Mana La Excellence APPSC Secure Notes
APPSC Secure Schedule –
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Date: 22-11-2022
Subject- Indian Economy
Syllabus- Issues of finance, ownership,
operation, and maintenance of all kinds of
infrastructure – Public-private partnership and
related issues – Pricing of public utilities and
government policy
Number of questions- Mains: 02
Mains questions of the day:
1. Explain the key issues in infrastructure
financing in India. What steps have been
taken by the government to address these
issues?
Introduction:
Write in brief about infrastructure financing
Body:
Write key issues in infrastructure financing in
India. steps have been taken by the government to
address these issues.
Conclusion:
Government and the corporate world should
work together to iron out structural issues and
develop frameworks that allow transparent and
flexible risk sharing mechanisms to attract
investments in the infrastructure sector. greater
participation of state governments must be
ensured, and steps must be taken to simplify the
procedures and to improve efficiency of the
corporate bond market.
Content:
Infrastructure development is an arduous job. It
involves huge investments, long gestation
periods, procedural delays and returns spread
over a long period of time. These unique features
of infrastructure development raise some issues
which are specific to the financing of
infrastructure. As a result, mobilising and
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structuring financing for infrastructure
development is a complex proposition.
Key issues in infrastructure financing in India:
1. Fiscal Burden: Almost half of the total
investment in the infrastructure sector is
done by the government through budget
allocations. But Government funds have
competing demands, such as, education,
health, employment generation, among
others.
2. Asset-Liability Mismatch of Commercial
Banks: Commercial banking sector’s ability to
extend long-term loans to the infrastructure
sector is limited.
3. Subdued Investments in PPP Projects: Private
sector investment is yet to revive in the
backdrop of subdued interest from potential
stakeholders. Legacy issues and weak balance
sheets have led to limited participation from
existing infrastructure players in India.
4. Investment Obligations of Insurance and
Pension Funds: Insurance and pension funds
are constrained by their obligation to invest a
substantial portion of their funds in
Government securities.
5. Need for an Efficient and Vibrant Corporate
Bond Market: The corporate bond market is
still a long way to go in providing adequate
financing to the infrastructure sector in India.
6. Insufficiency of User Charges: A large part of
the infrastructure sector in India especially
irrigation, water supply, urban sanitation, and
state road transport is not amenable to
commercialisation for various reasons. Due to
this, the Government is not in a position to
levy sufficient user charges on these services.
7. Legal and Procedural Issues: Issues relating to
land acquisition and environmental
clearances add uncertainty which affects the
risk appetite of investors as well as banks.
Mana La Excellence APPSC Secure Notes
Various steps have been taken by the
government to address these issues:
1. Public-Private Partnership: Government is
making efforts towards Public-Private
Partnership Projects especially in
Infrastructure.
2. Viability Gap Funding: Government has made
provision to financially support the viability
gap to the tune of 20% of the cost of the
project in the form of capital grant from its
viability gap fund.
3. Foreign Direct Investment and Infrastructure
Development: 100% FDI is allowed under the
automatic route in some of the sectors such
as mining, power etc. Further, FDI is also
allowed through the approval route in some
sectors such as the civil aviation sector etc.
4. India Infrastructure Finance Company Limited
(IIFCL): IIFCL is a wholly owned Government
of India company to provide long term
finance to viable infrastructure projects
through the Scheme for Financing Viable
Infrastructure Projects through a Special
Purpose Vehicle.
5. Infrastructure Debt Funds: IDF is a distinctive
attempt to address the issue of sourcing long
term debt for infrastructure projects in India.
6. Reducing bottlenecks: With initiatives such as
‘Housing for All’ and ‘Smart cities,’ the
government is working on reducing the
bottlenecks that impede growth in the
infrastructure sector.
7. UDAY scheme: Under UDAY scheme the
government has taken steps to improve
operational and financial parameters of
DISCOMS.
8. Masala Bonds: The national highways
authority of India (NHAI) launched masala
bonds in May 2017, for raising capital for
funding the infrastructure projects in India.
