Government Fast-Tracks Toll-cum-Annuity Model to Revive National Highway Investments

India’s road infrastructure programme is set for a major policy shift as the Central Government prepares to introduce a new toll-cum-annuity model for selected national highway projects. The proposed framework is designed to improve project bankability, attract greater private sector investment and accelerate highway construction across the country.

The new model combines key elements of the Build Operate Transfer (BOT) and Hybrid Annuity Model (HAM), creating a balanced framework that distributes financial risks between the government and private developers. It will form part of a revised Model Concession Agreement currently being finalised by the Ministry of Road Transport and Highways in consultation with industry stakeholders.

The initiative comes after several highway projects offered under the traditional BOT route failed to attract bidders due to concerns over financial viability and revenue uncertainty. By introducing a hybrid funding structure, the government hopes to restore investor confidence while ensuring that critical highway projects continue without delays.

Under the proposed model, toll collection rights will remain with the private concessionaire. However, the government will also provide upfront financial assistance during the construction phase for projects requiring Viability Gap Funding (VGF). Depending on the level of VGF required, government support will range between 10 and 25 per cent of the total project cost. Projects with VGF between 40 and 70 per cent will qualify for this assistance.

Unlike conventional BOT contracts, where concession periods often vary depending on project economics, the toll-cum-annuity model will operate with a fixed concession period of 20 years, including construction. This is expected to provide developers and lenders with greater certainty over long term returns and simplify financial planning.

Another significant feature is the revised bidding mechanism. Instead of evaluating bids on multiple financial parameters, contracts will be awarded based on the lowest annuity quoted by bidders. Officials believe this simplified approach will make project evaluation more transparent while encouraging competitive participation from infrastructure developers.

The model will not apply to highway projects that are already commercially viable through toll revenues alone or to strategic projects of national importance. Instead, it is intended for projects that require financial support but remain essential for improving regional connectivity and logistics efficiency.

For infrastructure developers, the new framework offers improved revenue visibility by combining toll income with predictable annuity payments. Lenders are also expected to view such projects more favourably because of reduced financial risk and greater government backing. This could lead to improved access to financing and faster project execution.

India has significantly expanded its national highway network over the past decade through a mix of Engineering Procurement Construction, Hybrid Annuity Model and Build Operate Transfer projects. However, fluctuating traffic volumes, rising construction costs and financing challenges have affected investor appetite for several highway developments. The proposed policy aims to address these concerns while strengthening public private partnerships in road infrastructure.

The revised concession agreement is expected to play a key role in the next phase of highway expansion, supporting the government’s objective of building a modern, resilient and investment friendly transport network. If successfully implemented, the toll-cum-annuity model could become an important financing mechanism for future national highway projects, helping India sustain momentum in one of its largest infrastructure sectors.