How private participation boosted India's infrastructure build-out

Three decades after liberalisation, private capital, PPPs and policy reforms have transformed India's infrastructure landscape, powering connectivity, logistics and large-scale investment

In 1996, five years after economic liberalisation, economist Rakesh Mohan, then the director general of the National Council of Applied Economic Research (NCAER), submitted a document to the finance ministry that redefined India’s infrastructure.

Citing global trends and India’s ambitions to supercharge its economic growth, Mohan’s India Infrastructure Report called for more private sector participation in a space dominated till then by the government and paved the way for several reforms that India undertook in the coming years. 

The report estimated India’s required investments in infrastructure in the next five years at ₹4.5 trillion, and said the share of private investments needed to rise to 44 per cent, from just 5 per cent when the report was prepared. 

In the years that followed, governments realised that opening up the creaking infrastructure sector was absolutely necessary because the scale of investments simply could not be met with public investment alone. 

What came next, particularly during the National Democratic Alliance government headed by Prime Minister Atal Bihari Vajpayee, was a slew of big-ticket projects that boosted connectivity, including the Golden Quadrilateral, which some contemporary observers called the biggest such project since the Grand Trunk Road built by Sher Shah Suri in the 16th century. Around that time, the government also allowed the entry of private players in ports, with Pipavav becoming India’s first privately operated port. 

NHAI: A beginning 

The drive to professionalise the management of the infrastructure began earlier. But a lot of this remained on paper. The National Highways Authority of India Act was passed in 1988, but it took seven more years to formalise the National Highways Authority of India (NHAI). 

“In many ways, that was the first step in India’s infrastructure liberalisation journey. Nothing much happened before NHAI, barring a few experiments here and there,” says Parvez Umrigar, a veteran of the roads and highways sector who spearheaded operations at some of these early-moving firms at that time. 

In assets like roads and ports, it is essential to develop and cultivate a complete system and build investor confidence slowly. India used the decade after reforms for that purpose, experts say. “In most infra sectors, projects and initial guidelines were devised first and the regulatory frameworks evolved later,” says Kuljit Singh, Partner and National Infrastructure Leader at Ernst and Young. 

Those efforts helped. Three-and-a-half decades after the country liberalised its economy, most chief executive officers (CEOs) of infrastructure and logistics companies say the transformation of the sector is visible in the private sector participation, global partnerships and new sources of capital. Executives say the changes laid the foundation for public-private partnerships, modern logistics networks and large-scale infrastructure development, supporting India’s manufacturing, trade and urbanisation ambitions. 

With the reforms boosting India’s merchandise trade — from $42 billion in 1990-91 to over $1.2 trillion in 2025-26 — major ports handled more than 900 million tonnes of cargo in FY26. The country today has 13 major ports and over 200 minor and intermediate ports. “Thirty-five years ago, India made a defining choice to liberalise its economy, unleash entrepreneurship, and integrate with the world. The 1991 reforms transformed the country’s economic trajectory,” says Hemant Kumar Ruia, country manager subcontinent (India), DP World, which established India’s first private port partnership at Nhava Sheva  International Container Terminal in 1997.  

The arrival of the MCA 

Another product of reforms was the model concession agreement (MCA), which came into being in 2000, along with all-India standardised toll rates and escalation policy. This was a standard document to be followed in all public-private partnership (PPP) projects, and was the foundation for the subsequent boom in the sector. 

Bids under 100 per cent private BOT (build, operate, transfer) projects were initiated in 1997, with the Durg bypass in Chhattisgarh being the first PPP project. The bidding process took off significantly by around 2002-03. In 1996-97, private port concessions were conceptualised and awarded in 1998. 

The formalisation of policies led to an increase in project bundling and project sizes, marking a shift from smaller, item-rate Public Works Department (PWD)-style works to larger, more complex infrastructure projects, says Devayan Dey, Partner at consulting firm PWC. 

