Acquiring competencies and mindset for PPPs the need of the hour

All levels of government in India face increasingly complex challenges in producing, financing, and delivering greater quantity and improved quality of services, while generating deserved trust through competence and integrity.

There is widespread and justified dissatisfaction with the quantity and quality of goods, services and, physical and social infrastructure facilities produced or provided by most governmental organisations. The challenges involve not just insufficient finances, a factor most often emphasised, but skills in applying modern management concepts and a technocratic approach, which permits sustained reduction in economic costs to society. Ensuring requisite levels of accountability and transparency also remain major challenges.

Barring a few exceptions, there has been little demonstrated sincerity or competence by governments at all levels in transforming budgetary outlays, which represent a major burden on the Indian citizens, into effective outcomes or results. The slow pace at which governmental agencies are willing to alter their mindset and modernise administrative structures which India inherited at Independence has become a major constraint in preparing for the future.

Estimates of India’s unmet infrastructure investments over the next several years range widely between $500 billion and $800 billion. The UPA government has acted irresponsibly by not taking advantage of India’s high growth between 2003 and 2007 to lay a firmer foundation for India’s public finances. In 2008-09, the combined fiscal deficit, and in 2009-10, deficit at the centre and the states will exceed 10% of GDP. This leaves little room to finance physical and social infrastructure through budgetary resources.

Fortunately, India’s decentralised economy and multi-faceted business landscape, involving a mixture of large and small entrepreneurial firms and many committed not-for-profit organisations, is quite suited for using public-private partnership (PPP) as an instrument in building and maintaining physical and social infrastructure.

In historical terms, the state and the market are relatively new social institutions, and are thus imperfect. Therefore, excessive preoccupation with ideological debates about the superiority of the state or the market is futile. Instead, the focus should be on harnessing the complementarities between them in undertaking governmental activities to minimise total resource costs to society.

An effective PPP involves partnership among various stakeholders with a specified constitution, setting out governance structures and outcomes to be achieved. A partnership is effective only when each partner brings something of economic value to the project, and each partner has a mindset that incorporates new technologies and organisational practices. The other requirements for an effective PPP are measurable outcomes with shared responsibility and accountability, and appropriate risk sharing arrangements, which provide net economic value to the society as a whole.

The word “private” in PPP is somewhat inaccurate as it is possible to have a viable and fruitful partnership between different public sector entities or between public sector and the civil society, what is sometimes called the not-for-profit sectors. Indeed, many state-owned entities around the world, such as Alcatel of France or sovereign wealth funds like Singapore’s Temasek, enter into partnership with state-owned and private sector companies in other countries, including in India. Therefore, even a joint venture between two public sector firms should be considered a PPP transaction.

There is some recognition in the policymaking circles that if India is to become a rising power in the 21st century, greater synergy and competence to undertake developmental activities among all stakeholders, i.e. government organisations, private sector, not-for-profit sectors involving civil society, are needed.

It is suggested by several policy initiatives and measures to create an enabling framework for PPPs at the centre and in selected states through a PPP unit set up in the Ministry of Finance (www.pppinindia.com). There is, however, insufficient focus on translating these initiatives and measures into concrete projects in physical and social infrastructure.

Indeed, the PPP unit itself must further develop its own competencies, and more effectively assist in building capacities across governmental units at all levels, including the urban local bodies (ULBs). India’s rapid urbanisation, and past neglect of urban areas, requires urgent focus on the ULBs. A semi-autonomous status for the current PPP unit, with budgetary support but clear accountability, merits consideration.

The 2009 budget speech of the Railway Minister illustrates the recognition and importance of PPP in making Indian Railways relevant for India in the 21st century. The minister categorically ruled out privatisation and said the contribution of PPP in the Railways in the 2007-12 period will be $35 billion (out of a total investment of $80 billion), a 360-fold increase over the previous period.

To realise this goal, the Railways must acquire competence in PPP fairly quickly. This would also involve understanding the economic cost to the country of politically motivated project location decisions and other project specifications. It also requires a change in the mindset, which currently shows little concern for other stakeholders in the Railways.

In the Indian context, PPPs in the social sector are also quite relevant .The Emergency Management and Research Institute (EMRI) is a cogent example of PPP. EMRI handles medical, police and fire related emergencies through the ‘108 Emergency Service’, which is toll-free.

EMRI has engaged in strategic partnerships with Stanford University, Public Health Foundation of India, amongst many other public-public partnerships with various State governments. The EMRI fleet has over 1,400 ambulances, a staff of 12,000, and serves Andhra Pradesh, Gujarat, Uttarkhand, Goa and Meghalaya comprehensively, besides parts of Rajasthan, Karnataka, Assam, Madhya Pradesh, Punjab and Tamil Nadu.

The government can produce and provide goods and services through the budget; it can contract out or can engage in PPP. All three are relevant depending on different context and needs.

There are also many different types of PPPs, with differing legal status and governance structures. The key is to develop a mindset, which is ready to leverage the complementarities between different sectors, and minimise dysfunctional adversarial relationships between different stakeholders.

It is essential to keep in mind that a PPP project incompetently structured and implemented, and with an inappropriate mindset, can be harmful for the country as a whole. The urgent challenge therefore is not to avoid PPP but to develop requisite competencies and mindset.