Do public-private partnerships hold the key for the next phase of the India growth story?

Do public-private partnerships hold the key for the next phase of the India growth story?

The Western press has been enamoured by the ‘India and China’ catchphrase over the last decade. A simple Google search for ‘India and’, probably results in more references linking India and China than India and anything else. For a number of reasons, this association is completely understandable. They are both large, populous countries that saw tremendous growth in the 90s and early 2000s through their export-driven services sectors and the pivotal role that entrepreneurship played.

“The public side has the capabilities but the speed is not there. We are bringing the best technology, the best financial engineering, and the best talent in the world to make the process more efficient. The government has been very supportive in helping us get the clearances needed.”

In reality though, India and China are very different countries. Manufacturing was the crucial growth stimulus in China, while the Information Technology services industry clinched the deal in India. The ability of Indians to communicate in English gave India the edge in the IT-enabled services sector. The most salient difference though, which largely went unnoticed, was the role of the government. Says Tarun Khanna, Professor of Strategy at Harvard Business School who specialises in emerging markets, “In some sense, the government is the entrepreneur in China. Government officials have the incentives to promote local GDP growth. The bureaucrats are well trained and reasonably well compensated. So the government is present everywhere. In China, any organization with greater than 25 people will definitely have some public sector presence, even if it shows up on the statistics as private.” He goes on to add that India is the complete mirror image, when it comes to governmental contribution. Most of the action has been in the private sector and growth has been in new-economy sectors where government restrictions are minimal or in sectors where the need for physical infrastructure was limited.

The best thing that can be said about the Indian government is that they have stopped envisioning themselves as the sole drivers of growth. They want to create an environment where private sector enterprises and entrepreneurs can thrive, thus, enabling the right platform to further growth. This is a huge transition from the license raj period. However, there are three key sectors-infrastructure, education and healthcare, where the need for government involvement is paramount. India’s entrepreneurs are very clear- you give them a fair share of the pie and they will invest in any of these sectors. But, the government needs to create the right macroeconomic environment to make this happen, and that is going to be a challenge.

In this section, titled India 2.0, we are going to take a very futuristic long-term view as to what India needs to do to maintain these high-levels of growth (7-9%) over the next two decades. In this story, the first in the India 2.0 series, we are focusing on the infrastructure space and how public-private partnerships are making a difference.

Steps in the right direction

From an infrastructure perspective, the most important aspect has been the change in the governments’ mindset. The planning commission understands that to sustain growth, spending on infrastructure has to increase and that is now part of the 11th Five-Year plan (from 2007-2012). According to a report that appeared in the McKinsey Quarterly, the increase in investment in the infrastructure space as a percentage of gross domestic product will rise from 5 per cent in 2007 to 9 per cent by 2012.

The second important observation is that the government has realised the significant relevance of partnerships. Whether it is modernising airports, building roads and bridges or reconstructing the railway infrastructure, the government is partnering with experienced organisations. GMR, one of India’s leading players in this sector was roped in to modernise the Delhi airport. Fraport, a German company that manages the Frankfurt airport was also roped in as a minority partner. Bringing in the best practices from around the world, for cargo, ground operations and even maintenance has been made possible because of the minority partner. Clarity and transparency in communication between GMR and the government officials has not only aided in the success of the project but also bolstered relationships and clearly serves as a case study for future public-private partnerships. “The public side has the capabilities but the speed is not there. We are bringing the best technology, the best financial engineering, and the best talent in the world to make the process more efficient. The government has been very supportive in helping us get the clearances needed,” says G.M. Rao, Chairman and CEO of GMR.

Clarity of ownership

It’s has become quite a cliché for foreign visitors travel to India, and be put off by the road transportation facilities in our country. They cannot fathom the contrasting picture where in a simultaneous timeframe, India witnesses’ robust growth but the progress on basic infrastructural needs like roads and bridges seems lackadaisical. Although the National Highway System (NHS) of India has an ambitious plan in place to rebuild India’s road facilities, implementation has been a major problem. Only 10 per cent of what it set out to achieve by 2008 has been achieved. Experts believe that dividing responsibility between the different state governments or maybe even the four regions (south, north, west and east) will help expedite the process.

Irrespective of whether a Public Sector Unit (PSU) is going to get into a public-private partnership, get completely privatised, or even remain a stand-alone enterprise, clarity in responsibilities and ownership will go a long way in achieving targets. The planning commission, along with relevant cabinet ministers, needs to come up with a methodical approach for identifying companies that need to be privatised. For example, Bharat Heavy Electricals (BHEL), a Navarathna and a leading energy and power PSU, is doing well as a stand-alone entity. However, PSU’s like Coal India will benefit tremendously from public-private partnerships. The private partner can help with cash inflow, technical know-how and improve overall efficiency of operations. Coal India is already taking steps in the right direction to forge partnerships with private players for coal extraction. A disciplined approach of analysing every PSU in the country and coming up with a game plan for ownership will help tremendously.

Bridging the divide

Almost every aspect of the infrastructure ecosystem, including energy and power, roads, ports and even water resources is strained in our country. Demand far exceeds supply, and an organised approach to meet the demand gap is of utmost importance. On a positive note, the government does have a plan in place to bridge this gap. Private sector is ready to jump in and help, as long as they can draw some benefit from it. Early indications are we are making progress, though not at the speed at which we would like.

Expansion in this space will also lead to creation of several jobs and contribute to the expansion of India’s middle class. The transition for demand from roti-kapda-aur-makaan (food, clothing and shelter) to bhijili-sadak-and-pani (energy, roads and water) is clear, but to make headway in this sector, everyone, the government, the private sector, international experts and most importantly the people of India will have to play a role in this developmental stage.