In a bid to revive private participation in India’s highway sector, the government is working on a new financial support mechanism for Public-Private Partnership (PPP) projects. The plan includes allowing Viability Gap Funding (VGF) beyond the existing 40% cap and offering additional assistance through annuity-based payments — a move aimed at making Build-Operate-Transfer (BOT-Toll) projects more attractive to investors and reducing reliance on government-funded models like EPC and HAM.

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.

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.