Think of GPPP for Inclusive Growth

A R Raju, former Additional Secretary to Government of Kerala

The investment required for infrastructure projects, during the 12th Five year Plan is estimated to be $ 1 trillion. In view of the high intensive investment nature, most of these infrastructure projects are taken up on PPP and BOT models. Even though there are reports of slowdown in the pace of implementation of infrastructure project in the country due to land related issues, finance availability etc., the fact remains that the sector opens massive investment options and is the driver of growth of Indian economy.

When Cochin International Airport (CIAL), constructed in 1994 through PPP model, the promoters visited the Gulf countries to seek NRI investment. A handful of Kerala businessmen operating in Gulf countries decided to invest in the project along with the state Government, as angel investors, facilitating a new experiment. CIAL turned out to be an excellent success story in innovation in public–private partnership, being the first privately owned Greenfield airport in the country. The share price of CIAL is now valued at Rs 160, which is 16 times of the issue price. Kerala is now in the process of entering into its second venture in the airport sector, with the setting up of the Kannur International Airport, on a PPP model, earmarking 49% of the shares to the private sector. The media reports suggest that the State Government was flooded with offers for investment, not only from big companies, but from the local residents as well as the ordinary workers of Kerala origin in the middle east countries. Anyone and everyone with disposable money approached the Government to be part of what is a lucrative venture. There is virtually a tussle for investment into Kannur airport.

Imagine a scenario in which all the households of a state become shareholders, along with the private sector, in the PPP company that build the roads and collect the toll fees in the State. Prima facie, it may sound nonsensical, but some distantly similar models of stakeholder participation have already been experimented in the country successfully

What do these developments indicate? It makes abundantly clear that infrastructure projects are financially viable propositions in the long term. The Public Private Partnerships experimented in the country in various sectors like bridges, ports, airports, roads, railways, seaports, power, and urban infrastructure testify this. In PPP or BOT models, the essential components like land and similar natural resources for the infra-structure projects are provided by the Government, which generally constitute their equity component. The private sector brings in its core competencies – the entrepreneurship, the management skills and the ability to maximise profits. Combined together they deliver excellent results in building up the required infrastructure in the country that ultimately improves the quality of life of the people. To put it simply, infrastructure projects are transforming the problems of the people into great business opportunities. The private sector in the PPP or BOT models are always at an advantage when they partner with the Government. Their role is no different from their default role, but even more on a safe wicket and a major chunk of the profits earned in the PPP projects, by using the resources owned by the people, flow to the private sector partner. That is why big infrastructure companies are growing incrementally fatter and fatter

No doubt, the private sector is the backbone of Indian economy, generating employment and creating wealth for the country. But primarily it is a vehicle for profit maximisation for a privileged group, using the savings of the people channelised through banks and other financial institutions. This underlines that the private sector is indebted to the society for their prosperity and that they have an enormous responsibility of giving back to the people. It is not denied that they have a long tradition of charitable activities in the country, mainly doling out freebies, scholarships to poor students, setting up hospitals and orphanages etc. The most widely accepted prudent view on poverty alleviation is empowering the poor to find their own solutions to the economic deprivation and social marginalisation. At the same time, it is the duty of the private sector to systematically address the underlying causes of poverty and support government initiatives like cash transfers, new self-help programs etc that help them to come out of the Below Poverty Line (BPL) mark.

Social investing and workers’ ownership are some of the unique models we have successfully experimented in the past. As much as 82% of the shares in The Kannan Devan Hill Plantation Company in Kerala is said to be owned by its 13,000 workers. The Uralungal Labour Co-operative in Vatakara, that is into infrastructure project execution and IT, is another notable instance, where the entity is owned and operated by the workers. The Magarpatta Township Development Corporation, as well as the Kalibhairav Company Ltd in Maharashtra are recent events in this transformation process, where the farmer families owning the land develop it themselves collectively into townships and create profit. The Rangasutra Crafts India in Rajasthan is a recent success story where the company is fully owned by the weaving workers. We already have Amul, Mumbai’s Dabbawala enterprise, Seva etc where stakeholders themselves own the enterprises. Another example is SEWA which empowers woman of Gujarat.

The resistance of the local populace against some of the developmental projects has to be viewed in this context. The development of National Highways in Kerala was a burning issue due to which the State Government, at one time, had to insist that the width of the NH in the State to be limited to 30 meters. It is due to the insistence and pressure of the Ministry of Road Transport and Highways that recently the State Government agreed to for 45 meters. Mainly it is the absence of any concrete plan to rehabilitate those who will lose land/houses and business enterprises on road development. Another vocal protest focused on the huge amount of profits that could be grabbed by the BOT company by way of toll fees, at the cost of the people who own the land.

