India’s national highway (NH) network serves as the backbone of the country’s transport system, driving economic growth and connectivity. In recent years, budgetary support for the roads sector has increased sharply, resulting in a growing reliance on public funds. It has more than doubled, from under Rs 1 trillion in 2020-21 to Rs 2.87 trillion in 2025-26. This accounts for about 25 per cent of the total capex allocated to the infrastructure sector under the Union Budget 2025-26, highlighting the significant volume of public funds being channelled into the roads sector. Particularly, the share of National Highways Authority of India (NHAI) in the total budgetary allocation has been on a rise. Of the 2.87 trillion allocated in 2025-26, the allocation for the NHAI stood at approximately Rs 1.7 trillion.
Meanwhile, private capital has shown limited traction for greenfield highway assets, in contrast to brownfield asset monetisation. The NH awarding activity continues to be dominated by the hybrid annuity mode (HAM) and the engineering, procurement and construction (EPC) mode, with almost no share of pure-play private capital under the build-operate-transfer (BOT) model. Recently, however, the government has become more aggressive to reviving BOT, given its potential to accelerate highway construction, while easing the funding burden on public finances.
Tracking the historical trend of BOT road projects
For over a decade, the BOT mode of project implementation has taken a backseat. During the period from 2007 and 2014, BOT accounted for a major share of project implementation, with around 96 per cent of the project share in 2011-12. However, post-2012, implementation under this model started to show clear signs of distress. BOT projects were coming under pressure largely due to traffic shortfalls against over-optimistic growth assumptions, lower than estimated traffic, challenges faced by concessionaires in financing projects, and regulatory hurdles such as land acquisition, along with contractual issues such as delays in the payment of grants.
This led to a significant decline in awarding and construction activity, as developers were unwilling to take on the risks posed by the model. By 2018-20, no BOT projects were being awarded, and in 2017-18, only three projects were tendered. To revive the NH construction momentum, the government shifted towards EPC, while also introducing a new model, HAM. Launched in 2016, HAM aimed to revive private sector interest after several NH projects under the toll-based BOT model were stalled. In the first year of its launch, the NHAI awarded more than 50 per cent of the total projects under HAM, drawing strong private participation.
Since then, EPC and HAM have become the key modes for NH development, with BOT contributing a negligible share. However, reliance on HAM and EPC models has been a double-edged sword. As public expenditure increased, the NHAI’s debt burden mounted to around Rs 3.3 trillion by March 2024 from around Rs 240 billion in 2015. Against this backdrop, the government is now looking to revive the share of the BOT model and gradually reduce its dependence on these models.
Renewed government push
During 2024-25, driven by the government’s renewed focus to bring BOT back to the centre stage, this model secured around a 10 per cent share in overall NH awarding activity, with about 210 km awarded under BOT. This marks a significant improvement over 2023-24, when no projects were awarded under BOT, and represents the highest award activity through this mode in the past five years. However, it still amounts to only about 23 per cent of the NHAI’s annual target of 900 km for this mode during 2024-25.
The NHAI has identified a sizeable BOT pipeline, targeting economically attractive, high-traffic corridors where it is expected to be viable. The authority has increased its target for 2025-26 by more than 10 per cent, aiming to award around 1,000 km of roads under BOT with a total capital cost of Rs 621.25 billion. The 12 BOT projects proposed for 2025-26 represent about 16 per cent of the overall pipeline for the year, which comprises 124 projects spanning 6,378 km and worth Rs 3.45 trillion. However, the authority is yet to award its first BOT project in 2025-26, even as the first half (H1) of the year has already passed. This is due to the overall slowdown in awarding activity in recent months, however, it is expected to pick up in the H2 of the year.
Further, the government plans to award new highway projects under BOT only if FASTag-based traffic data indicates that concessionaires can earn at least a 15 per cent annual return from toll revenues. Projects that record returns below this benchmark will instead be undertaken in HAM or EPC mode. The move aims to reduce investor risk while providing greater clarity on investment returns, and is expected to allow the authority to award more projects under BOT.
Revamping the MCA for the better
Alongside its push to revive BOT-based projects, the government is revamping the model concession agreement (MCA) for such projects to rebalance risks and make them financially viable to attract private capital. Under the proposed framework, all key parameters will be linked to traffic on the road, while the concept of competing roads will be dropped. This is expected to reduce disputes among stakeholders. To address traffic-related risks, mechanisms to compensate the concessionaire will be put in place. Furthermore, it will enable flexible concession periods, which can be extended or reduced based on traffic fluctuations, supported by FASTag-based toll data that provides accurate traffic information.
Moreover, the revised framework is expected to ensure smooth implementation of pre-construction activities, including land acquisition, and forest and wildlife clearances. The government is also considering a proposal to provide additional viability gap funding (VGF) to make highway projects under BOT more viable. Currently, VGF is capped at 40 per cent of the project cost. However, as per the proposed plan, VGF of more than 40 per cent of the project cost is to be paid by the authorities in instalments. Taken together, these measures are intended to create a more balanced MCA and draw long-term private capital back into highway development.
Looking ahead
The dearth of private capital in greenfield highway projects has now become a key policy concern. A highway development model in which investors take the full construction and traffic risk in return for toll revenues has been missing for a long time. The failure of BOT model a decade ago still weighs on concessionaire’s risk appetite. Therefore, the government’s recent efforts to rebalance risks and offer a more attractive value proposition through a revamped MCA becomes critical.
Unlike in the early years of BOT, today there is better visibility in terms of traffic and revenues owing to FASTag-based data, as the sector has matured. Key issues in the earlier MCA, particularly around traffic risk, competing roads, and pre-construction bottlenecks, are now being addressed. However, the market’s response to this revamped framework remains to be seen. Awarding activity is expected to pick up in H2 of 2025-26, with the final MCA likely to be issued soon. Moreover, a larger pipeline of BOT projects is expected to come up for bidding to test investor sentiment. If these projects record a healthy bidding activity and financial closure, BOT could gradually reclaim a meaningful share in India’s highway development strategy. Given the key role private capital has to play in nation building, the government is clearly hoping that the refreshed BOT framework will help draw back private capital into greenfield road projects.
Bhavya Bhandari
