Can India’s PPP model for infrastructure finally deliver on its promise?

INDIA’S INFRASTRUCTURE SECTOR has gone through some torrid times in the past two decades or so. The infrastructure push, which gathered momentum at the turn of the century during then Prime Minister Atal Bihari Vajpayee’s rule, came to a grinding halt within 15 years or so. The terminal years of the Congress-led United Progressive Alliance (UPA) government (2004-2014) saw land acquisition and funding snarls impacting projects, procedural delays in bidding, resultant litigations, and an all-encompassing policy inaction by the then government. This meant that a large number of mega projects, undertaken in alliance with the private sector, failed to see the light of the day.

With big projects failing to kick off (for instance, the Delhi airport metro and the Shivpuri-Devas expressway, among others), curtains were drawn on the public-private partnership (PPP) model of infrastructure development in the country.

When the BJP-led National Democratic Alliance (NDA) government came to power in 2014, the infrastructure ministries, specifically highways, railways, and power, held marathon meetings, reviewing each stalled project, as with them not taking off, the economy ran the risk of the non-performing assets (NPA) crisis only getting deeper.

Union road transport & highways minister Nitin Gadkari talks about the time when he used to hold late-night meetings with stakeholders of the highways sector — including developers and contractors — to keep projects on track. “We used to hold marathon meetings till 1 am… to infuse life into stalled highway projects. With the review and efforts towards revival, we saved banks from NPAs to the tune of ₹3 lakh crore in the highways sector alone,” he tells Fortune India.

Highway projects tendered on the build operate and transfer (BOT) Toll model during the UPA’s tenure were in dire straits; the situation was no different at other departments such as power and railways, among others. It was in this backdrop that the newly elected NDA government, under Prime Minister Narendra Modi, opted for Central funding of highways and other infrastructure projects in the country.

Between FY17 and FY25, the Central government has pumped in ₹37.10 lakh crore directly into the infrastructure sector, mainly on highways, railways, housing, and defence, among others. A lion’s share of the spending — ₹27,02,444 crore — was after Covid-19 (FY21-FY25) to keep the economy afloat amid disruptions due to the pandemic, which silenced the other engines of growth. With allocations worth ₹11.21 lakh crore for FY26, the government’s thrust on infrastructure continues.

Along with the intent to continue with public expenditure on infra, this year’s Budget has also sought to revive the PPP model-based infrastructure creation in the economy.

Finance minister Nirmala Sitharaman announced that all infrastructure ministries will come up with a pipeline for PPP projects. “Each infrastructure-related ministry will come up with a three-year pipeline of projects that can be implemented in PPP mode. States will also be encouraged to do so and can seek support from the IIPDF (India Infrastructure Project Development Fund) Scheme to prepare PPP proposals,” Sitharaman said in her Budget speech.

Based on interactions with the Central government, investment banking and capital markets firm Jefferies, in a research note dated March 3, said the highways sector is likely to see private investment, along with some traction in the power sector as well. “After the heavy lifting by the government over the last five years, the burden of incremental capital expenditure growth now rests with the private sector. To reduce the debt burden of the National Highways Authority of India (NHAI), the government has gone slow on capital expenditure for roads. Our meetings highlighted a renewed push for build operate and transfer (PPP-based) projects by NHAI in roads, which is expected to see private investments,” the Jefferies note said.

Meanwhile, the renewable power sector has seen improved economics with steady tariff bids, lower equipment costs and borrowing costs raising IRRs, which should keep the power sector capex high. “Private sector risk appetite, especially in the power sector, will get tested during the ongoing bidding process for the privatisation of two state-owned power distribution companies in Uttar Pradesh,” the note said.

Gadkari has set a lofty goal and the ministry is following the sprint. “Our endeavour is to have a better road network than the U.S. in the coming time. Also, with investments in infrastructure, our aim is to reduce the logistics cost in the country to 9% [of the GDP] within the next two years. Right now, the logistics cost in the country is around 16%, while that in the U.S. and Europe is 12%. This will boost our exports by one and a half times,” says Gadkari.

