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Sucharita Basu
AQUILAW, Delhi
sucharita.basu@aquilaw.com

 

India’s 2020 budget speech focused heavily on developing infrastructure as part its theme of ‘economic development’.^[1] The emphasis on infrastructure development to thwart the economic downturn confronting India is inspired by the Keynesian economics.

Keynesian economics was devised and developed in the 1930s by British economist, John Maynard Keynes in an attempt to understand the Great Depression. Keynes advocated increased government expenditure and lower taxes to stimulate demand, pulling the global economy out of the depression. The focus of Keynesian economics is using active government policy to manage aggregate demand to address or help prevent recessions.

India has indeed been facing: falls in demand, a drop in private consumption, a sluggish investment tendency, weak income growth especially in rural areas, stress to the non-banking financial sector, corporate and environmental regulatory uncertainty, low consumer confidence, a steady rise of unemployment and a decline in corporate profits. All these indicators had compelled the International Monetary Fund (IMF) to reduce India’s economic growth forecast for 2019–2020 to 4.8 per cent. It remains to be seen what further colossal impact Covid-19 will have on India as well as global economy.

In the current scenario, India shall have to continue forcefully concentrating its attention and spending on building infrastructure as envisaged in the Budget speech that ‘a huge employment opportunity exists for India’s youth in construction, operation and maintenance of infrastructure.’

Public Private Participation (PPP) could be the appropriate means of achieving this objective, as discussed in the Budget speech. By encouraging the PPP model, the balance of contribution between the government and the private project proponent(s) to infrastructure projects shall be achieved leading to building the infrastructure. This would give effect to a basic principle of the Keynesian economics (ie, increased public works bringing about employment which consequently enhances spending power). The PPP model would ensure participation of private enterprise, resulting in a sharing of costs and investments required as well as bringing with it the requisite niche efficiency and expertise. Needless to say, that it will have a definitive long term cascading impact on the economy as a whole. The major flaw with PPP is that it creates massive long-term debt which government has to pay back to the private sector.

However, it leads us to ponder if India is optimally statutorily equipped to bring about the successful completion and operation of infrastructure projects on such a huge scale which can magically aid India’s economic resurgence during a recession.

It is also noted that India does not yet have a definitive legislation for governing PPP model of executing infrastructure projects. A typical infrastructure project in India by PPP necessitates the combined cooperation of central and state legislators on subjects in the central, state and concurrent lists of Schedule VII of the Constitution of India. The entire diaspora of all such laws have to operate, ideally collaboratively, for the documentation, financing, execution, completion, monetisation, enforcement and for redressal of disputes arising from breaches of or under the PPP contract(s) between the parties. An indicative illustration of the existence of several infrastructure sector laws is provided in the table below:

 

Commercial laws	Indian Contract Act, 1872; Law of Torts; Companies Act, 2013; Limited Liability Partnership Act, 2008.
Environmental laws	Environment (Protection) Act, 1986; Environment Impact Assessment Notification, 2006; Forest Laws such as Forest (Conservation) Act, 1980 and Indian Forest Act, 1927; Central Pollution Laws such as the Air (Prevention and Control of Pollution) Act, 1981 and Water (Prevention and Control of Pollution) Act, 1974 along with their respective rules; State Pollution Laws along with their Rules and Notifications.
Other approvals and consents	Bureau of Indian Standards Act, 2016; Legal Metrology Act, 2009; Food Safety and Standards Act, 2006.
Banking laws	RBI Act, 1934 along with its Rules, Regulations, Directions, Circulars and Notifications thereunder; Banking Regulation Act, 1949; Insolvency & Bankruptcy Code, 2016; Recovery of Debts and Bankruptcy, Insolvency Resolution and Bankruptcy of Individuals and Partnership Firms Act, 1993; Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.
Sectoral laws, such as:	National Highways Authority of India Act, 1988 and Rules thereunder; National Highways Act, 1956 as well as parallel state legislations along with their Rules, Airports Authority of India Act, 1994; Multimodal Transportation of Goods Act, 1993; Warehouse (Development and Regulation) Act, 2007 along with its Rules, Regulations and other State Warehouse and Cold Storage laws; Inland Water Ways Authority of India Act, 1985; Indian Ports Act, 1908, Major Port Trusts Act, 1963, State Maritime Acts and Policies; State Minor Port Trust Acts and Rules and Regulations thereunder.
PPP and Infrastructure laws	Central & State Policy(ies) and Guidelines; State Infrastructure Statutes.
Land and property laws	Land Laws & Policy(ies) of States; Transfer of Property Act, 1882; Indian Easements Act, 1882; Registration Act, 1908; Indian Stamp Act, 1899.
Other laws	State Legislations with respect to Public Works; Motor Vehicles Act, 1988 and Rules thereunder; State laws with respect to Municipal Corporation, Municipalities, Panchayat, Town Planning and Zila Parishad.
Dispute resolution laws	Arbitration and Conciliation Act, 1996; Code of Civil Procedure, 1908; Specific Relief Act, 1963; Judicial pronouncements by the Hon’ble High Courts of the States, the Hon’ble Supreme Court of India, Tribunals and Special Courts.

