India Budget 2014: Rejuvenated PPP to provide Infra surge

The most promising new initiatives in the Budget – which has the potential to reform the infrastructure business in India – are not physical but intellectual interventions. Finance minister Arun Jaitley has allocated Rs 500 crore for 3P India, a new institution being proposed as an agency that will recraft and renovate the public private partnership model (PPP).

Experts in the infrastructure business say a partnership between the government and private businesses is the only way to bridge the gap on basic infrastructure. Over the past few years, the model has been bogged down by disputes between various stakeholders. “The new institution can be an intellectual dynamo that helps iron out problems and rejuvenate the PPP movement,’’ says Vinayak Chatterjee, chairman and co-founder of Gurgaon-based infra-advisory firm, Feedback Infrastructure Services.

The fact that more projects will be commissioned with government and private sector partnerships was clear from the finance minister’s speech on Thursday. Jaitley said India has emerged as the largest PPP market in the world, but there is a need to develop more sophisticated models with quick redressal mechanism in the contracts. New projects worth thousands of crores, based on the PPP model, were announced in the Budget on Thursday. The most prominent ones included the 15,000 km gas pipeline infrastructure building - a new gas grid that will allow access to domestic and imported gas - new airports and roads, renewable energy projects, convention centres and facilities for tourists. 

Jaitley said banks will be encouraged to give long-term funds and loans to the infrastructure sector. Hemant Kanoria, chairman of Srei Infrastructure and Finance says, “Incentives on easier lending will help the power and infrastructure sectors that are in urgent need of revival.’’ Like many in the power business, Kanoria has been advocating the untangling of coal linkages to provide the best geographic link to thermal projects. The issue was addressed by the finance minister, who has promised that coal linkages will be rationalised and more coal will be provided to power companies.

Investment in roads got a massive shot in the arm with the government virtually doubling last year’s outlay for roads. The finance minister has allocated Rs 37,800 crore for NHAI and state highways apart from an increase in allocation for the Pradhan Mantri Gram Sadak Yojana (PMGSY).

Chatterjee says he has a lot of hope from the 3P institute which could intervene to remove tangles in model concession agreements and provide clarity on arbitration, re-negotiation of projects and dispute settlement. These problems have been holding back domestic and foreign investment in the infrastructure business. If the government can hire world-class people to lead the institute, the PPP movement in India can surge ahead, he says.