INDIA INFRASTRUCTURE REPORT 2008 Managing Editors: ANUPAM RASTOGI, PREM KALRA, AND AJAY PANDEY Anoop Singh [email protected] IIT Kanpur Anupam Rastogi [email protected] Infrastructure Development Finance Company Ltd. Ashoke Bhattacharjya [email protected] Johnson and Johnson Medical Asia Pacific Ashvini Parashar [email protected] Uttaranchal Infrastructure Development Company Ltd., UDeCK Bhaskar Chakrabarti [email protected] IIM, Kolkata D.R. Prasada Raju [email protected] Byrraju Foundation D.S. Ratna Devi [email protected] Byrraju Foundation G. Raghuram [email protected] IIM, Ahmedabad Jim Hogan [email protected] PA Consulting Jyoti Gujral [email protected] Infrastructure Development Finance Company Ltd. K. Rama Raju [email protected] Byrraju Foundation Neeraj Gupta [email protected] Global Institute of Technology, GIT, Jaipur P.V. Indiresan [email protected] Former Director, IIT Chennai Partha Mukhopadhyay [email protected] Centre for Policy Research Piyush Tiwari [email protected] University of Aberdeen, UK Pradeep Varma [email protected] KnowledgeOnline Company Pvt. Ltd. Prem Kumar Kalra [email protected] IIT, Kanpur Puneet Sapra [email protected] Johnson and Johnson Medical Asia Pacific Rachna Gangwar [email protected] IIM, Ahmedabad (IIMA) Ramakrishna Nallathiga [email protected] Centre for Good Governance, Hyderabad Ranjan Kumar Jain [email protected] Rail Vikas Nigam Ltd. Ravikant Joshi [email protected] Consultant Rekha Jain [email protected] IIM, Ahmedabad Runa Sarkar [email protected] IIT, Kanpur Shreemoyee Patra [email protected] Lucid Solutions, New Delhi Sonia Sethi [email protected] Infrastructure Development Finance Company Ltd. & IAS Verghese Jacob [email protected] Byrraju Foundation Vivek Agarwal [email protected] Indian Administrative Services Vivek S. Agrawal [email protected] Global Institute of Technology, Jaipur Y. Suresh Reddy [email protected] Byrraju Foundation INDIA INFRASTRUCTURE REPORT 2008 Business Models of the Future 3iNetwork Infrastructure Development Finance Company Indian Institute of Management, Ahmedabad Indian Institute of Technology, Kanpur 1 1 YMCA Library Building, Jai Singh Road, New Delhi 110 001 Oxford University Press is a department of the University of Oxford. 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Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose this same condition on any acquirer ISBN-13: 978-0-19-569253-2 ISBN-10: 0-19-569253-5 Typeset in Aldine401 BT in 10.5/12.5 by Excellent Laser Typesetters, Pitampura, Delhi 110 034 Printed by DeUnique, Delhi 110 018 published by Oxford University Press YMCA Library Building, Jai Singh Road, New Delhi 110 001 FOREWORD The notion that only the government can and should paying more than the rich for access to basic services provide all public infrastructure service has been gradu- that are sub-standard. The report presents scalable case ally abandoned in India over the course of the past decade. studies of quality service provision at low cost, suited to With private sector participation—in telecoms, roads, meet the needs of the poor in areas such as drinking ports, civil aviation, and airports—leading to visible water, primary health care, and education. Indeed, there improvements in service quality, time, and cost there is is a real opportunity for business to innovate and play a growing acknowledgement of the benefits that the constructive role in inclusive growth by providing services private sector brings to the infrastructure sector. In its adapted for the ‘bottom of the pyramid’. Eleventh Five Year Plan the Government hopes to har- The attention to vocational training in the report is ness the private sector’s efficiencies in delivery of infra- pertinent because India is facing constraints of trained structure projects to a much greater extent in meeting manpower in almost all sectors. Provision of quality edu- India’s infrastructure needs, either through fully private cation—elementary and secondary—to our young popu- ventures or through public private partnerships (PPP). lation remains a challenge that can be effectively addressed The India Infrastructure Report 2008 theme is aptly ‘Busi- through PPP endeavors. I am pleased to note that the ness Models of the Future’. The report considers various current report has come up with some innovative models models of PPP and covers issues in their design. It also to deliver these in the country. explores different forms of partnerships between govern- I would like to congratulate all the contributors who, ment, NGOs, private sector, and users in the delivery of under the aegis of the 3iNetwork, have produced this infrastructure services. report. Coming as it does at the launch of the Eleventh What is exciting is that new vistas are opening up. Five Year Plan there should be significant interest in the There is a range of models that can be used to extend various means by which the private sector can participate services in a sustainable manner for rural and social infra- in infrastructure development. Moreover, I hope that it structure. Minimum subsidy bidding, franchises, and will stimulate further ideas and, importantly, take forward the use of vouchers are just some of the means by which initiatives in extending infrastructure services to those who the private sector can be profitably and competitively do not have access to such services. involved and more users provided with access and choice. Surveys have shown that the poor are willing to pay RAJIV B. LALL for quality public services. At present, they often end up April 2008 ACKNOWLEDGEMENTS To fulfil India’s aspirations to generate significant increases brainstorming session on 6 April 2007. The Writer’s in infrastructure spending in the years to come, it will have Workshop held at IIT, Kanpur from 20–21 July 2007 to rely heavily on private investors as opposed to earlier was essentially meant to crystallize models and if they policies of state-run agencies building roads, airports, and were at an initial stage, to critically evaluate their via- power projects. The government has been keen to involve bility. We thank Neeraj Gupta, Vivek S. Agrawal, the private sector in the delivery of infrastructure but it is D.R. Prasada Raju, P.V. Indiresan, Bhaskar Chakrabarti, complicated for the private sector to work out service stan- R.N. Kalita, Ranjan K. Jain, Pradeep Verma, Veena Vadini, dards while maintaining social responsibility and keeping Sonia Sethi, Manjushree Ghodke, Rekha Jain, the enterprise financially viable. G. Raghuram, Prabhat Munshi, Runa Sarkar, Rajiv Failure to devise financially viable models for rural Shekhar, and Anoop Singh for participating whole- roads, power plants, or mass transit systems in the last heartedly in the workshop. The interaction enriched the fifteen years can be attributed to the opacity of public– report immensely. private transactions related to the infrastructure sector. We are grateful to all the authors who, despite their This report provides a short tour of various models which busy schedule, participated in the workshops and main- can be used in infrastructure and social sectors by gaining tained timelines of the many drafts their write-ups had to a better understanding of the social requirements of go through. We would like to be excused for troubling infrastructure, the government’s public obligations to pro- them with reminders and follow ups for which we used vide infrastructure services and the private sector’s need every means of communication at our disposal. to maintain financial viability. We would like to acknowledge the professional Almost all the contributors of the report have pre- services rendered by Lucid Solutions, the editorial sented PPP models or model-ideas from their experience consultancy firm owned and managed by Shreemoyee in the infrastructure sector at various levels of government. Patra. Each paper was reviewed, revised, and restructured The two workshops organized at IIT, Kanpur helped to fully align it with the tone, purpose, and presentation in assimilating the experiences of both the contributors of the report. Shreemoyee helped in transforming the as well as the other participants. We would like to more technical