Centre mulls annuity model

Key advantage of the annuity-based PPP model is that the question of making the payments would come up only after a project is complete

The government is planning to award infrastructure projects on an annuity basis to hasten these, with an eye on limiting its fiscal deficit. This will also help meet the target of spending $1 trillion between 2012-13 and 2016-17 in infrastructure development.

The main advantage with annuity-based public-private-partnership (PPP) model is that the question of making the payments would come up only after a particular project is completed. The payment can be spread over a period of 20 years or so, according to official sources.

“This can be effective for any kind of infrastructure projects on railway, ports and even highways. The advantage with annuity is that the burden of annuity payments would arise on completion of projects and would be spread over many years. As a result, the capex in a downturn can be enhanced without any immediate impact on the fiscal position,” a senior official told Business Standard.

The Centre is planning to implement the same model in an effort to push the National Manufacturing Policy.

“This can be done in any sector. This is a big idea that is emerging. The government is trying to find out smarter ways for creating more demand for the domestic industry. In terms of environmental clearances, all public sector projects are cleared now. We are now pushing for private sector clearances to fast-track the pending projects,” he added.

The idea was mooted by the National Manufacturing Competitiveness Council (NMCC) in a meeting on manufacturing chaired by Prime Minister Manmohan Singh on July 4. It was subsequently discussed when the PM convened the trade and industry council meeting on July 29, as an effective mechanism to revive growth.

“If we have to grow at eight-nine per cent yearly in the future, this has to come through sustained growth in manufacturing, particularly labour-intensive manufacturing. Manufacturing alone can absorb all those who need better livelihood opportunities,” Singh said at the July 4 meeting.

Fiscal deficit stood 4.9 per cent of the gross domestic product in FY13. The target for this financial year is 4.8 per cent.