Essay: Is the criticism that PPP model of development is more of a bane than a boon in

the Indian context justified?

Public Private Partnerships (PPP) model of development is no alien concept to India. In
the age of the hola !ings as "ell the state used to give tax concessions and land grants
to those "ho got tan!s and canals built. loser to our times# the construction of Indian
rail"ays is a classic example of PPP in operation. Post Independence# given our explicit
preference for the state led development# the PPP too! a bac! seat for some time.
$o"ever# after liberali%ation PPP is bac! "ith a ne" vigor. &hus in the '(
th
)ive *ear Plan
nearly +', of the expenditure on infrastructure came from the private sector# this climbed
to --, in the ''
th
)ive *ear Plan and in the '+
th
Plan it is expected to be about .(,.
learly our planners thin! that PPP is the "ay for"ard# so "e must pause here and
examine the rationale behind preferring it.
&he biggest rationale# perhaps# in favor of PPP is that the government simply doesn/t have
enough money. 0fter all# still not a generation has passed "hen one had to "ait for years
to get a landline telephone connection. 1ust imagine# "ould "e have been able to scale up
our education# po"er# roads# ports and airports to meet the demands of a rapidly gro"ing
economy li!e ours? 2eliance on public funds alone "ould have cho!ed off our gro"th
even before it could have ta!en off.
0nother reason for preferring PPP is that the governments are slo" and tend to "or! in
silos. &hus a project is bro!en into many parts and every part is handled by different
people 3 departments. &hey tend to "or! in vacuum unmindful of "hat is happening to the
other part. 4ut a project is a project and needs the success of all its parts for it to bear
fruits. 0 good example here is the case of road"ays. 5hile road development is a part of
the /plan expenditure/# road maintenance falls under /non6plan expenditure/ and is often
neglected. 4ut "hat is a road "ithout maintenance7 PPP overcomes this by treating the
project as a single unit. 8o the operator itself is re9uired to maintain the road in a good
condition.
)inally# PPP is attractive because it is in alignment "ith the t"in pillars of modern
economic logic. &hese pillars are 6
Everyone should only do "hat he is good at or in other "ords everyone
should assume only the ris! one speciali%es in: and
;overnments must step in to correct the mar!et failures.
PPP enables separation of jobs. &hus the job of the government is to provide land# help
the project in meeting various regulatory re9uirements "hile the job of the private party is
to build and operate. <oreover "herever the social good is more and private benefit is less
(for instance a road connecting a village to the high"ay)# the government can al"ays
correct the li!ely mar!et failure by its =iability ;ap )unding 8cheme.
>espite these# many criticisms are levied against PPP. Perhaps the biggest among them is
that it breeds corruption and rent see!ing. If there is any truth in the 0; reports on coal#
+;# ;<2 or in the joint parliamentary committee report on >8? then indeed there
appears to be a serious fla" in the model. $o"ever# a closer examination tells us that the
fla" lies not in the model per se but in the method of implementation of the model. &he
alleged corruption happened in coal and +; because of opa9ue processes and in ;<2
and >8? because of the "ea!ness of the regulator. If "e had transparent processes in
coal and +; and strong regulators in ;<2 and >8? cases then the corruption "ould
never have happened. <oreover# by no means is corruption limited to PPP only. 8hould
"e also close do"n <;@2E;8 and @2$< because there have been reports of
corruption? @o# clearly no. 5e should instead find "ays to tac!le such corruption.
0nother criticism levied against PPP is that often the /public purpose/ in the PPP is pushed
to the bac!ground and private operators "or! simply to maximi%e their o"n profits. 0 case
can be made out of the many /super profitable/ toll roads li!e the 1aipur A Bishangarh one
and the B; gas basin project.
5hile this is a meritorious criticism# it must be emphasi%ed that it is again specific to the
implementation of the model. If the terms and conditions of the project clearly lin! the
re"ards to the private operator to certain "ell defined public good then such a situation "ill
not arise. )or instance# "hile auctioning the coal fields to po"er producers# "e should
a"ard the coal to the party "hich "ill provide electricity at the lo"est cost. &here "ill be no
contradiction bet"een transparency and public good then.
@ext a case is made out that in PPP mode there is information asymmetry. 4ecause the
operator is closest to the project# he can ta!e the government for a ride. 0n example here
is the B; basin project "here no" the "ells are full of "ater. /oincidently/ the operator is
also demanding that the gas price be raised from CD.+ per mm4tu to C'D per mm4tu.
&he government has appointed the 2angarajan committee for that. 0nd one of its &o2s is
to specifically loo! into "ays to monitor the project more effectively. Perhaps ma!ing the
initial terms and conditions of the project clearer and having more regular and better audits
can help here.
&hen some argue that the infrastructure projects re9uire high end technology and have
long gestation periods and hence are not suitable for private operators. 5hile in the .(s
and the E(s this argument could have held great merit# today our companies o"n some of
the most sophisticated technologies and have finished some massive projects.
)inally before "riting PPP off# one should thin! of "hat really is the alternative? learly a
return to the public funding is ruled off due to the reasons mentioned earlier. 8imilarly total
reliance on private mar!ets "ould generate their o"n complications as "ell. &here "ould
be massive mar!et failures A there "ould be no PF20# no electricity in our villages and
"ho "ill teach our children? 0 good example of "hat can go "rong in private mar!ets is
the case of micro finance in 0ndhra Pradesh "hile that of "hat can be right "ith PPP is the
case of self help group based finance in 0ssam. $ere the state government assists these
8$;s by providing easy credit from the 2ajiv ;andhi =i!as @idhi.
&hus "hat "e need is transparency in procedures and strong# independent regulators. &he
functions of policy planning# implementation and regulation must be separated. It may also
be a good idea to ma!e these regulatory bodies report directly to the parliament. 0fter all#
isn/t the parliament the supreme regulatory body in our country? &hen to chec! the
information asymmetry problem# "e need better terms and conditions and audits.
Perhaps then PPP can truly be a boon for India.