India's Public-Private Partnerships (PPPs): Lessons and Future Directions

India’s experience with Public-Private Partnerships (PPPs) has been mixed. Successful PPPs can transform infrastructure delivery, while poorly structured ones can significantly delay development. During the 2000s, PPPs were crucial, with private investment making up almost 37% of infrastructure spending during the Eleventh Plan (2007-12). However, many projects became distressed due to factors like flawed risk allocation and aggressive bidding.

Challenges With PPPs

• By the mid-2010s, many PPP projects faced delays due to land acquisition issues, weak growth, and rising costs.
• Risk allocation was problematic, with too much risk transferred to the private sector.
• Lack of a renegotiation framework led to stranded projects.

Current Infrastructure Strategy

The Union Budget reiterates infrastructure as a growth driver but does not address how to revive PPPs critically. With limited public finances, PPPs are essential, yet private investment has decreased. A three-year PPP pipeline of 852 projects worth ₹17 trillion has been announced, dominated by highway projects.

Reform Agenda for PPP Revitalization

• Realistic risk allocation: Assign risks to those best able to manage them.
• Renegotiation frameworks: Contracts should allow structured renegotiation.
• Stronger PPP institutions: Reinforce infrastructure finance bodies for capacity building.
• Streamlined project appraisal: Implement single-window appraisal and standardized value-for-money tests.
• Financial backstops: Use viability gap funding and infrastructure risk-guarantee funds to reduce costs.
• Regulatory certainty: Ensure stable tariffs and fast-track dispute resolution mechanisms.
• Empower states and cities: Strengthen state PPP cells and provide reform-linked incentives.
• Active investor engagement: Engage investors proactively to rebuild confidence.
• Expanding PPPs: Tailor PPP models for various sectors like urban transport and energy transition.

Conclusion

India's infrastructure challenges now focus on risk management and service quality rather than just asset creation. Previous PPP failures were due to design and governance weaknesses. The future of India's infrastructure should involve credible contracts and balanced risk-sharing. Reviving PPPs is essential for India's path to becoming a Viksit Bharat.

Contributors: The author is an infrastructure expert and founder of The Infravision Foundation, with research inputs from Mutum Chaobisana.