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Sector: State Highway  |  Module 1: PPP Background

Overview of PPP in India

The need and potential for PPPs in India

There is a well-established need for infrastructure investments in India. In recent years India’s economy has experienced a period of rapid economic growth, following steps toward economic liberalisation made in 1991. In the Tenth Five Year Plan period (between 2002-03 and 2006-07), the average growth rate in India was 7.6 percent in comparison to 5.5 percent achieved in the Ninth Plan period of 1997-98 and 2001-02. The estimates in the Eleventh Five Year Plan’s (2007-2012) were for even higher growth at 9 percent.

This level of growth necessitates rapid improvements and additions to the capacity of economic infrastructure. However, the ability of infrastructure to keep up with the economy’s fast expansion has been constrained by the availability of investment. It was estimated that investment in infrastructure of up to 5% of GDP would be required by 1999. However, the actual investment by 1999 was only 3.7% of GDP, with private investment contributing just 0.9% of GDP 4 .

Realising that the share of private investment needed to increase manifold, the Government of India initiated a strategy for encouraging private investment in infrastructure through Public Private Partnerships (PPP). The Government of India envisaged that the investment in infrastructure would increase to 8% of GDP by 2011-12 and that of this the investment from private sources would contribute approximately 1.2% of GDP.

The following chart shows the increasing trend of investments in infrastructure through PPPs, during the period 1990 to 2008.

Private Investment in Infrastructure (Crore 5)


Source: PPI Database, World Bank Group

The challenge of sustaining this level of growth has brought to centre-stage the issue of deficient infrastructure in the country. India’s infrastructure spending for 2006-07 was estimated at about 5 percent of GDP. By contrast, this is far behind some of the other fast growing economies such as China, which has an infrastructure spending of 9 percent of GDP. Within the context of India’s own growth path the current rate of investment is thought to be too slow and a serious brake on economic expansion and rising income levels across the country.

Therefore need for capacity expansion and also replacement of existing assets in infrastructure sectors including transport, urban infrastructure, water and sanitation, ports and several others, cannot be overemphasized.

The Eleventh Plan estimates infrastructure spending in the region of USD 514 billion (24 lakh crore) to overcome infrastructure bottlenecks. Given the limited capacity of the Government to provide infrastructure services, about 30 percent of the total infrastructure investment in the Eleventh Plan is envisaged to be made by the private sector. The PPP policy initiative is a key enabler and driver of private investment in India’s infrastructure.

 


4 India: Financing infrastructure- Addressing challenges and constraints, June 2006 (Finance and Private Sector Development Unit, South Asia Region, World Bank Group)

5 Converted at 1 USD=46

 

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