“This transition, in turn, created a need for higher capability, better execution capacity, and modernisation within the private sector,” he adds. Dey believes that the sector’s progress, especially in construction and engineering of complex projects, should not merely be seen in a direct causal way. 

Modernisation was supported by the easing of licensing requirements and import restrictions. Even today, a significant share of construction equipment is imported, which has helped build domestic capacity to execute large and complex projects more effectively, he says. 

The development of PPP was also the result of the serious interest several foreign funds showed in Indian assets, especially roads. For example, Malaysian engineering company Gamuda was among the first investors in Indian infrastructure, recalls Umrigar. It emerged the lowest bidder for the Durgapur Expressway project, between Dankuni and Palsit in West Bengal in 2002. 

“On the back of privatisation, liberalisation and globalisation, the economy began developing global linkages and manufacturing and exports received a broader growth runway,” says Shashi Kiran Shetty, founder and chairman of Allcargo Group. He adds that private sector participation played a significant role in the development of roads, airports, ports and railways, contributing to greater efficiency and connectivity. 

Subsequent reforms — including the goods and services tax, the National Logistics Policy and the PM Gati Shakti National Master Plan —built on this to boost efficiency, capability and connectivity. The biggest structural change was that faster economic growth after liberalisation generated infrastructure demand that the state alone could not satisfy, according to Dilip Suryavanshi, CMD of Dilip Buildcon. 

Infrastructure evolved from buildings and roads to include highways, railways, ports, water networks, power transmission, renewable energy and mining. The changes also enabled the ecosystem required to meet these needs. This included deepening the domestic and international capital markets, access to global technology and expertise, and the emergence of financing structures that supported long-duration infrastructure assets.  

“The single most transformative opportunity liberalisation created was the democratisation of capital. Infrastructure financing evolved from being primarily a government function to a broader ecosystem supported by debt markets, equity markets, PPP structures and institutional investors,” Suryavanshi says. 

Among the structural changes that were introduced after the reforms were transparent bidding processes, project monetisation opportunities, improved access to financing and technology-driven execution models, says Ramneek Sehgal, chairman and managing director of Ceigall India. 

The PPP problem & the cleanup 

However, the resulting infrastructure boom of the early 2000s came up against severe constraints towards the end of the decade. With foreign investors and domestic developers pouring money into PPPs, bids became too aggressive, and coupled with the global financial crisis, the infrastructure dream came crashing down with the “Twin Balance Sheet” problem of some firms taking on too much debt that could not pay back, burdening banks with bad loans. 

The BOT model, where the private developer undertakes all the risk, saw issues and private sector investments, particularly in greenfield assets, disappeared as investors became too risk-averse. In the roads sector, several prominent players pulled the plug on their plans over delayed clearances. That prompted the United Progressive Alliance government to set up the National Investment Board — a fast-track clearance mechanism. 

The clean-up required extensive efforts and coordination between line ministries, banks, and the finance ministry. The current Highways and Road Transport Minister, Nitin Gadkari, who came into office in 2014, has said though the clean-up with banks and contractors ran for some time, it eventually culminated in the newly-formed NDA government saving banks from non-performing assets worth over ₹3 trillion. 

Following a capex-led plan to revive the economy after the Covid-19 pandemic, the government embarked on a plan to revise PPP by recasting MCAs across ministries, an exercise that continues. Recently, the highways ministry removed the option of arbitration (for projects over ₹10 crore) from the BOT model, and the industry has threatened to pull out. Ports, experts say, have been examples of successful liberalisation. India today aims to take 85 per cent of its state-run port capacity to private players by 2030. 

Overall, India’s infrastructure boom has largely found favour among foreign investors, who are keen to pour money into operational assets with stable returns. Towards that end, the government has allowed the creation of infrastructure investment trusts in which investors, domestic and foreign, can pump money. 

“There’s an opportunity for Indian investors to really gain from the growth in InvITs, as developers will only keep limited projects with them, considering their capital recycling needs to undertake new projects,” says Umrigar.