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Day 68 – Q 1. A government can’t afford to invest in infrastructure all by itself. It requires a partnership with the private sector. What are the different types of partnership that the government enters with the private sector for infrastructure expansion? Discuss. 

  • IASbaba
  • August 27, 2020
  • 0
GS 3, Infrastructure, TLP-UPSC Mains Answer Writing
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1. A government can’t afford to invest in infrastructure all by itself. It requires a partnership with the private sector. What are the different types of partnership that the government enters with the private sector for infrastructure expansion? Discuss. 

कोई भी सरकार अपने द्वारा बुनियादी ढांचे पर निवेश करने का व्यय खुद नहीं उठा सकती है। इसके लिए निजी क्षेत्र के साथ साझेदारी की आवश्यकता है। बुनियादी ढाँचे के विस्तार के लिए सरकार निजी क्षेत्र के साथ किस प्रकार की साझेदारी करती है? चर्चा करें।

Demand of the question – Explain the first two lines of question initially and then elaborate upon the different types of partnerships that government enters with private sector for infrastructure expansion and evaluate these different types.

Introduction

For an emerging economy like India, with more than a billion people, infrastructure, which provides essential services, also reflects reliability, assurance, low-cost production, and market competitiveness. Public investment in the nation’s infrastructure has been insufficient to develop the foundation for long-term growth.

Body

  • In this regard, India will unveil a series of infrastructure projects as a part of a plan to invest 100 trillion rupees (US$1.39 trillion) in the sector over the next five years, in a push to improve the country’s ailing economy.
  • Such an enormous level of investments can’t be afforded by the government alone and thus necessitates partnerships with various stakeholders in the private sector.
  • Furthermore, infrastructure can provide social and economic advantages only when the capital and operating costs can be financed sustainably, either by the revenues a project generates or by the government sponsor. 
  • Too many projects become an economic burden and drain on finances when a government borrows money for an undertaking and neither its revenues nor its direct and indirect economic benefits adequately cover the cost.
  • Considering that infrastructure development require huge upfront investments, the Government has embarked on a policy of promoting Public Private Partnership (PPP) as a means of augmenting investment in infrastructure. 

In this regard, the various types of PPPs can be seen as given below:

  1. In a traditional PPP agreement, the public component of the partnership acts as a contracting officer. It looks for funding and has overall control of the project and its assets. Almost any partnership between a private contractor and a government entity can be considered a PPP.
  2. Operation and Maintenance PPP, wherein the private component of the partnership operates and maintains the project, while the public agency acts as the owner of the project. Examples of these contracts include bridges and toll ways.
  3. A design-build PPP is similar to a client-contractor arrangement. The private partner designs and builds the facility, while the public partner provides the funds for the project. The public partner retains ownership of the project and any assets generated through its use. 
  4. Design-build-operate PPPs- are similar to design-build PPPs but include ongoing operation and maintenance of the property facility or project by the private party. The public partner acts as the owner of the installation and provides the funds for construction and operation.
  5. Design-Build-Finance-Operate PPP- A variation of the design-build-operate PPP includes the component of general financing supplied by the private contractor. With a design-build-finance-operate arrangement, the private party provides financing and design, then builds, possesses, and operates the facility. The public partner provides funding only while the project is being used or is active.
  6. Build-Transfer-Operate PPP- Under a build-transfer-operate P3, the private partner builds the facility and transfers it to the public partner. The public partner then leases operation of the facility to the private party under a long-term lease agreement.
  7. Build-Own-Operate PPP- Under a build-own-operate contract, the private contractor builds, possesses, and operates the facility and also has control over profits and losses generated by the facility. This is similar to a privatization process.
  8. A lease P3 involves the public owner leasing a facility to a private firm. The private company must operate and provide maintenance for the facility per specified terms, including additions or a remodelling process.
  9. With a concession P3, the private agency operates and maintains the facility for a specific period of time. The public partner has power over the ownership, but the private partner possesses owner rights over any addition incurred while the facility is being operated under its domain.

Conclusion

Adequate investment in infrastructure development is a prerequisite for higher economic growth. Due to low investment in infrastructure development, India suffered from a huge infrastructure deficit but things seem to be on the uptick now where target of a 5 trillion dollar economy needs adequate infrastructure development.

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