The Viewpoint: Risk Allocation – Overcoming barriers for a well designed PPP

The Indian infrastructure sector is in a transitory phase. While the growth rate of India’s economy averaged 8% in the Eleventh Five Year Plan, it did not meet the target of 9% due to a global economic slowdown. The Twelfth Five Year Plan by the Planning Commission has identified revival of investments as the immediate policy challenge for the Government of India to reverse the deceleration in growth. The Twelfth Five Year Plan has further predicted that the infrastructure sector will need investments of over one trillion US dollars. Given the fact that the majority of these investments have to be sourced from the private sector, the Government has encouraged private sector participation in sectors that traditionally used public procurement. One such initiative by the Government is called a public-private partnerships (PPP) arrangement. The motivation for using a PPP arrangement rather than a conservative public procurement regime is that through such PPP arrangement, the Government can allocate risks to the private sector and accomplish an optimal balance between commercial risks and returns.