Panel to suggest better risk-sharing mechanism and design changes in PPP contracts, in line with global practices
New Delhi: The government on Tuesday named former finance secretary and economist Vijay Kelkar to head a panel that will recast the model of infrastructure development in which the government partners private firms.
Union finance minister Arun Jaitley, in his budget speech, had announced the committee after stating that the current model was not robust enough to reduce risk for the private companies to increase investment in infrastructure—a challenge that the government faces.
He had advocated increased public spending and promised to look into ways to resolve issues hampering the so-called public-private-partnership (PPP) model.
“The PPP mode of infrastructure development has to be revisited and revitalized. The major issue involved is rebalancing of risk. In infrastructure projects, the sovereign will have to bear a major part of the risk without, of course, absorbing it entirely," Jaitley had said in the budget speech.
India is one the largest PPP markets with over 900 projects at various stages of development.
The 2014-15 economic survey said the stock of stalled projects at the end of December stood at ₹ 8.8 trillion, or 7% of India’s gross domestic product (GDP).
The Kelkar committee will review the PPP policy and suggest a better risk-sharing mechanism between private developers and the government after analysing such projects in different sectors and the existing framework of risk-sharing, said a finance ministry statement released on Tuesday.
It will also propose design changes to contractual arrangements of the PPP in line with the review and international best practices and suggest measures to improve capacity-building in government for implementation of the PPP projects.
The statement said the committee will consult various stakeholders in the private sector, government sector, legal experts, banking and financial institutions and academia.
Sharmila Chavaly, joint secretary at the department of economic affairs, will be the committee secretary.
The committee will submit a report in three months.
According to Abhaya Agarwal, a partner at EY Llp who oversees the consultancy’s infrastructure practice, the existing PPP framework and business environment are not conducive for PPP model to flourish.
“This is step in the right direction looking to address, among other things, the two key issues affecting the PPP model: the risk allocation framework and capacity building to implement it. Government departments have been hesitant to take bold measures thus far, but I hope the Kelkar committtee with industry representatives with the right background will be able to help. There are still many areas where PPP has to be mainstreamed—namely urban development, water sanitation, transportation, health education and skills," said Agarwal.