PPP projects get fresh push with new models, contracts, and oversight

As interest in PPP had tapered off, the pace of investment by the private sector in major projects had also taken a hit but the pace has picked up in 2025

The scope of public private partnership (PPP) projects to develop infrastructure in India is being redrawn almost from scratch. This has become necessary as the model, which was once the most preferred method to build mega projects, has languished in recent years. As the chart of the year-wise list of projects cleared by the PPP appraisal committee, the top decision-making body in the central government, shows, the rate had flagged since the Covid-hit year of 2020.

 

The slow pace was also visible in the low level of private sector capex in the economy. As interest in PPP had tapered off, the pace of investment by the private sector in major projects had also taken a hit.

 

Reversing the trend, in 2025 the pace has again shot up. The number of projects assessed by the project appraisal committee at 27 is almost the same as those for the previous four years. The committee is chaired by the secretary of the department of economic affairs in the finance ministry and brings in her colleague, secretary, expenditure, the secretary, Niti Aayog, secretary, legal affairs, and the departmental secretary concerned.

 

At the same time, the finance ministry advertised in July this year for setting up a panel of transaction advisers for the next lot of PPP projects. The role of the advisers, as the advertisement notes, will be to “carry out the entire bid process including preparation of transaction documents till onboarding of the concessionaire”.

 

The advertisement follows the FY25 Budget announcement to bring spark into this method of running projects. Finance minister Nirmala Sitharaman said in her speech “that each infrastructure-related ministry will come up with a three-year pipeline of projects that can be implemented in PPP mode, and states will also be encouraged to initiate and seek support from the India Infrastructure Project Development Fund (IIPDF) scheme to prepare PPP proposals”.

 

Unlike the simple project execution mode where the contractor builds a particular airport, port, a stretch of road or even a hospital, gets paid and moves on, the PPP mode means both parties stay invested in the project.

 

As a government document itself notes, to ensure adequate and quality infrastructure as a prerequisite for rapid and sustained economic growth, PPPs are critical. “They not only harness private capital in creation and maintenance of infrastructure but also introduce greater efficiencies in construction, operation and maintenance, and enhance the standards of delivery of infrastructure services.”

 

According to PPP experts, the slackening of the pace of these projects happened not because of Covid but when the central government tried to push ahead with the pace of capital expenditure, using mostly public money. This happened because the private sector withdrew from infrastructure investment, having splurged earlier using bank money to create an excess of leveraged investment. In sectors like road, the National Highways Authority of India ran up debt close to Rs 3 trillion, picking up stakes from unfinished projects besides offering excessive sweeteners like hybrid annuity as comfort to builders with thin balance sheets to bid for a large number of projects.

 

This was a significant change as India has been among the top implementers of PPP projects globally since the early nineties (see data).

 

Vinayak Chatterjee, chairman of the CII National Council on Infrastructure, a key commentator on infra issues, especially PPP, noted in one of his columns for this paper, “Almost all Indian corporations and commercial lending institutions are wary of investing in greenfield PPP projects, while foreign investors prefer operating brownfield assets.”

 

Without mentioning these explicitly, the new PPP documents of the government now also recognise the problem, noting there is a need for a new set of models of project implementation. As the level of interest in this long-term method of project execution waned, the name of the PPP cell was changed to Private Investment Unit in the finance ministry in 2023.

 

“PPP is an ever-evolving process where the relationship between the public and private sectors alters from time to time. The recent years have witnessed new PPP models of project implementation which help governments in meeting the ever-growing needs of quality infrastructure,” the document asking for empanelment of transaction advisers notes.

 

According to KV Pratap, former Joint Secretary (infrastructure) in the Union Finance Ministry, PPP investment has not recovered since the Covid pandemic. But he argues that since much of infrastructure investment was in the nature of sunk costs, risk mitigation for the private sector had to be done through standardised contracts, a process that was not followed in several cases since 2019. “In some cases this allowed for a sharp rise in user charges, like in the case of airports, which was not desirable.” The stress from the leveraged balance sheet and the walk-back on standardised contracts also led to diminished interest within the private sector for PPP projects. The possibility of a change in the contract became a problem, particularly for many state governments too, without the services of a specialised body to vet the documents and shield them from judicial challenges.

 

To overcome these shortcomings, the finance ministry now recognises the need to rewrite PPP projects. It has become more so since the finance minister has said line ministries too need to be partners in the process. As an official associated with the process said, it has to be also acknowledged that there are a number of legal, social, economic, political and administrative issues that have a bearing on the success of a PPP. “The prime responsibility to address these issues lies with the government. Private participation in infrastructure development requires governments to create an enabling ecosystem involving support through proactive planning, policy formulation and regulatory measures.”

 

It is this confidence that has made India welcome the PPP route again. In the discussions of the Brics Task Force on PPPs and Infrastructure in May this year at the UAE, the Indian readout said it regarded the mitigation of exchange rate risk and the preparation of projects for climate-resilient infrastructure, aiming to improve project readiness and increase private investment, as important takeaways from PPP. “Additionally, we welcome ongoing discussions on an information hub for infrastructure projects that can foster collaboration and enhance information sharing, and we encourage the Task Force to further explore this initiative.”