11th September 2025 (16 Topics)
Investment models
Context:
The Cabinet Committee on Economic Affairs has approved the construction of the 82.4 km Mokama–Munger section of the Buxar–Bhagalpur High-Speed Corridor in Bihar on Hybrid Annuity Mode (HAM) at a cost of ?4447.38 crore.
Types of Investment Models & PPP in India
Public Investment Model
- Definition: Government mobilises resources (mainly taxes and borrowings) to fund infrastructure and development projects.
- Role in Economy:
- Boosts aggregate demand (Keynesian role).
- Improves productivity via human capital formation and infrastructure.
- Encourages private investment by improving returns (crowding-in effect).
- Limitations: Fiscal deficit constraints, inefficiency in project execution, political interference.
- Examples: PM Gati Shakti, National Highways, Defence manufacturing units.
Private Investment Model
- Definition: Investment by domestic or foreign private entities (FDI/FPI).
- Advantages: Higher efficiency, innovation, competition, flexibility, scale economies.
- Challenges: Policy uncertainty, regulatory hurdles, infrastructure bottlenecks.
- Examples: Tesla’s plans for India (FDI), private equity in startups, foreign institutional flows into stock markets.
Public-Private Partnership (PPP) Model
- Definition: A cooperative arrangement between government and private sector for creating infrastructure and delivering public services.
- Features:
- Risk Sharing: Allocated based on efficiency.
- Open Competitive Bidding for transparency.
- Performance-linked payments.
- Government retains service responsibility ? not privatization.
- Relevance for India: Essential for infrastructure where public finances are limited (roads, ports, airports, metros, health, education).
Types of PPP Model:
|
PPP Model |
Full Form |
Ownership & Operation |
Risk Sharing |
Examples in India |
|
BOT |
Build–Operate–Transfer |
Private party builds and operates for concession period; ownership remains with government; transferred back after concession. |
Construction & operational risk with private; traffic/revenue risk may vary. |
NHAI highway projects (e.g., Golden Quadrilateral stretches). |
|
BOOT |
Build–Own–Operate–Transfer |
Private entity builds, owns, and operates during concession; ownership transferred to government after period. |
Higher risk on private due to ownership during concession. |
Power plants, ports (e.g., Mundra Port). |
|
BOO |
Build–Own–Operate |
Private entity builds, owns, and operates indefinitely; no transfer back. Government purchases services/output. |
All risks on private; govt ensures demand through offtake agreements. |
Power projects where private supplies power to state utilities. |
|
BOLT |
Build–Own–Lease–Transfer |
Private builds and owns, then leases asset to government for fixed period; later transfers back. |
Private takes construction/finance risk; govt ensures lease payments. |
Airports, telecom projects. |
|
DBFOT |
Design–Build–Finance–Operate–Transfer |
Private designs, finances, builds, and operates during concession; asset transferred later. |
Shared risk – design, finance, and construction by private; govt ensures regulation and viability gap funding (if needed). |
Expressway projects (e.g., Delhi–Meerut Expressway, Hybrid Annuity Mode also used). |
|
LDO |
Lease–Develop–Operate |
Govt leases asset to private entity for development and operation. Private invests in modernization and earns revenue. |
Private bears development/operational risk; govt retains ownership. |
Airports (Hyderabad, Bengaluru under GMR/GVK). |
|
OMT |
Operate–Maintain–Transfer |
Govt builds the asset, private operates and maintains during concession. Revenue collected through tolls/fees. |
Operation & maintenance risk on private; no construction risk. |
Highway tolling & maintenance contracts under NHAI. |
Challenges with PPP in India
- Contract disputes ? project delays.
- Land acquisition hurdles ? cost overruns.
- Crony capitalism ? politically connected firms dominate.
- Opportunistic renegotiations ? strain on exchequer.
- High NPAs in infra lending ? banking stress.
- Poor dispute resolution ? lack of investor confidence.
Vijay Kelkar Committee (2015) Recommendations
- Focus on Service Delivery: Not fiscal gains.
- Risk Allocation: Transparent and balanced.
- Viability Gap Funding (VGF): Prudent use to ensure bankability.
- Independent Tribunals: Infrastructure PPP Adjudication Tribunal (IPAT).
- Discourage Swiss Challenge Proposals: To prevent information asymmetry.
- Sector-specific Frameworks: Railways tariff regulator, urban transport.
- Governance: Transparency in SPVs, distinguish between error vs corruption.
- Financing: Allow Zero Coupon Bonds to improve infra funding.
- Capacity Building: PPP Centres of Excellence.
Way Forward
- Strengthen dispute resolution
- Develop robust model concession agreements (MCAs).
- Use Hybrid models (like HAM) to balance risks.
- Enhance institutional capacity of govt agencies in PPP contract management.
- Encourage PPPs in new sectors ? renewable energy, digital infra, water management, solid waste management.
- Align with SDGs & climate commitments ? green infrastructure financing.
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