 

The governance of PPP contracts and consequent management of the infrastructure project to which they relate is largely dependent on adherence with and interpretation of a mesh of codified laws, uncodified legal principles and their interpretation through judicial pronouncements. Moreover, to conclusively attain such judicial decisions is a huge challenge in India because of a weak litigation disposal record resulting in an abysmally low positioning of India at 163 among 190 countries in the parameter of ‘Enforcement of Contracts’ in the World Bank’s Ease of Doing Business rankings.

Although it cannot be denied that over the years, much thought has been given to the PPP method of executing infrastructure projects, leading to establishment of PPP Cell, Infrastructure Division, under the Department of Economic Affairs, Ministry of Finance,  which, inter alia, has published standard bidding documents such as, model Request for Qualification for pre-qualification of bidders for PPP Projects, model request for proposal for invitation of financial bids for PPP Projects and model Request for Proposal for engaging financial consultants and technical advisers for PPP Projects. It also has standard contractual documents such as sector specific Model Concession Agreements, which set out standard terms relating to risk allocation, contingent liabilities, guarantees, service quality and performance standards by relevant ministries. Such documents are being adopted by project implementation agencies for developing PPP infrastructure projects in sectors such as ports, roads, airports, food storage (silos), water supply and so on.

Furthermore, there is currently much focus on ‘Logistics and Logistics Infrastructure’ in India; a special Logistics Division has been formed in the Department of Commerce, Ministry of Commerce and Industries, Government of India which has also created the Draft National Logistics Policy. The Honourable Minister of Finance of India, also mentioned in the budget speech that the National Logistics Policy is about to be released, which, among other things, will aim to clarify the roles of central government, state governments and key regulators.

Several states, such as West Bengal, Andhra Pradesh, Punjab and Uttarakhand have their own PPP cells and logistics development councils/committees, which in turn have their respective set of policies for the governance of PPP projects. Certain states have legislation relating to the development of infrastructure such as: Maharashtra Infrastructure Development Enabling Authority Act, 2018; Punjab Infrastructure (Development & Regulation) Act, 2002; Bihar State Infrastructure Enabling Act, 2006; Tamil Nadu Infrastructure Development Act, 2012; and Andhra Pradesh Infrastructure Enabling Act, 2001.

Considering the focus that India would like to have on building infrastructure through PPP, it can be acknowledged that presence and performance of so much varied legislation, both central and state ( policies, judgments, etc), may have to be coordinated by single central Public Private Partnership legislation.

Has India done something similar before? In 2013, consultation started for a robust single legislation for the real estate sector, which eventually resulted in the enactment and implementation of Real Estate (Regulation & Development) Act, 2016 (RERA). Certain aspects of the RERA which could inspire their incorporation in a PPP legislation, mutatis mutandis, would be:

• creation of a statutory authority which shall also act as regulator(s);

• provision for registration of project(s) with the said statutory authority;

• affixation of statutory roles and responsibilities on the stakeholders;

• prescription of consequences for non-compliance with the above;

• enumeration of specific methods and timelines of achieving progression and completion of projects; and

• specification of a process of redressal of disputes among the stakeholders before the statutory authority and an appellate authority.

The enactment and implementation of RERA has not been without problems, as is always expected in a conceptually new sectoral legislation. However, the advantages of having a dedicated legislation has long-term utility especially because it: (a) mandates obligations and responsibilities of the stakeholders; (b) requires punctual completion of projects; (c) addresses issue of non-compliance; and (d) provides for a specific regulator, thereby attaching substantial credibility to a sector which was largely unregulated yet is an essential contributor to the economy.

India is one of the largest markets in the world with vast potential in the game changer infrastructure sector. Such a specific legislation for the sector, without a doubt, would achieve:

• increased investor confidence, encouraging more foreign investment and overseas participation including through hybrid investment products, and also encouraging InViTS;^[2]

• increased sectoral diversifications and cross-sellings:

• timely completion of projects and seamless monetisation of the same and consequent disciplined debt servicing, keeping at bay the devil of creation of non-performing assets;

• massive employment generation;

• reduced load on the existing overburdened dispute resolution mechanisms fora; and

• terrific enhancement in sovereign good will.

For that, in the absence of such a specific legislation for development of infrastructure using PPP, it shall require that documentations are as ideal as possible, to help achieve a situation nearest to a condition which a single governing and regulating legislation for the sector can provide. This would perhaps be a next best situation only and ultimately an anchoring framework statute for PPP would be critical for the consummation of the projects to accomplish the desired macro result of a new, vibrant infrastructure for India.