Indian Economy - CMA

Public Private Partnership Model

In 2011, the Government of India defined a Public Private Partnership or PPP or 3P as an arrangement between a Government entity and a private sector entity for the provision of public services or assets. In this article, we will talk about the Public Private Partnership model in India.

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The Government also added that, in the arrangement between the two entities, the private sector entity makes investments or undertakes the management for a specified period of time.

Further, the risk allocation between the two entities is well-defined and the private sector entity receives performance-linked payments.

Additionally, these payments are benchmarked to specified and pre-determined performance standards which the public entity or its representative can measure.

Public Private Partnership Model

                                                                                           Source: Pixabay

Over the years, the state of infrastructure in India has evoked the interest of many domestic and international investors for the potential it offers.

If India plans to build a world-class infrastructure, then it would need large investments to make up for the deficit in both quantity and quality.

Therefore, the Government has explored the Public Private Partnership model in all areas of infrastructure like roads, energy, ports, etc. The Government has also made some regulatory changes to include PPPs in the infrastructure sector.

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Public-Private Partnership

A Public-Private Partnership is a collaborated effort between the private and public sectors to meet the paucity of capital investment for the development of infrastructure.

Around the world, the private sector finds it difficult to meet the financial requirements of infrastructure in isolation while tackling the risks which are inherent to building infrastructure.

Therefore, the PPP model becomes a viable, logical, and necessary option if the Government and the private sector have to work together.

According to the Government of India, a PPP project is a project based on a long-term contract or a concession agreement.

Further, this agreement is between the Government or a Statutory entity on one side and a private sector company on the other. The purpose of the agreement is the delivery of an infrastructure service on the payment of the charges.

PPP Policies

In India, the Ministry of Finance centralizes the coordination of PPPs through its Department of Economic Affairs’ (DEA’s) PPP Cell.

This cell streamlines the PPP procedures and strengthens the regulatory framework to expedite the approval of PPP projects.

Further, the Government helps in the promotion of sustainability of the infrastructure projects through the Viability Gap Funding Scheme.

In 2006, the Government has also set up the India Infrastructure Finance Company Limited (IIFCL). This company provides long-term debt for financing infrastructure projects.

Further, in 2007, the Government of India launched the India Infrastructure Project Development Fund (IIPDF). This fund supports up to 75% of the project development expenses.

The Indian infrastructure is growing at an exponential speed. As of now, most PPPs are restricted to road development. The sector still has a lot of scopes and the PPPs are taking measures to achieve them.

Solved Question

Q1. What is a Public Private Partnership?

Answer: A Public Private Partnership is an arrangement between a Government entity and a private sector entity. This arrangement is for the provision of public services or assets. Further, in this arrangement, the private sector company either makes or investment or undertakes the management for a specific time-period. Also, there is a well-defined risk allocation between both parties. The private sector company receives performance-linked payments.

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