The Indian Government has been fully aware of the link between infrastructure facilities and progress of a nation, right from the beginning of the planning era. Since then, infrastructure development has been perceived as a priority sector. Initially, investment in this industry was considered to be a monopoly of the public sector. This is because of the large financial outlays, long gestation periods, uncertain returns and associated externalities involved in the infrastructural projects.
But, with liberalisation and globalisation of the country, the infrastructure sector has been progressively opened up for private investments, both domestic and foreign. The reason being, as the economy grows at a faster rate, adequate and efficient infrastructural set up becomes indispensable for sustaining its competitiveness on the world platform. Also, the increasing industrial activity and rising population puts tremendous pressure on the existing infrastructural facilities.
Given this, the Government of India has recognized that while public investment in infrastructure would continue to increase, private participation needs to expand significantly in order to address the growing infrastructure deficit in the country. Hence, it has been encouraging private sector investment in almost all infrastructure units through the 'public private partnership (PPP)' programme.
Public Private Partnership (PPP) means a project based on a contract or concession agreement, between a Government or statutory entity on one side and a private sector company on the other, for providing an infrastructure service. Under it, the role of public sector gets redefined as one of facilitator and enabler, while the private partner plays the role of financier, builder as well as operator of the service or facility. The former provides stable governance, financial support as well as assurance against social, environmental and political risks. The latter brings along operational efficiencies, innovative technologies, managerial effectiveness and access to additional finances. Thus, PPPs combine the skills, expertise and experience of both the public and private sectors so as to meet the international standards.
Some of the earliest examples of PPP in India are:- the Great Indian Peninsular Railway Company operating between Bombay and Thane (1853); the Bombay Tramway Company running tramway services in Bombay (1874); as well as the power generation and distribution companies in Bombay and Kolkata in the early 20th century. The Government is actively promoting the PPP mode for developing and operating high-priority public utilities and infrastructure like railways, shipping, power, aviation, telecom, etc. According to certain studies, the largest number of PPP projects are in the roads and bridges sector, followed by ports, particularly greenfield ports. Also, during the Eleventh Five Year Plan, the investment in physical infrastructure has been estimated to be about Rs. 2,002 thousand crore (at 2006-07 prices which is equivalent to about US$ 500 billion: @ Rs. 40/$). This can be achieved through a combination of public investment, public-private-partnerships (PPPs) as well as exclusive private investments.
In order to accelerate the implementation of PPP projects and providing them long-term finance, the Government has initiated the 'Viability Gap Funding (VGF) scheme' and established 'India Infrastructure Finance Company Limited (IIFCL)'. The VGF scheme is a special facility created to support those infrastructure projects, which are economically justifiable but not viable commercially in the immediate future. It involves upfront grant assistance of up to 20% of the project cost for the PPP projects. While, IIFCL is the special purpose vehicle (SPV) created for rendering long term financial assistance to infrastructure projects through:-
- Direct lending to eligible projects
- Refinance to banks and financial institutions and
- Any other method approved by Government of India.
Thus, it eases the asset-liability mismatch and sets a benchmark for market borrowings by other organizations.
Such a framework provided by the Government, provides numerous opportunities for investment into the various infrastructural sectors of the country, which have immense untapped potential for further growth and expansion.