9. National Infrastructure Investment
Fund: National Infrastructure Investment
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Fund (NIIF) with an initial corpus of Rs 40,000
crore was launched.
10. National Infrastructure Pipeline: The National
Infrastructure Pipeline is a group of social and
economic infrastructure projects in India over
a period of five years with a sanctioned
amount of ₹102 lakh crore.
2. Write about the key recommendations made
by vijay kelkar committee report on
revisiting and revitalising public private
partnership model
Introduction:
Write in brief about public private partnership
Body:
Write key recommendations made by vijay kelkar
committee report on revisiting and revitalising
public private partnership model.
Conclusion:
Private investment needs be encouraged in
infrastructure through a renewed public-private
partnership (PPP) mechanism on the lines
suggested by the Kelkar Committee. A mature
PPP framework, along with a robust enabling
ecosystem shall enable the Government to
accomplish, to a considerable extent, what our
Prime Minister, has said “The Government has no
business to do business” and thereby promote
private sector investments and participation
towards the nation building.
Content:
Public-private partnerships involve collaboration
between a government agency and a private-
sector company that can be used to finance,
build, and operate projects, such as public
transportation networks, parks, and convention
centers. Financing a project through a public-
private partnership can allow a project to be
completed sooner or make it a possibility in the
first place.
Mana La Excellence APPSC Secure Notes
Vijay Kelkar Committee Report on Revisiting and
Revitalising public private partnership Model:
In pursuance of this announcement, a Committee
on Revisiting & Revitalising the PPP model of
Infrastructure Development was set-up which
was chaired by Dr. Vijay Kelkar.
Key recommendations of the committee:
1. Contracts need to focus more on service
delivery instead of fiscal benefits.
2. Better identification and allocation of
risks between stakeholders
3. Prudent utilization of viability gap
funds where user charges cannot guarantee a
robust revenue stream.
4. Improved fiscal reporting practices and
careful monitoring of performance.
5. Given the urgency of India’s demographic
transition, and the experience India has
already gathered in managing PPPs, the
government must move the PPP model to the
next level of maturity and sophistication.
6. Cost effectiveness of managing the risk needs
to be evaluated.
7. An Infrastructure PPP Adjudication Tribunal
(“IPAT”) chaired by a Judicial Member (former
Judge SC/Chief Justice HC) with a Technical
and/or a financial member, where benches
will be constituted by the chairperson as per
needs of the matter in question.
8. Projects that have not achieved a prescribed
percentage of progress on the ground should
be scrapped. Re-bid them once issues have
been resolved or complete them through
public funds and if viable, bid out for
Operations and Maintenance.
9. Sector specific institutional frameworks may
be developed to address issues for PPP
infrastructure projects.
10. Umbrella guidelines may be developed for
stressed projects that provide an overall
framework for development and functioning
of the sector specific frameworks.
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11. Unsolicited Proposals ("Swiss Challenge") to
be discouraged to avoid information
asymmetries and lack of transparency.
12. Amend the Prevention of Corruption Act,
1988 to distinguish between genuine errors in
decision-making and acts of corruption.
13. Set up an institution for invigorating private
investments in infrastructure, providing
guidance for a national PPP policy and
developments in PPP.
14. An institutionalized mechanism like
the National Facilitation Committee (NFC) to
ensure time bound resolution of issues.
15. Ensure adoption of principles of good
governance by the Special Purpose Vehicle
(SPV).
16. Discourage government participation in SPVs
that implement PPP projects unless
strategically essential.
17. Ministry of Finance to allow banks and
financial institutions to issue Zero Coupon
Bonds which will also help to achieve soft
landing for user charges in infrastructure
sector.
18. Encourage use of PPPs in sectors like
Railways, Urban, etc. Railways to have an
independent tariff regulator.
19. Set up an institute of excellence in PPP to
inter alia guide the sector, provide policy
input, timely advice and undertake
sustainable capacity building.
20. Ensure integrated development of
infrastructure with roadmaps for delivery of
projects.