Private Public Partnership (PPP) arrangements in long gestation infrastructure projects can inadvertently transfer unsustainable liabilities to the future, posing significant challenges for successive generations. Often, the allure of PPPs lies in their ability to leverage private sector efficiency and innovation while spreading financial risks. However, if not carefully structured, these partnerships may result in burdensome financial obligations that future generations must bear. For instance, lengthy concession agreements or overly optimistic revenue projections can saddle future taxpayers with debt or maintenance costs long after the project’s completion. To mitigate these risks and safeguard future capacities, several key arrangements must be established. Firstly, robust risk-sharing mechanisms and comprehensive feasibility studies should be conducted to accurately assess long-term financial implications. Additionally, transparent governance frameworks and periodic reviews can ensure accountability and prevent the accumulation of unsustainable liabilities. Furthermore, provisions for revenue-sharing arrangements and adequate contingency plans can offer resilience against unforeseen challenges, safeguarding the interests of future generations while promoting sustainable development.
Tag: Infrastructure: energy, ports, roads, airports, railways etc. Indian economy and issues related to planning, mobilization of resources, growth development and employment.
Decoding the question:
- In the intro, write about PPP.
- In Body,
- Discuss how PPP leads to stagnation in projects and transfer of burden on future generations.
- In the second part discuss the arrangements which capacities cannot be compromised.
- Try to conclude, write some suggestions particularly any committee’s recommendations.
Answer:
Private Public Partnership arrangements (PPP) as defined by the government of India is an agreement where a public sector entity (sponsored authority) and a private sector entity collaborate to manage or create a public infrastructure project.
Failing Scenario: As the World Bank database, India’s project failure rate is fast catching up with the rest of the developing world—it was about 2% till 2011, but increased thereafter to 34 projects valued at $13 billion (out of a total of 1,103 projects valued at $275 billion, or 3.1% by number of projects and 4.9% by value of projects, respectively).
Major causes for the failure of PPP Projects are:
- Land Acquisition: Difficulty in land acquisition leads to delay in operations. Further cost of acquisition and overhead due to delay make projects unviable.
- Regulatory Clearance: Mainly involvement of multiple agencies in coordination. Also, some of the regulations are strict in nature like environmental clearance.
- Disaster: The occurrence of a macroeconomic shock increases the likelihood of project cancellation (failure) from less than 5% to more than 8%, controlling for other variables. The Covid-induced macroeconomic shock is similar in its impact on PPP projects, from the demand and the supply side.
- Number of parties involved: Parties involved such as farmers, banks for financing and various government departments resulting in the delay in projects. For example, the Bullet train project land acquisition has not been completed in Maharashtra due to land acquisition issues.
- Complex relations: Involvement of various parties in the implementation of projects led to complexities. Negotiations with all the parties and bringing them all on the negotiations table made PPP projects implementation overall time-consuming.
- Financing issues: As infrastructure projects are long and time-consuming, banks are the largest financiers for most of the infrastructure projects, resulting in increasing NPA issues. These financing issues and long gestation period automatically transfer burden oncoming generations.
- Involvement of public sector: Involvement of public sector companies in infrastructure projects and their expenditure become government expenditure in various statistics books. Which is again criticised by economic experts that this leads to a burden on future generation through tax and other measures.
Way Forward:
- Single window clearance: To give permissions as fast as possible and give them a green signal to start the project, the Government needs to work on improving the single-window clearance mechanism. As India still lacks behind projects approval and registering properties as per Ease of Doing Business.
- Corporate bond markets reforms: As infrastructure development is time-consuming and time taking then corporate bonds will be very useful in financing infrastructure projects. As they will reduce the burden on financial institutions and further transfer the burden to the next generations. For example, borrowing from the market does not lead to a direct burden on the general public but it provides investment opportunities at the same time.
- Project implementation mechanism: As there is a need for a constant project implementation mechanism which will help in the review of the progress of infrastructure projects. This will also help in the involvement of people in overall project monitoring indirectly.
- Improving supply chain: Infrastructure projects need efficient supply chains as they need various raw materials for construction activities. The faster, efficient, and continuous nature of the supply chain will also help in improving the speed of project completion.
Thus, India improving or fastening executions of PPP projects need design overhauling and create a much better mechanism for its implementation. Various committees for reforms in various infrastructure projects such as Deepak Pareekh committee on Energy sector reforms. Infrastructure development projects need to align with ease of doing a business report and need to give greater emphasis on faster development of infrastructure.
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