in this the share of PPP(Public-Private partnership) was $ 4.1 billion in 2015 which was $ 48.4 billion in 2010.

The worst decline has been in areas like electricity where PPI fell from $ 37.8 billion to $ 2.1 billion in which PPP share was $ 33 billion and $ 2.1 billion respectively.

There has been sharp declines in areas like ports and roads too where PPI took place through PPP route.

Nevertheless, the decline is comprehensible not only because of the slowing down of economy from over 9% to around 5% (old data series) and 7% (new data series), but also because of the fact infrastucture heavyweights like GMR and GVK that built most of the new airports, are in deep financial stress.

There are firms which which donot have enough EBIT(Earnings Before Interest & Tax) to cover interest payments (interest cover being less than one). Mere economic growth will not be enough to rescue such firms. The only plan for the government would be to step up the investment to an extent like in the case of roads where hybrid equity models are used.

Meanwhile The Kelkar committee report needs to to incorporated, where simple solutions like not tendering projects where at least 80% of the land required has not been acquired by the government.

Also, as Kelkar says ‘obscolescing bargain’, since the projects are typically of 20-30 year time frame, course correction periodically is important. (in Tata-Adani power projects, change in Indonesian law created panic)

Having flexible sector regulators and allowing firms to exit is another way to get PPI/PPP model on track.

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