Going forward, along with the budgetary allocation of ₹2.87 lakh crore, the ministry of road transport & highways has been looking at reviving the BOT (Toll) projects for the past one year; in fact, it has been talking to stakeholders on how to make the model more investor-friendly. “We have held several rounds of discussions with the industry on making BOT (Toll) more attractive for the private sector,” says a source close to the development.

The source points out that the ministry has finalised a Vision 2047 plan for the development of a high-speed corridor network spanning 50,000 km, with the idea of providing access to a high-speed corridor within 100-150 km to every citizen. “A significant portion of the Vision plan is likely to be bid out in the BOT (Toll) mode,” the source says, adding that 46 BOT (Toll) projects spanning 5,200 km requiring investment to the tune of ₹1.8 lakh crore have been identified and bids will be rolled out soon.

Once this happens, it will be a major shift from the current mode of highway funding, which has been solely dependent on government funds for about a decade now. Currently, the projects are being awarded on engineering procurement construction (EPC) mode or hybrid annuity mode (HAM). Under EPC, the government fully funds a project while involving the private sector as a contractor.

Under HAM, the government provides funds for the project while the concessionaire arranges the rest and gets paid back in the form of an annuity payment. Under BOT (Toll) though, the developer bags the project on the basis of competitive bidding, funds it, and earns the revenue from the project for a concession period.

It may be noted that while the ministry plans to go big on BOT (Toll) in the future, the bidding model has also been slowly gaining traction in the overall project award profile this year. In FY25 till date, projects spanning 408 km worth ₹11,111 crore have been awarded under the BOT (Toll) model, according to data from the ministry. This may look minuscule in comparison to EPC (14,748 km; ₹4.06 lakh crore) and HAM (11,269 km; ₹4.36 lakh crore) but the BOT (Toll) model is all set to grow in the overall mix. It may be noted that the BOT (Toll) model on which highways are being awarded now has undergone a sea change from the earlier model.

Apart from highways, Modi 3.0 has a major focus on ports and shipping as well. The government in March 2025 cleared Sagarmala 2.0, with a new focus on shipbuilding, repair, breaking, and recycling. With budgetary support of ₹40,000 crore, it aims to catalyse investments worth ₹12 lakh crore over the next decade. Under Sagarmala, the government is executing 839 projects worth ₹5.79 lakh crore. Of this, 272 projects have already been completed at an investment of ₹1.41 lakh crore.

On Sagarmala 2.0, Union ports and shipping minister Sarbananda Sonowal said on March 19, “Sagarmala has been a game-changer in unlocking the true potential of India’s maritime sector. Under the visionary leadership of Prime Minister Narendra Modi, the huge value of the maritime sector, that had remained neglected for decades, was realised with Sagarmala. As we move towards Sagarmala 2.0, our focus is on bridging critical infrastructure gaps with fresh investments, driving coastal economic growth, and positioning India as a global maritime leader.”

The ministry has also drawn elaborate PPP plans, specifically aimed at terminal operations at the ports, as the country plans to boost cargo handling capacity to 10,000 million tonnes per annum (MTPA) by 2047, from 1,630 MTPA in March 2024. A source close to the development points out that the ministry will bid out private container terminals at the ports under the PPP model; it plans to operate all the terminals on PPP basis. In fact, global ports sector players have evinced interest in the domestic ports sector lately. A case in point is Hapag-Lloyd acquiring a 40% stake in J M Baxi Ports & Logistics Limited (JMBPL) in January 2023, with an aim to expand its presence in India and boost its terminal and infrastructure business.

The ministry of housing and urban development, too, is working on a PPP project pipeline, which largely envisages re-developing urban land parcels into residential and commercial real estate. Several models are being examined.

That said, the ministry of railways, which is working on an elaborate network expansion plan requiring investment to the tune of ₹11 lakh crore by 2030, is unlikely to opt for the PPP route, as such efforts did not succeed in the Sonnagar-Dankuni section of the Eastern Dedicated Freight Corridor project.