Enhancing India’s PPP model could boost infra investment
New Delhi, Oct 20 (IANS) Moody’s Investors Service here on Thursday said that enhancing India’s public-private partnership (PPP) model can attract more private sector investments for infrastructure projects and address the country’s large needs in the sector.
Against the country’s rapid economic growth, its infrastructure sector has been marred by under-investment for some years, which can be addressed by resolution of the challenges in the PPP model, the global agency said.
“While the country’s PPP mechanism has seen reasonable success in some sectors over the last 20 years, the level of activity has been low in the last four fiscal years due to challenges,” Moody’s V-P and senior analyst Abhishek Tyagi said.
“India’s PPP framework will benefit if it is developed further to address key issues regarding improved risk allocation, ability to renegotiate unpredictable factors in the bid documents and move away from project awards based on one metric, such as estimated revenues,” Tyagi added.
India’s economy is set to grow at the fastest pace among major economies in 2016 and 2017, although GDP growth remains constrained by various factors, including inadequate infrastructure investments, Moody’s said.
Moody’s points out that more developed PPP markets, such as in the UK, Canada and Australia, use both availability-payment and demand risk models, and relatively standardised bid documents – features that could address some of the bottlenecks in the Indian framework.
In particular, these more developed PPP markets typically feature well-developed regulatory frameworks, largely standardised project contracts, a large and sophisticated investor base and predictable project pipelines, it said.
“There has been a large decline in private investment in PPP projects for a number of reasons, including delays in project approvals and land purchases by the government, complicated dispute resolution mechanisms in the concession agreements and lower than expected revenues due to aggressive assumptions,” Moody’s report ‘Indian Infrastructure: Enhancement of PPP Framework Would Help Meet India’s Infrastructure Needs’ highlighted.
“Delays in project completion have resulted in cost overruns and revenue losses to private concession owners. These factors have impacted the financial viability of some projects and their ability to service debt,” the report said.
The poor performance of some infrastructure projects, including PPP, has been a source of stress for both developers and the Indian banking system, it stated.