What USAID India is Learning From Working with Private-Sector Partners to Improve the Delivery of Public Services

Many USAID Missions grapple with the question of how to engage the private sector in its work with public service sectors. Working with USAID INVEST, USAID India has been assessing the private-sector landscape to determine which types of engagement can lead to sustainable improvements in the delivery of WASH and education services.

To learn more about USAID India’s work with private sector engagement and public-sector services, please join the INVEST webinar, Putting the Private Sector to Work for Public Services, on May 19, 2021 at 9:30 EST. Register here.

By Emily Langhorne, INVEST Communications Specialist

When it comes to achieving the 2015 Sustainable Development Goals targets for education, energy, housing, and water, sanitation, and hygiene (WASH), government and donor resources alone will not be sufficient for financing and implementing solutions. As a result, governments around the world are reexamining their policies around the delivery of critical public services and working to create an enabling environment that can leverage more funds into these areas.

Seeking additional financing to achieve their development goals, many of these governments have recognized the need for private-sector capital and expertise. Over the past two decades, new policies have enabled an increase in private sector involvement in achieving development outcomes; however, the complexities of navigating public services sectors and perceived risks can deter private sector partners from participating in these projects.

Many USAID Missions grapple with the question of how to engage the private sector in its work with public service sectors. After all, the nature of public services — and the accompanying regulations, quality standards, and pricing mandates — often dictates where the private sector can be engaged, what investments are viable, and what type of investors may be interested.

Working with USAID INVEST, an initiative that mobilizes private capital for better development results, USAID India has been assessing the private-sector landscape for its WASH and education sectors to better understand the appropriate areas for private sector involvement and the types of private sector engagement vehicles that will lead to sustainable improvements in the delivery of services.

“When working with the delivery of public goods and services, there’s a layer of complexity in engaging the private sector because government regulations, licensing, and contracting norms can create significant barriers for engagement,” says INVEST Strategic Investment Advisor Eric Adams, who oversees these activities. “However, the potential results of private sector involvement are cost effective and efficient delivery of basic services that can transform lives. Performing landscape assessments in these sectors has been USAID India’s first step to better understanding the opportunities for private sector engagement and investment.”

Improving Educational Outcomes by Working with Private Sector Partners

Throughout India, access to primary education is nearly universal; however, recent studies show that the quality of that education fails to meet the basic needs of students. India’s 2019 Annual Status of Education Report revealed that, among third graders, 49 percent could not read at a first-grade level, nearly 30 percent could not recognize 2-digit numbers, and 80 percent could not complete pre-primary level cognitive tasks, such as completing a puzzle or putting physical items in a series ordered by size.

Less than half of the nation’s children attend public schools, but education and development experts recognize that the current outcomes require a move away from small scale projects to more intentional focus, large scale “state-level” system reforms, especially in Early Childhood Care and Education (ECCE). Furthermore, the Government of India has recently made efforts to create systemic change in the basic education sector. In 2020, the Government of India adopted a national education policy, and now each state is working to adapt and implement it.

Through INVEST, USAID India has partnered with Boston Consulting Group(BCG) to assess how public schools can leverage private sector resources to improve ECCE. As a part of the landscape assessment, BCG is analyzed each state’s budget, development partners, implementation strategy, and public-school sector and identified three states that have the most promising enabling environment and are best positioned to engage the private sector as they implement the new education policy.

At the same time, BCG is also examining financial instruments and actors that could help drive improvement in education in India by examining tools previously used in the development and education sector.

What do these financing instruments look like? The creation of an education-focused development impact bond in which donor agencies pay back investors if the educational goals are met? Or a vehicle that provides debt and equity financing to companies that can provide products and services to drive improvements in four key educational areas: teacher training, assessment, pedagogy and content, and data tracking? Their shape will depend on the needs of each state and its enabling environment, and BCG will be ready to share recommendations with USAID and others in May 2021.

“The private sector can play a critical role in improving public education,” explains Garima Batra, Partner at BCG. “First, they can provide services in these four key areas where public education systems have capacity gaps, and they can strengthen the inherent capacity of state departments in these areas to ensure long term sustainability. In addition, the private sector has played a key advisor role in recent times to state leadership on systemic transformation efforts across academic and administrative areas. Finally, the private sector has a significant role as funders of some of these private sector engagement efforts as well as in developing public goods that many state systems can leverage, such as digital teaching tools.”

By looking at the viability, risks, and impact potential of different financing instruments, BCG will help USAID prepare for the activity’s third stage, in which a variety of education stakeholders will inform the best strategy for mobilizing private investment for education in the selected states.

Engaging the Private Sector to Increase the Quality of WASH Services

USAID India is also working with INVEST to assess the opportunities for private sector engagement in the delivery of WASH goods and services. India faces a funding gap of approximately $291 billion in water and wastewater investments, and most improvements to date have focused on infrastructure development rather than service provision outcomes and financial sustainability.

Under INVEST, Unitus Capital, an India-based firm with deep experience in development finance, and SATTVA, an India-based firm with extensive WASH experience, are examining the challenges and opportunities for private sector engagement in the WASH sector and recommending financing vehicles to improve and increase access to services.

“The private sector plays an important role in any industry when it comes to building scalable and, more importantly, sustainable businesses,” explains Richa Natarajan, Director at Unitus Capital. “In WASH, government interventions are important in projects with longer gestation periods that provide a public good and require larger capital outlays, but private sector actors can also play a catalytic role in innovation, newer technologies, affordable products, and improved service quality. All of this can be done through clear and effective partnerships with the government.”

USAID India’s initial WASH assessment is focused on four states and Unitus and SATTVA are conducting research specific to the opportunities and challenges distinct to each region. Ultimately, the landscape assessment will identify small and medium-sized enterprises (SMEs) that have the capacity to deliver WASH services in urban and peri-urban areas and could benefit from USAID support. The financing vehicles recommended will address the constraints these SMEs traditionally face when attempting to access financing and suggest appropriate tools, such as guarantees, blended finance funds, technical assistance, and transaction advisory services, to help them overcome these long-standing barriers.

“Support for WASH can come from donors and foundations but also through lenders and equity investors,” says Natarajan. “Each of these pools of capital is important for small businesses creating solutions to address complex problems. USAID’s initiative to further private sector involvement in the WASH sector in India is a welcome move and one that will help strengthen this space, spur additional innovation, and allow for more capital flow to private sector actors working to solve these problems.”