Modi government is all set to lease out assets and open up sectors such as the railways, oil and mining.
Two king-sized numbers stand out in Nirmala Sitharaman’s budget: Rs 100 lakh crore and Rs 50 lakh crore. The numbers — estimates of investments required for infrastructure development across the country and the railways, respectively — suggest the government is now willing to make enough space for private players who can bring in the money.
The finance minister said on July 5 that Rs 100 lakh crore (roughly $1.45 trillion) was needed for infrastructure development across the country in the next five years. Sitharaman seemed to have chosen the words carefully when she said “the government has announced its intention to invest” this amount. The government would have to bring in Rs 20 lakh crore a year to meet this target. The Economic Survey presented a day before the budget, had said the country has been able to put in only $100-11
In articulating the second figure — Rs 50 lakh crore, or $725 billion, which the railway infrastructure would need between 2018 and 2030 — Sitharaman was more candid.
She said public-private partnerships (PPPs) were a way to go, given that the capital expenditure outlays of the railways were around Rs 1.6 lakh crore per annum, way below the railways’ infra needs.
So how can the government turn on the money tap?
Several government officials and chief executive officers ET Magazine spoke to for this story said the government would now change its PPP model to put more focus on a hybrid one. In other words, the government would share risk more equitably. This would lower the private partners’ project risks, free bottlenecks in securing bank loans and fast-track financial closures.
The model, sources say, will largely be a fast replication of two experiments made in the recent past — TOT (toll, operate and transfer) in highways and leasing of six functional airports — Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru — to private players. The cabinet last week approved the leasing of three of these airports — Ahmedabad, Lucknow and Mangaluru — being run by the Airports Authority of India to Adani Enterprises for 50 years.
Kumar had chaired a panel that looked into liberalising the oil and gas sector. Its recommendations were accepted by the cabinet in February. “I am now chairing a committee on the mining sector where there is a potential for private sector investment. The idea is to liberalise mines, minerals and coal so as to ramp up production. We will ensure that mining becomes attractive to the private sector,” he says.
“The tender is under evaluation,” DRMC spokesman Anuj Dayal says. DMRC currently has 336 trains with 2,206 coaches, each costing Rs 8-10 crore, marginally above the price of a railway coach. “There is a scope for PPP in station development, track maintenance, signaling and even running of private passenger and freight trains,” says a senior official in Rail Bhawan, the headquarters of the government-owned transporter.
The railways’ brush with PPP has been limited so far. Only a handful ..
No wonder, India’s rank in the contract enforcement subset of the World Bank’s Ease of Doing Business has been abysmally low at 163. The nation’s legal system, as described by the recent Economic Survey, is the “single biggest constraint to doing business and thereby fostering investment.”
For the government, the big challenge would be to walk the talk and recreate a PPP environment that encourages the private sector. This would probably be the only route for Modi government 2.0 to come.