Model Answer

Introduction

Public-private partnerships (PPPs) are collaborative agreements between public and private entities designed to share risks and benefits in delivering public services and infrastructure. While PPPs can enhance efficiency and innovation, their application in long-gestation infrastructure projects can lead to the transfer of unsustainable liabilities to future generations.

Risks of PPPs in Long Gestation Projects

1. Asset-Liability Mismatch
   • Fact: Long gestation periods increase the risk of asset-liability mismatches, leading to a rise in Non-Performing Assets (NPAs) among banks financing these projects, particularly public sector banks (PSBs).
   • This situation results in liabilities being shifted to taxpayers as NPAs become a burden on public finances.
2. Delays and Cost Overruns
   • PPP projects often face delays due to land acquisition issues and procedural bottlenecks. These delays contribute to cost overruns, making projects financially unviable.
   • Such cost increases not only strain current budgets but also impose future financial burdens on subsequent generations.
3. Lack of Regulatory Framework
   • The absence of a comprehensive regulatory framework for PPPs in India leads to transparency and accountability issues, exacerbated by prolonged litigation.
   • These complexities add to project costs and the risk of defaulting on loans, further transferring financial liabilities to future taxpayers.
4. Recommendations from the Vijay Kelkar Committee
   • The committee suggested establishing independent sector-wise regulators to enhance oversight and accountability in PPP projects.

Ensuring Sustainable Arrangements

To mitigate these issues and protect future generations, the following arrangements should be implemented:

1. Alignment with Broader Infrastructure Plans
   • Ensure that projects align with a comprehensive infrastructure strategy that considers fiscal sustainability to prevent unsustainable liabilities.
2. Rigorous Project Evaluation
   • Implement rigorous evaluation methods and cost-benefit analyses during project planning to identify potential risks and ensure financial viability.
3. Clear Institutional Framework
   • Develop a robust institutional framework that clearly defines the rights and obligations of all parties involved, accompanied by an effective dispute resolution mechanism.

Conclusion

While PPPs hold potential for addressing financing and infrastructure challenges, careful planning and regulation are essential to prevent the transfer of unsustainable liabilities to future generations. By implementing comprehensive frameworks and evaluations, India can leverage PPPs effectively without compromising the financial stability of its citizens.