The Public-Private Partnership (PPP) is a commercial legal relationship and a concept defined by the Government of India in 2011 as an arrangement between a government entity and a private sector entity. It is a long-term contractual agreement for the provision of public assets or services, such as infrastructure projects. The concept emerged to solve the problem of India's massive infrastructure deficit and the government's limited resources, by leveraging private sector efficiency, investment, and expertise. While early instances of private investment in public projects, like the British-era railroad, are noted, formal attempts to promote PPPs began in the 1990s during economic liberalization, with the first projects implemented in the early 2000s.
The mechanism works through a formal contract that includes a well-defined allocation of risk between the public and private partners. The private entity, selected through open competitive bidding, receives performance-linked payments benchmarked to pre-determined standards. Common models include Build-Operate-Transfer (BOT), where the private player builds, operates, and then transfers the asset, and the Hybrid Annuity Model (HAM), where the government provides 40% of the project cost during construction.
A key related institution is the Public Private Partnership Appraisal Committee (PPPAC), formed in 2006 to oversee and evaluate central government PPP projects. The Viability Gap Funding (VGF) Scheme, launched in 2005 and revamped in November 2020, is a financial mechanism that provides grants, typically up to 20% of the total project cost, to make financially unviable infrastructure projects sustainable. Recently, the framework has seen changes, including the launch of the National Monetisation Pipeline in 2021 to boost infrastructure through PPPs. Furthermore, there is a renewed push to revive the BOT-Toll model by considering additional financial support beyond the 40% VGF cap and ensuring 95% of land is available before construction to mitigate risk. The PPP Cell in the Ministry of Finance was also changed to the Private Investment Unit in 2023.