Currently, projects developed under the PPP model — particularly those where private players recover costs through toll collection — receive Viability Gap Funding (VGF) capped at 40% of the project’s total cost. Officials familiar with the matter said the government is now considering allowing funding beyond this limit. The excess amount would be disbursed by highway authorities through instalment-based annuity payments rather than an upfront grant, ToI’s report (by Dipak Dash) said.
The proposal was discussed at a high-level meeting held recently at NITI Aayog, where policymakers and sector experts reviewed ways to make PPP-based highway projects more attractive. A new framework for the revised VGF mechanism is now being developed, sources said.
The move comes at a time when the National Highways Authority of India (NHAI) and the Ministry of Road Transport and Highways are finalising a comprehensive overhaul of contract documents governing Build-Operate-Transfer (BOT-Toll) projects — a format once popular with private developers but which has seen a steep decline in participation over the last decade.
Officials indicated that the revised contract terms are aimed at reducing risk and improving returns for concessionaires. Several provisions have already been modified following consultations with private developers and financial institutions. Among the key reforms under consideration is a proposal to ensure that 95% of the required land is made available before construction begins, a move that industry experts say could significantly reduce project delays and cost overruns.
The renewed emphasis on BOT-Toll projects reflects the government’s intent to rebalance the highway development model. In recent years, most projects have shifted to the EPC (Engineering, Procurement and Construction) or Hybrid Annuity Model (HAM), both of which rely heavily on government funding. Restoring confidence among private investors is seen as crucial for sustaining the pace of highway expansion without overburdening the public exchequer.If implemented, the enhanced VGF mechanism and revamped contract conditions could mark a turning point for India’s road infrastructure financing strategy. It may also pave the way for a new cycle of private investment in long-term national highway projects, helping the government meet its ambitious targets under the National Infrastructure Pipeline.While details of the revised VGF structure are yet to be finalised, officials suggest that the framework will be designed to balance fiscal prudence with investor confidence — ensuring that both risk and reward are equitably shared between the government and the private sector.
The next few months are expected to be crucial as policymakers iron out the contours of the proposal and consult industry stakeholders before a formal rollout.