Clear the Clutter

Posted on March 30, 2011 | View 959

With a new policy for PPPs that adheres to some basic principles.

To build infrastructure fast, India needs to involve private players who work efficiently; these players, in turn, need the government to get involved to cut many risks involved in such projects — that was the idea behind public private partnerships (PPPs) in infrastructure. Though there are over 650 of these at work today — mostly building roads, but also power plants, ports and developing urban infrastructure — there are problems, delays and inefficiencies with PPPs.

The government wants an overall policy to get rid of confusion and clutter, a good idea provided the policy addresses some vital things. First, governments, mostly at the state level, allow private players who win in competitive auctions to wangle sweetheart agreements with the state thereafter. This has to stop.

There must be no post-bid revisions of the contract. Second, governments must take away projects, or impose strict penalties on private players if they fail to meet project milestones. Third, almost every state has its own PPP department, each functioning with its own set of rules. These rules have to be harmonised among states, to make sure that there is no race to the bottom. If states start competing among themselves to give sops to attract projects, the quality of governance and state revenues will slide dramatically.

Finally, most PPP projects begin with the assumption that governments will acquire land for the private party to work on. Over the last few years, after Bengal’s botched attempts to acquire land forcibly at Singur and Nandigram, land acquisition has become a political minefield.

A new law to humanise India’s colonial-era land acquisition rules is yet to come in force: what’s being debated is how much land the government should acquire for a PPP project. It would be better to debate the terms under which land is being acquired. Land is an asset because it yields an income — through farming, rentals or some other use. If the original owners of land have to make way for new developments, they need to be guaranteed an income, which could be in the form of annuities, as Haryana’s new land law says.

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