Twenty years ago, I was among those involved in developing India’s public-private partnership (PPP) framework. It transformed airports, highways and ports, but also produced stressed assets following the global financial crisis and the domestic slowdown. As confidence waned, public capital expenditure replaced PPPs as the principal model for financing infrastructure. That retreat was understandable. It was also a mistake.AdvertisementToday, India faces a challenge far greater than the one we confronted two decades ago. By March 2025, the infrastructure pipeline had expanded to more than 13,000 projects with an aggregate value approaching Rs 185 lakh crore. Yet this is only a fraction of what will be required as India pursues the goal of becoming a developed economy by 2047. Simultaneously, it must finance the green transition — renewable energy, transmission, green hydrogen, climate-resilient cities and adaptation infrastructure. Recent estimates suggest that achieving net zero could require investments exceeding $20 trillion by 2070.No country has financed a transformation of this scale without mobilising vast pools of private capital. India’s leading corporates will develop and operate many of these assets, but their balance sheets cannot finance investments of this magnitude. India, therefore, needs not merely more capital, but a fundamentally different financing architecture.The central lesson from the first generation of PPPs is not that partnerships failed. It is that the financing model failed.AdvertisementInfrastructure assets generate economic value for 30-50 years. Yet many PPP projects were financed through bank loans with repayment schedules of just 7-10 years. Projects therefore carried their heaviest debt-service burden when revenues were most uncertain. When growth slowed after 2008, revenues underperformed while debt obligations remained fixed, contributing to rising NPAs and undermining confidence in the model.The central flaw was simple: Long-lived assets were financed with short-lived capital.The challenge today is no longer merely capital scarcity. It is capital circulation — matching the right capital to the right risk at the right stage of a project’s life cycle.Also Read | The Indo-Pacific is here to stay — with or without WashingtonGovernments are uniquely placed to finance high-risk phases such as project preparation, land acquisition and construction. But once projects stabilise, scarce public capital should not remain locked in mature assets. Ownership and financing should progressively migrate to investors whose liabilities naturally match long-duration infrastructure.The opportunity is enormous. Global pension funds, insurance companies and sovereign wealth funds control more than $110 trillion, much of it seeking stable, inflation-linked, long-term returns.India has already created the building blocks. InvITs have emerged as credible investment vehicles, while the National Investment and Infrastructure Fund has demonstrated the ability to attract global institutional capital. What is missing is a mechanism through which government capital, developer capital and institutional capital can continuously replace one another as project risks decline.This is where circular finance becomes relevant. Government-supported finance and developers should fund projects through construction. Once revenues stabilise, InvITs should acquire operational assets, allowing governments and developers to recycle capital into new projects. As risks decline further, high-cost bank debt should be refinanced through infrastructure debt funds and ultimately held by pension funds, insurance companies and other long-term investors. The cost of capital should decline as project risks decline.Today’s financing architecture often does precisely the opposite.you may likeThat is why the RBI should mandate dynamic risk-based repricing of infrastructure loans. Banks currently retain construction-stage risk premia long after projects have been de-risked, removing incentives for refinancing and capital recycling. Equally important is reviving infrastructure debt funds as the bridge between operational infrastructure and long-term institutional investors.Every rupee locked indefinitely in a mature infrastructure asset is a rupee unavailable for financing the next highway, transmission line or renewable-energy project.The first generation of PPPs sought to mobilise private capital. The second must ensure that the same capital finances successive generations of infrastructure. In an economy that must simultaneously build, decarbonise and maintain fiscal discipline, capital circulation may prove as important as capital mobilisation.The writer is former finance secretary, Government of India