Budget 2025: PPP, asset monetisation open door for private sector

FM proposes Rs 1.5 trn outlay for 50-yr interest-free loans to states for capex

Continuing with the previous Budget’s trend of passing the baton of infrastructure growth from the Centre to states and the private sector, the Union Budget 2025-26 has opened gates of investment across sectors. The Budget has laid special emphasis on exploring the ‘public-private partnership (PPP)’ model in key areas, such as housing and power infrastructure. Traditional sectors, such as roads and railways, were notably absent like last year’s Budget.

 

At the outset of her speech, Union Finance Minister Nirmala Sitharaman listed private sector investment as one of the five focus areas of the government’s agenda. Among the six transformative areas identified, housing received the highest priority within the infrastructure sector, followed by power and mining. Only housing and shipping saw a significant increase in capital expenditure. 

 

 

PPP and asset monetisation open doors for private sector 

 

Sitharaman announced that infrastructure ministries would be required to compile a list of projects that could be implemented through the PPP model over a three-year period. She added that states would be encouraged to do the same and could seek support from the India Infrastructure Project Development Fund (IIPDF) to develop PPP proposals.

 

Additionally, she proposed an outlay of Rs 1.5 trillion for 50-year interest-free loans to states for capital expenditure, along with incentives for structural reforms. 

 

Sitharaman also announced the second phase of the Centre’s asset monetisation plan, first launched in 2021. The new phase, she said, will be launched to plough back capital of Rs 10 trillion in new projects. Regulatory and fiscal measures will be fine-tuned to support the plan, she said.

 

The National Monetisation Pipeline (NMP), which formed the base of the plan, listed core assets of Central government ministries/public sector enterprises for monetisation during the 2021-22 to 2024-25 period. It included assets with monetisation potential of Rs 6 trillion during the four-year period.  For the initial two years, the target was Rs 2.5 trillion, of which it achieved Rs 2.3 trillion worth of monetisation. During 2023-24, it achieved Rs 1.56 trillion of the targeted Rs 1.8 trillion.

 

 Better cities and modified UDAN scheme

 

The FM said this 2025-26 Budget will build on the announcements made in the previous Budget last year in areas of urban planning. “The government will set up an Urban Challenge Fund of Rs 1 trillion to implement the proposals for ‘Cities as Growth Hubs’, ‘Creative Redevelopment of Cities’ and ‘Water and Sanitation’ announced in the July Budget.”

 

She said this fund will finance up to 25 per cent of the cost of bankable projects with a stipulation that at least 50 per cent of the cost is funded from bonds, bank loans, and PPPs.  A budgetary allocation of Rs 10,000 crore is proposed for 2025-26.

 

Sitharaman also announced that a “modified UDAN scheme” will be launched to boost regional air connectivity to 120 new destinations and carry 40 million passengers in the next 10 years. 

 

The original UDAN scheme was launched in 2016. Under this scheme, financial incentives -- through viability gap funding -- are extended from the Centre, state governments, and airport operators to selected airlines to encourage operations from unserved and underserved airports. The finance minister said that the modified scheme will also support helipads and small airports in hilly and north-eastern India.

New distribution reform aimed at PPP in discoms  The Finance Minister, in her Budget speech, said reforms in state level power transmission and distribution infrastructure would be incentivised. “Additi–onal borrowing of 0.5 per cent of the GSDP will be allowed to states, contingent on these reforms,” she said. The Budget documents revealed a new ‘reforms-linked distribution scheme’ which was allocated Rs 16,021 crore. It will aim at reforms in the power distribut–ion sector through public private partnership models.