Finance Minister Arun Jaitley has, in his maiden budget, announced the setting up of an institution called 3P India to bring public-private partnerships into the mainstream of project execution. 3P India will have an initial corpus of Rs. 500 crore. The announcement stems from the fact that India is perceived as the largest PPP market in the world.
As Jaitley observed in his budget speech, “India has emerged as the largest PPP market in the world with over 900 projects in various stages of development. PPPs have delivered some of the iconic infrastructure like airports, ports and highways, which are seen as models for development globally. But we have also seen the weaknesses of the PPP framework, the rigidities in contractual arrangements, the need to develop more nuanced and sophisticated models of contracting and develop quick dispute redressal mechanism.”
The Narendra Modi government appears to be laying thrust on the PPP framework across sectors, as evident from the following new announcements.
Scheme for development of new airports in Tier I & II will be launched through Airport Authority of India or public-private partnership.
The government has planned a modified REITS-type structure for infrastructure projects called Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass-through status, for PPP and other infrastructure projects. These structures would reduce the pressure on the banking system while also making available fresh equity. These two instruments are expected to attract long-term finance from foreign and domestic sources including NRIs.
Real Estate Investment Trusts have been successfully used as instruments for pooling of investment in several countries. These will be provided necessary incentives which will have pass-through for the purpose of taxation.
“The government has very clearly shown its focus on the infrastructure and real estate sector by making a proposal to provide a tax pass-through to infrastructure investment trusts and REITS. This was one of the biggest uncertainties and bottlenecks which prospective real estate and infrastructure trusts were facing for the set-up and the tax clarity will see the creation of many such REITS. The REITS platform provides an attractive option to exit some investments and will give developers a new avenue to raise funds and conduct development activities in the country,” Bijal Ajinkya, Partner, Khaitan & Co., noted.
A new Shyama Prasad Mukherji Rurban Mission will be launched to deliver integrated project-based infrastructure in rural areas, which will also include development of economic activities and skill development. The preferred mode of delivery would be through PPP while using various scheme funds for financing.
Finance Minister Jaitley alluded to the Gujarat government’s successful demonstration of the Rurban development model of urbanisation of rural areas where rural people are provided with efficient civic infrastructure and associate services.
The Modi government has planned the renewal of India’s cities and towns to make them better places to live in. While developing housing and other infrastructure, both physical and economic, the government intends to make sound provision of safe drinking water and sewerage management, use of recycled water for growing organic fruits and vegetables, solid waste management and digital connectivity.
“It is the vision of this government that at least 500 such habitations must be provided support, while harnessing private capital and expertise through PPPs, to renew their infrastructure and services in the next ten years,” Jaitley said.
Metro Rail Projects
The central government has announced two new metro rail projects, in Lucknow and Ahmedabad, for the current year. An outlay of Rs. 100 crore has been earmarked for these projects.
Urban Metro Projects have proven to be very useful in decongesting large cities. For two million plus cities, planning of metro projects must begin now. The government plans to encourage the development of metro rail systems, including light rail systems, in PPP mode. These will be supported by the central government through viability gap funding.
The Union Budget calls for the setting up of a Hastkala Academy in Delhi for the preservation, revival and documentation of the handloom and handicraft sector in PPP mode. This project is expected to cost Rs. 30 crore.