The philanthropic engagement of the private sector termed as Corporate Social Responsibility (CSR) is an acknowledgement of this responsibility. But mostly this is utilised to market their brand image and the end result is blatant tokenism and CSR initiatives remain hardly a blip on the map, when we still have 300 million people below the poverty line

Imagine a scenario in which all the households of a state become shareholders, along with the private sector, in the PPP company that build the roads and collect the toll fees in the State. Prima facie, it may sound nonsensical, but some distantly similar models of stakeholder participation have already been experimented in the country successfully, as mentioned earlier. While this may not be to the fancy of the private sector, this has to be seen as a most positive development in terms of the generation of awareness of right and authority of the people. They are not sure whether the big company is coming to help or to exploit them? This emphasises that we have to think of people participatory model in infrastructure projects that are implemented through PPP route.

It would be possible we can create new models of social innovations by elongating the PPP structure in infrastructure development with direct people participation, towards meeting much larger and long term goals of equitable distribution of wealth. With free flow of information, profiling of the citizens through UID, and ubiquitous connectivity, this could easily be possible. Since the infrastructure projects are locale centric, the ordinary residents of the area should mandatorily get sufficient participation in the project. This will ensure that the local community develops a sense of belonging to such projects. Judging by the massive response to the public issues, and the rush for cornering the investment options by the private individuals in the PPP projects, it is certain that there could be tremendous response from the public to take part in such enterprises.

Evolving practical modalities for such new model is not a big deal. This could be a collaborative frame- work between Government, People, and Private Sector, which I like to call as GPPP (Government, People and Private sector partnership). All the three partners can have financial participation in a mixed ratio according to their defined roles. The core contribution would come as Government providing land, the people their direct equity participation through private placement route and the private sector the entrepreneurial and management skills. Instead of private sector benefitting exclusively in the PPP model, the common people could also be benefitted in proportion to their financial participation, in this GPPP format. But most important aspect would be the sense of belonging. When the public transport they travel is owned by the people themselves literally, they would keep it clean and tidy. They will volunteer to support it. We are only extending here the same principle of private entrepreneurship for the benefit of the common people.

The GPPP model will encourage the common people to invest in a public project of their utility, and make them the owners, and give them returns in the form of dividends and enable their investment to grow. This could really be a mutually beneficial scenario. It is different from retail investors subscribing to infrastructure bonds or infrastructure specific Mutual funds or financial institutions and major infrastructure companies raising loan from the domestic market. What matters is not investment options, but direct membership and participation in the local projects, other than being a passive spectator.

However the reality could be that all citizenry of the area may not be necessarily capable to invest. It doesn’t mean the people who cannot participate are not interested in investing, but because they are poor. The truth is that nobody wants to be poor. Even poor people want the good things in life for their children and themselves. It is not only the rich and the middle class who want better roads, comfortable public transport and modern railways system. Remember when the poor of Delhi start travelling in the posh Delhi Metro train, they get themselves elevated and brought in a gradual transformation of sophistication in their behaviour and outlook. Now with the implementation of the UID scheme, it would be possible to get accurate information on the profile of the citizens including those in the BPL sector. In a GPPP model, the BPL families are to be given bonus shares (or we can rightly term it as “right issue” to indicate the right of the people in development ) with certain conditions, to ensure their participation or to compensate the cost of loss due to displacement. A lock-in period to ensure reasonable growth of the investment could be one stipulation.

We already have a legislative proposal to make the mining companies pay 25% of their profits to people losing land due to mining. It means that we have already initiated a thought process of making the ordinary people partners in developmental projects. What we need is acceleration of its implementation and extension of this idea to various other areas of wealth creation. The banks or even Government can fund the BPL households to subscribe to the “rights issue” of such initial limited offer, so that they have no immediate financial burden.

In fact, no financial institution needs to think twice to fund the BPL quota in share holdings that will turn out to be performing assets in future. This would ensure that any public utility project, if not all across the country, at least in a District or even in a state could be considered to have the participation of all the families in that district/state. People in the BPL category having bank accounts and depository accounts would mean a positive and quick measure towards financial inclusion as well. We need to have legislative back up to make such a model to be operative. The Finance Ministry, RBI and SEBI would certainly need to consider this.