Why India Needs a Circular Future for Public–Private Partnership (PPP) Finance
Redesigned PPPs, capital-transition planning, and MDB-backed guarantees are key to delivering climate-aligned growth
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Dr. Arvind Mayaram: Chairman, Institute of Development Studies, Jaipur.
SDG 9: Sustainable Cities and Communities
Institutions: Ministry of Finance
Emerging markets today face an unprecedented financial squeeze. Public and private debt levels have surged sharply, limiting governments’ ability to fund essential infrastructure. Recent International Monetary Fund (IMF) data show that emerging markets and developing economies have seen their total debt rise by nearly 5 percentage points. Private borrowing increased from 120 percent to 123 percent of GDP, while public borrowing rose from 67 percent to 69 percent of GDP. Global public debt is projected to reach 100 percent of global GDP by the end of this decade, surpassing even the pandemic peak.
In this fiscal environment, the traditional model – sovereign borrowing supplemented by concessional multilateral loans – can no longer meet the scale of climate-aligned infrastructure required. A fundamental shift in financing models is now unavoidable.
PPPs at a Crossroads
The UN Sevilla Commitment – a global agreement adopted in Seville, Spain, to create a new roadmap for financing sustainable development by addressing the estimated $4 trillion annual funding gap – reiterates that well-designed PPPs remain essential for mobilising private capital and expertise for the SDGs. Yet the deeper challenge is structural: PPPs must be redesigned so that scarce capital does not stagnate within individual projects. Instead, it must move continuously and predictably across stages, sectors, and investors.
Without this redesign, PPPs will remain too slow, too rigid, and too small for the scale of investment emerging markets require.
Why Circular Finance Must Replace Linear Models
This is where circular finance – a framework I have developed in my recent work – becomes critical. Circular finance views capital as something that must flow, not accumulate. Funds move from public to private, from concessional to commercial, and – most importantly – from completed projects into new ones through structured exit pathways. This dynamic movement allows each dollar to be reused and redeployed, multiplying impact at a time when fiscal resources are shrinking.
Breaking the Logjam in Today’s PPPs
Most PPPs still follow a linear blueprint. Governments take early risks. Private developers build. Multilateral Development Banks (MDBs) lend long-term. Institutional investors – holding vast pools of patient capital – remain on the sidelines because they cannot see predictable entry or exit points. This immobilises capital and prevents scale. MDBs remain end-stage lenders, private investors face opaque risk allocation, and asset-transition structures are weak or absent.
How Circular PPPs Work
Circular PPPs restructure capital flows. Early-stage risks – feasibility, land, clearances – are funded through concessional or MDB support. Construction is financed through blended equity and debt supported by guarantees or first-loss tranches. Once stabilised, projects are securitised into Infrastructure Investment Trusts (InvITs), green bonds, infrastructure debt funds, or pooled vehicles. Institutional investors enter at this stage, while early-stage investors exit and recycle capital into new projects.
India’s InvITs, the National Investment and Infrastructure Fund, and hybrid-annuity PPPs show that such circular models can work at scale.
Creating a Circular Ecosystem
To mainstream circular PPPs, countries need an enabling ecosystem anchored in the United Nations Economic Commission for Europe’s (UNECE’s) recommended tools but applied in sequence, not isolation.
First, credit enhancement must be central to MDBs and Development Finance Institutions (DFIs) strategies. Partial guarantees, political risk insurance, and subordinated tranches can unlock institutional capital even in high-risk environments.
Second, every PPP must include a clearly defined capital-transition plan – mapping movement from concessional to blended to securitised finance. Unclear transitions remain one of the biggest barriers to private investment.
Third, harmonised capital-market standards are essential. Without common rules for disclosure, governance, and securitisation, cross-border institutional investment in infrastructure will remain limited.
Governments as Architects of Risk Sharing
Governments must shift from being guarantors of last resort to designers of credible risk-sharing frameworks. This requires regulatory stability, structured credit-enhancement mechanisms, and robust securitisation pathways. Domestic capital markets must be strengthened, pension and insurance regulations modernised, and project-preparation facilities expanded to ensure bankable pipelines.
The Case for Capital Recycling
Given severe fiscal constraints, capital recycling, not capital accumulation, must anchor infrastructure strategy. Circular financing enables the same rupee or dollar to support multiple projects. MDBs must transition from lenders to leverage multipliers by scaling up guarantees and risk-transfer tools. Asset recycling – through InvITs, Real Estate Investment Trusts (REITs), bonds, and securitisation – should be adopted nationally, while regional pooled vehicles and redesigned Just Energy Transition financing can further lower the cost of capital.
A Circular Future for Climate Action
Sustainable PPP finance will not scale by adding new tools to outdated frameworks. We must redesign the architecture itself to allow capital to move continuously and intelligently. Circular finance offers precisely this approach. By embedding circularity into PPP design, reforming MDB incentives and harmonising capital markets, PPPs can become powerful engines of climate-aligned development – capable of accelerating SDG progress and unlocking large-scale private investment when it is needed most.
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