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Govt aims to revive private investment in highway construction

February 16, 2026 4 min read Economics GS Paper 3
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What Happened

  • The central government is preparing new rules to revive private investment in highway construction, a decade after investors retreated due to revenue risks and bureaucratic delays.
  • The framework targets awarding highway projects worth Rs 1 trillion (approximately $11 billion) to the private sector by fiscal year 2027.
  • Between April and November 2025, only 1% of highway projects were awarded under the Build-Operate-Transfer (BOT) Toll model, while the Hybrid Annuity Model (HAM) and Engineering, Procurement and Construction (EPC) contracts accounted for 99% of the 26,425 km of roads awarded.
  • The new norms address industry grievances including delays in mandatory approvals and competition from parallel road projects that eroded toll revenues.
  • The government aims for private investment to account for up to 25% of highway development next year, compared to the current low single-digit share.

Static Topic Bridges

Build-Operate-Transfer (BOT) Model in Indian Infrastructure

The BOT model is a form of Public-Private Partnership (PPP) where a private entity builds, operates, and maintains infrastructure for a specified concession period (typically 10-15 years) before transferring ownership to the government. Under BOT-Toll, the developer recovers costs through toll collections from users, while under BOT-Annuity, the government pays a fixed amount to the developer over the concession period.

  • BOT-Toll was the dominant model for highway construction between 2007 and 2014, accounting for 96% of all projects awarded in 2011-12.
  • The model declined sharply due to unrealistic traffic projections, financial stress in the banking sector (rising NPAs), land acquisition delays, and declining private sector confidence.
  • By 2016, BOT-Toll awards had virtually ceased, prompting the government to introduce the Hybrid Annuity Model (HAM).
  • Under HAM, the government bears 40% of project cost during construction and pays the remaining 60% as annuity payments over the operations period, significantly reducing private sector risk.

Connection to this news: The government's new framework aims to bring back BOT-Toll by addressing the structural grievances that led to its decline, including revenue protection mechanisms and allowing investment funds to bid directly for projects, aligning India with global infrastructure financing practices.

National Highways Authority of India (NHAI) and Highway Financing

NHAI was established in 1988 under the NHAI Act but became operational in 1995. It is an autonomous body under the Ministry of Road Transport and Highways responsible for the development, maintenance, and management of National Highways entrusted to it. NHAI has been the primary implementing agency for highway expansion, including the National Highways Development Project (NHDP) and Bharatmala Pariyojana.

  • India's national highway network spans over 1,46,000 km, carrying about 40% of total road traffic.
  • Bharatmala Pariyojana (Phase I), approved in 2017, targets 34,800 km of highway development at an estimated cost of Rs 5.35 lakh crore.
  • NHAI has increasingly relied on government-funded models (HAM and EPC) since 2016, leading to a fiscal burden on the exchequer.
  • NHAI's debt stood at approximately Rs 3.4 lakh crore in 2024, prompting the need to shift risk back to the private sector through revived BOT models.

Connection to this news: Reviving BOT-Toll is critical for NHAI to reduce its debt burden and achieve the government's ambitious highway targets without straining public finances, making private capital essential for sustainable highway expansion.

Public-Private Partnership (PPP) Framework in India

India's PPP framework for infrastructure development has evolved significantly since the 1990s. The Kelkar Committee (2015) recommended reforms to revitalize PPPs, including a balanced risk allocation between public and private sectors, while the Vijay Kelkar-Rajiv Mehrishi Committee specifically addressed the need for a revised PPP model for highway projects.

  • The PPP Appraisal Committee (PPPAC) under the Department of Economic Affairs evaluates and approves all PPP proposals above Rs 100 crore.
  • The Viability Gap Funding (VGF) scheme, introduced in 2004, provides government grants of up to 20% of project cost (extendable to 40% with state contribution) to make commercially unviable but socially desirable projects attractive to private investors.
  • Infrastructure Investment Trusts (InvITs), introduced by SEBI in 2014, allow developers to monetize operational assets and recycle capital into new projects.
  • NHAI's first InvIT (2021) raised Rs 5,100 crore by monetizing toll roads.

Connection to this news: The government's decision to allow investment funds to bid directly for highway projects represents a structural reform in India's PPP framework, potentially unlocking a new class of financial investors beyond traditional construction companies.

Key Facts & Data

  • Target: Rs 1 trillion ($11 billion) in private sector highway project awards by FY2027.
  • Current private sector share in highway development: low single digits; target: 25%.
  • BOT-Toll share in recent highway awards (April-November 2025): just 1%.
  • HAM and EPC share: 99% of 26,425 km awarded.
  • India's national highway network: over 1,46,000 km.
  • NHAI debt: approximately Rs 3.4 lakh crore (2024).