Adjustment in India’s PPP model will attract investment: Moody’s

Moody’s on Thursday said that India’s public-private partnership (PPP) model has the potential to attract investment if tweaked properly. 

Abhishek Tyagi, a Moody's Vice President and Senior Analyst said, "Historical under-investment and rapid economic growth are straining India's existing infrastructure. While the country's PPP model has seen reasonable success in some sectors over the last 20 years, PPP activity has been low in the last four fiscal years due to challenges with the PPP model."

Private investment in PPP projects have seen decline recent years for a number of reasons – including delays in project approvals and land purchases by the government, complicated dispute resolution mechanisms in the concession agreements, and lower than expected revenues due to aggressive assumptions.

These delays then led to cost overruns and revenue losses to private concession owners, which in turn hampered the financial viability of some projects and their ability to service debt.

These weak performance of some infrastructure projects, including PPP, resulted in stress for both developers and the Indian banking system. 

As of June 2016, the infrastructure sector which accounted for 14.2% of total advances of the banking sector, has accounted for 34.4% of restructured standard advances and 13.9% of gross non-performing assets of commercial banks in India, a Financial Stability Report (FSR) of the Reserve Bank of India said. 

Tyagi said," India’s PPP framework will benefit if developed further which will address issues like (1) improved risk allocation; (2) the ability to renegotiate unpredictable factors in the bid documents; and (3) a move away from project awards based on one metric, such as estimated revenues."