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A vicious cycle

Public-private partnership in infrastructure projects is a recipe for disaster, writes Sitaram Yechury.

india Updated: May 03, 2007 12:55 IST

Ancient wisdom often helps in understanding contemporary realities. In an ancient Libyan fable, it is told that an eagle, when struck by a dart, said upon seeing the fashion of the shaft, “Not by others hands but by our own feathers are we now smitten?”

We recollect this in relation to the current preoccupation of the Planning Commission in assisting state governments “in capacity building” for “setting up public-private partnership (PPP) cells with a list of projects that are bankable and viable for PPP”. The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, and the Finance Minister, P. Chidambaram, elaborated on this at a meeting of state chief secretaries convened in May last year. This is the only way, we are told, that India can create quality infrastructure. The committee on infrastructure, headed by Prime Minister Manmohan Singh, had estimated an investment requirement of Rs 210,000 crore for highways and Rs 50,000 crore for ports by 2012. And development of airports would require Rs 40,000 crore before the Commonwealth Games are held in 2010.

Writing in India Perspectives (January 2007), Chidambaram says, “An investment of about $ 320 billion would be required in the infrastructure sector during the Eleventh Plan period (2007-2012). These investments would be achieved through a combination of public investment, PPPs and exclusive private investments. In order to enhance public investments in infrastructure, it is essential to create fiscal space by restricting public expenditure. Furthermore, we have to levy and collect appropriate and reasonable user charges not only to attract private investments but also to ensure proper operation and maintenance of the assets that are created.”

There are certain issues that need to be examined in this line of reasoning. The first relates to the conception of PPPs; the second concerns the size of the resources that are being talked about; the third refers to ‘bankable’ projects; the fourth is ‘restricting public expenditures’; and the fifth concerns ‘user charges’.

The PPP being conceptualised by the Planning Commission is not the same as joint sector projects with private participation. Therefore, instead of “attracting private money for public sector projects”, as the Planning Commission claims, it may end up promoting private profit-making with public money. The Enron experience confirms this. The justification for bringing in multinationals in the name of augmenting infrastructure was accompanied by guaranteed rates of return in foreign exchange and ‘appropriate’ tax concessions. All this was sold as being in the national interest.

Invariably, such projects entail the jacking up ‘user charges’, which effectively prevents the poor from using these infrastructure facilities. Already, the poor are being prevented from using facilities such as roads, since they cannot afford toll taxes. Further, it is not as if separate investment would be undertaken to provide the poor with alternative facilities. Once PPP becomes the norm, all social amenities, such as water supply, electricity, etc., would come with user charges. This has happened in a telling manner in Latin American countries. India will be headed in that direction if this trajectory is followed. The hiatus between Shining India and Suffering India will only widen. The UPA, despite its concern for the aam admi, is being rejected by the electorate precisely because of this widening gap.

How else, it will be argued, can the government raise such huge resources? The first thing to remember is that the figures quoted above are cumulative till 2012. For one individual year, they come to about Rs 53,000 crore for roads, highways, ports and civil aviation. On these heads, the central Plan outlay for this year is a little over Rs 20,000 crore. When state outlay figures are added, this easily crosses Rs 30,000 crore. Even by the government’s own estimates, the additional amount required would be around Rs 23,000 crore annually, which is just 0.7 per cent of the current GDP. With a 9-plus growth rate and over 20 per cent additional buoyancy in tax collections, this is hardly a sum to attract which huge tax concessions are to be given to private capital. This, once again, confirms the apprehensions concerning PPP.

Though the Planning Commission talks in terms of a PPP plan being drawn up in addition to the state’s annual plan, this, in itself, will undermine the composite planning process. This is because these ‘plans’ will be competing for funds and if a growing number of projects gets routed through the PPP, less will be left for the non-PPP annual plan. Further, in a situation where the PPPs are decided on them being ‘bankable’, social amenities that are essential for people’s welfare but not profitable will be excluded.

In fact, the concept ‘bankable’ itself is ironic and constitutes essentially the demise of planning. Bankable means that what the banks consider profitable (even when nationalised) shall determine which project would be financed. We had nationalised banks in the 1970s in order to make them conform to social priorities. It was not the bank’s will that determined where finances went but social will expressed (notwithstanding its inadequacy or distortions) through a government answerable to an elected Parliament. By advancing ‘bankable’ PPP projects, social priorities are being quietly abandoned and buried.

Some, however, may argue that the PPP would help the government to concentrate on non-bankable projects, which are in the genuine interests of the poor. Scarce resources can thus be utilised for socially worthwhile projects. This is the classic argument of those seeking vacation of space by the government for private profit-making. The government, we are told, needs to move out of areas like hotels, etc (even while making profits) and concentrate on education and health. Then, we are told, since adequate resources are not available, both education and health need to be privatised. The government must concentrate on sanitation and water supply. And, now, we are told, that in this area as well, PPPs with user charges must be brought in. And so goes the story, where the government of the day has no space left to pursue socially-required projects or even express the popular will of the people.

Further, if PPP has to be generalised, as the Planning Commission seeks to do, then a host of concessions would have to be made to attract private capital. And, as Chidambaram states, “by restricting public expenditure”. This means the imposition of an expenditure deflation, which means that the government’s capacity to use fiscal means to finance non-bankable projects would get further undermined.

The problem with PPP is not only the widening of the gap between the two Indias, repugnant as it is. It also represents the inversion of development planning and the abandonment of the government’s capacity to exercise political will and, thus, the sovereignty of the people. By all means, attract private money for public sector projects but do not promote private profit-making with public money. In the process, the Planning Commission cannot be allowed to plan the demise of planning.

Unlike the eagle in the Libyan fable, India cannot afford to be smitten.

Sitaram Yechury is MP, Rajya Sabha, and member, CPI(M) Politburo

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