Q14.Explain how Private Public Partnership arrangements, in long gestation infrastructure projects, can transfer unsustainable liabilities to the future. What arrangements need to be put in place to ensure that successive generations’ capacities are not compromised?

Public-Private Partnerships (PPPs) in long-gestation infrastructure projects, while leveraging private capital, risk transferring unsustainable liabilities to future generations.

Unsustainable Liabilities

• Government guarantees (e.g., minimum revenue, debt servicing) and contingent liabilities (e.g., termination payments) shift project risks and debt to the public exchequer.
• Off-balance sheet financing obscures true fiscal exposure, leading to unforeseen debt burdens and reduced fiscal space.
• Poor risk allocation, with the public sector bearing disproportionate risks (e.g., demand, construction), compromises future generations' capacity to fund essential services.

Ensuring Inter-generational Equity

• Establish equitable risk allocation frameworks based on the 'best risk bearer' principle.
• Implement robust regulatory oversight, independent project appraisal, transparent procurement, and public disclosure of all financial commitments.
• Enforce strict fiscal responsibility norms, cap contingent liabilities, and build government capacity for effective PPP negotiation and monitoring.

Proactive measures are crucial to prevent unsustainable liabilities, safeguarding future fiscal health and development capacity for successive generations.