Pipeline or pipe dream? Nirmala Sitharaman's Public-Private Partnership talk in Union Budget 2020-21 needs a big reality check

It has been raining PPP opportunities on a winter morning in New Delhi. If only Finance Minister Nirmala Sitharaman’s wishes expressed in her Budget speech for 2020/2021 would come true, India is sitting on a goldmine of investments in the pipeline with the magic abbreviation that officially stands for Public-Private Partnership. Unofficially, the government says: Bring in all the money you have because we need it, so we can tell the world we are doing big-big things. Critically, it implies that a new-age push to revive growth in India’s sagging economy is more-of-the-same in new areas, and real questions loom as to the source of the would-be investments, but more importantly, what the ‘public’ part of the PPP would be.

When the hype ebbs on the longest Indian budget speech at 160 minutes, questions remain on both quantitative numbers and the administrative detail of the qualitative plans outlined. The hard numbers look difficult as it is, the biggest of them being a 10 percent nominal GDP growth projection. If one is to look at the current retail inflation rate of 7 percent, one is to assume that the inflation would be brought down to 4 percent or thereabouts to match the Economic Survey’s projected real GDP growth rate of 6 to 6.5 percent.

From agriculture to artificial intelligence, there is nothing the speech did not touch. But some of the hardest questions that we need to ask would be around the red carpet for PPPs in a range of activities. Sitharaman unveiled a “viability gap funding” plan for warehouses and a PPP initiative for special freight trains to help farmers. The PPP bandwagon goes on to touch hospitals, medical colleges, 5 new “smart cities” and running more than 100 trains. Highways and power plants are already running in the PPP model. We have seen hiccups related to coal allocation, spectrum, and land in some cases. The government is itself candid in spelling out a minefield of risks in PPPs. “Careful risk allocation is critical to unlocking the efficiency benefits of private sector involvement and is a key driver of value in a PPP,” the official PPP website says. [caption id=“attachment_7986791” align=“alignleft” width=“380”]  File image of Nirmala Sitharaman. Pic courtesy: Twitter[/caption] In essence, PPP involves a roster of issues that need addressing. Don’t expect it to rain money yet. More important, in the wake of a once-bitten-twice-shy backdrop in banks still struggling with the fallout of a pile of non-performing assets (NPAs), we need to ask if the so-called private money pouring into PPPs would just be money from public sector banks or allied financial institutions. Public sector banks are barely recovering from their previous dalliance with bad loans. How are we going to measure “viability gap funding” to make the regime transparent and corruption-free? What kind of resources will the government be providing in addition to approvals if PPPs are to make sense? Given some uneasy experiences in both power tariffs and highway tolls, is there a demand risk or accompanying political risks in PPPs? These and more questions are bound to make the rain of PPPs more a statement of good intention by a resource-strapped government than a real plan of action. Successive governments have done a lot of homework on PPPs over the past two decades to suggest that unlike consumer-oriented sectors, infrastructure sectors are not easy in generating investor interest. Foreign investors, especially those with patient capital looking for less-than-greedy rates of return may be India’s best bet, but these kinds also are in no hurry to plunge in. Brace, therefore, for more due diligence work ahead. The Budget announced an increase in the limit for foreign portfolio investment (FPI) in corporate bonds, currently at 9 percent of outstanding stock, to 15 percent. Hopefully, some of that money will also help PPPs. But there is no running away from the fact that in both administrative detail and funding, not to speak of transparency, PPPs require more than it might seem from glib announcements in long budget speeches.

The finance minister’s ambitious Rs 103-lakh crore National Infrastructure Pipeline (NIP) has barely scratched the surface of the ambition in real terms, given that there are only five years in which to roll it out. The Rs 22,000-crore exchequer support for infrastructure finance companies in 2020/21 are expected to generate investments of Rs 100,000 crore—which is not even 1 percent of the five-year pipeline that is estimated to require Rs 16 lakh crore in new investments.

If PPPs are to provide the ballast to the project, we have to make sure the pipeline is no pipe dream. Of course, the gentle fine print is that the definition of infrastructure under the NIP has been liberally widened to include renewable energy, irrigation, mobility, education, health, water and digital sectors. Nevertheless, the task of raising resources through PPP is daunting. It is best not to confuse hope with a real plan. (The writer is a senior journalist and commentator. He tweets as @madversity) Follow full coverage of Union Budget 2020-21 here