The rising advantage of public-private Partnership

By Finance Advisory, 3rd Eye Advisory Ltd
The rising advantage of public-private Partnership

India, located in South Asia is a large country that ranks second in the world in terms of population and seventh in terms of geographical area. But, India greatly lagged behind economically and socially compared to the developed world one factor which is a drag on its development is the lack of world class infrastructure. Though India adopted the mixed economy approach of economic development, the said principle of public-private partnership is still not clear in its conception and implementation. There are numerous types of public-private partnerships (PPPs) focusing on research-driven partnerships and commercially focused partnership. Before going in depth of the concept there is a dire need of understanding the accurate definition of public-private partnerships (PPPs).

Public private partnership is a sustained and long- term partnering relationship between public and private sectors to provide services and goods. Through PPP, the public sector seeks to bring together the resources of the public sector and the technical expertise of the private sectors to provide services and goods to the public at the best value for money. In developing countries, the public private partnerships are facing the vast infrastructure deficit and excessive government debts which in turn has resulted to poor economic development and lower standards of living. Thus, it has become very important for PPP to be explored in these developing countries to boost infrastructure development and improve the living standard of the people.

Evolution of Public-Private Partnership in India

The Bombay Tramway Company running tramway services in Bombay (1874), and the power generation and distribution companies in Bombay in the early 20th century are some of the earliest examples of PPP in India. A study conducted by the world bank of 13 states in 2005 found only 85 PPP projects awarded by states. The largest number of PPP projects is in the roads and bridges sector, followed by ports. In January 2006, the Government of India established India Infrastructure Finance Company Limited (IIFCL) under the Companies Act, 1956, as a wholly government-owned company with an authorized capital of Rs.1000 crore and caters for the expanding gap of infrastructure projects in the public sector. These projects spread over various sectors like health, education, energy, roadways, railways, ports and urban development.

Table: Trends in Public Private Partnership Projects in India

It could be seen that the number of public-private partnerships increases steadily from 15 to 518 while the cost of the projects rises from Rs. 8,280 crores to Rs. 273,847 crores during the last years. The distribution of the projects by sectors and value of contracts show the divergence among the projects.

Table: Distribution of public- private partnership projects in India by Sectors and value at Central level

Maharashtra leads the highest position in value of contracts. Across central agencies, the leading users of public-private partnerships by number of projects have been Tamil Nadu with 34, Gujarat with 24, Andhra Pradesh with 22, Maharashtra with 18 whereas Jharkhand with 2, Meghalaya with 2, Uttarakhand with 1 has least number of projects. Delhi has only 2 projects with an average investment of 4655 crores which is highest among all the states and union territories.

Our experts at 3rd Eye Advisory help you in understanding how Public-Private Partnership approach solves many root causes of poor project performance on large capital investment. Our experts suggest that the Public-Private Partnership has several advantages such as huge investment in public infrastructure, efficient delivery of services, cost-effectiveness, performance-based contracts and long term investments opportunities. In the context of new economic reforms and globalization, the scope for Public-Private Partnerships (PPPs) is vast and wide, and likely to take a lead in future. Current Prime Minister of India Narendra Modi has rightly said that we need to move from Public-Private Partnerships (PPPs) to People Public Private Partnership (PPPP) at Think India Summit. Hence, it can be effectively concluded that the need of India is not a Public- Private Partnership but an effective Public-Private partnership.

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Article by: Finance Advisory, 3rd Eye Advisory Ltd