Tuesday, February 23, 2010

Public Private Partnerships: Why they may not be the solution?

PPP’s have become the latest buzzword in town. Politicians and Babus hawk 'Public Private Partnerships' as a silver bullet to help Indian economy achieve breakneck development while upholding government’s inclusiveness agenda. Here are my views on the matter
  • India needs a huge pile of cash to develop its infrastructure, both hard and soft. Funding these is well beyond the means of the government.  
  • That does not mean that government is not spending. The government spends huge amount of meney every year. The problem is that most of the money is spent on salaries and other operating expenses with little left over for new capacity expansion 
  • The hope is that PPPs would attract the private sector to made the deficit investments and drive capacity expansion. Private sector responds to incentives and is looking for return on its investment. Given the large opportunity, PPP is a very attractive concept for them  
  • However, in reality, the government loses all concept of partnership and sharing of risk/rewards when dealing with the private sector. It carries a huge intellectual baggage when it comes to partnering with the private sector. Take education for example, government has been allocating money for PPP for model schools every year for two years now (has been talking about it a few more years). It still has to come out with the model for sharing rewards with the private sector. It expects private sector to put money. However, whenever a model is proposed, the politicos run for cover. How can anyone make profits from education or more importantly how can the government approve a scheme which legalizes profit making from education? Does the government expect to attract all the money required from charitable organizations?  
  • The problem is not just confined to one sector. Pick up any education, railways, power, roads the story is the same. The best solutions is to allow privatization, create level playing field for private players , have an independent regulator and foster competition. Healthcare and Telecom are the two sectors that stand out. Government allowed for profit companies to enter these two sectors a few years back. While there is room for improvement both private players have made healthcare and telecom available to a large number of people who otherwise were left out of government ‘inclusive’ plans

Are PPPs the magic wand that government hopes they are? My short answer is ‘No’


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