On 6 November 2026 the National Highways Authority of India (NHAI) issued guidelines to standardise the design of barrier-less, Multi-Lane Free Flow (MLFF) toll plazas on four-lane and wider national highways (PIB, 6 November). Vehicles will be tolled at speed under gantries, with no booth and no queue. The guidelines apply to all future and under-construction projects, and projects already awarded will adopt them "through applicable contractual provisions". That last phrase is the real lesson. A highway is built and run under a contract between a public authority and a private partner, and every change has to fit that contract. UPSC asks about the contract models rather than the gantries: BOT, HAM, TOT and InvITs, together with Bharatmala and the National Monetisation Pipeline.
Why Roads Need a Private Partner, and What "Risk" Means
By Hitendra Deswal · Economics faculty, The Cavalier
A four-lane highway costs thousands of crores before the first vehicle uses it. The government can pay for it from the budget, which raises the fiscal deficit and borrowing, or it can bring in private money, expertise and speed. A Public-Private Partnership (PPP) is a long-term contract in which a private firm builds, finances or runs an asset that the public sector would otherwise provide, and in return gets paid from tolls, fixed annual payments or an upfront fee. The road stays public property. Roads, ports and airports are classic PPP sectors because the asset is large, long-lived and users can be charged.
The way to compare PPP models is to ask who carries which risk. Four risks matter.
- Construction risk: cost overruns, delay, poor quality.
- Traffic (revenue) risk: fewer vehicles than forecast, so less toll.
- Financing risk: arranging the loan and equity, and paying interest.
- Operation and maintenance (O&M) risk: keeping the road in good condition for decades.
Each risk should sit with the party best able to manage it: a contractor can manage construction, only the government can clear land, and nobody controls traffic. Every model below splits these four risks differently. Capital expenditure that creates assets is explained on our government budget page.
EPC, BOT, HAM and TOT: Five Contracts Compared
| Model | Who pays for construction | Who collects the toll | Traffic risk | Concession ends |
|---|---|---|---|---|
| EPC (Engineering, Procurement, Construction) | Authority pays 100%; the contractor is paid as work progresses | Authority | Authority | No concession; the contractor only builds |
| BOT-Toll (Build-Operate-Transfer) | Private concessionaire arranges the money | Concessionaire | Concessionaire | Road is transferred to the authority after the concession period |
| BOT-Annuity | Private concessionaire | Authority | Authority | Authority pays fixed annuities, then takes the road |
| HAM (Hybrid Annuity Model, 2016) | 40% by the authority during construction, 60% by the concessionaire | Authority | Authority | Annuities over about 15 years of operation |
| TOT (Toll-Operate-Transfer) | Road already built with public money | Concessionaire | Concessionaire | Typically up to 30 years, then back to the authority |
EPC is the simplest: it is ordinary government contracting. The authority borrows and spends, and the contractor builds. BOT-Toll was the first real PPP model for highways. The developer finances the road, collects the toll and bears the risk that traffic is thin, and hands the road back at the end. BOT-Annuity removed traffic risk from the developer by paying a fixed annual sum, at the cost of piling up future payment promises.
By around 2014 many BOT developers were over-borrowed and bidders were scarce, so NHAI shifted heavily to EPC, which put the whole cost back on the budget. The answer, approved by the Cabinet Committee on Economic Affairs in January 2016, was the Hybrid Annuity Model. It is a hybrid of EPC and BOT-Annuity. The authority pays 40% of the cost in instalments linked to physical progress, so the developer needs to raise only the remaining 60%. That 60% is paid back, with interest, as annuities over the operating period. The authority collects the toll, so traffic risk stays with the public side. The developer keeps the risks it can manage: building on time, financing and maintenance.
A highway is awarded at a project cost of ₹1,000 crore. How is it funded, and what is the rough annuity (ignoring interest and O&M)? Assume 15 years of annuity in 30 half-yearly instalments.
TOT turns the logic around. It sells the right to collect toll on a road that is already built and running. The private bidder pays a large lump sum upfront, then collects tolls and maintains the road for the concession period. The Cabinet allowed NHAI to monetise operational national highways this way in 2016, and the first bundle of stretches was awarded in 2018. The money reaches the government immediately and is used to build new roads. The risk has moved too: the concessionaire is betting that traffic will grow.
Do not mix up who collects the toll. In BOT-Toll and TOT the concessionaire collects it. In BOT-Annuity and HAM the authority collects it, and the concessionaire gets fixed annuities. Under HAM the 40% is paid by the authority during construction, and the 60% is paid back after it. Remember: HAM = government keeps traffic risk.
InvITs: Turning a Finished Road into Units
TOT leases a road. An Infrastructure Investment Trust (InvIT) packages several roads into a single investment product. An InvIT works like a mutual fund that holds roads, pipelines or power lines instead of shares. A sponsor sets up the trust and an investment manager runs it. A trustee protects investors' interests, and the revenue-earning assets are held within it. Investors buy units and receive a share of the toll cash flow. The Securities and Exchange Board of India (SEBI) brought the InvIT Regulations in 2014, and an InvIT must pass on the large bulk of its net cash flow (at least 90%) to unit-holders as distributions.
The point is capital recycling: the public body gets cash for a road it has already built and uses it for the next one, while long-term investors get a steady income. NHAI began with private InvITs and in March 2026 listed its first public one, the Raajmarg Infra Investment Trust (RIIT), with an issue of about ₹6,000 crore, so that ordinary investors could hold highway assets too. In May 2026 a PIB release said NHAI had finalised a tentative list of 17 projects, 1,692.5 km across nine states, for monetisation through TOT and InvIT in 2026-27, with the RIIT assets listed separately.
| Feature | TOT | InvIT |
|---|---|---|
| What is sold | The right to collect toll on one bundle of stretches, for a fixed period | Units in a trust that owns the road assets |
| Buyer and rules | One concessionaire, under NHAI's concession agreement | Many investors (retail too, in a public InvIT), under SEBI's 2014 Regulations |
| Purpose | Upfront cash for new roads | Upfront cash, plus a market-traded way to hold roads |
EPC = government pays, contractor builds. BOT-Toll = private builds and tolls. HAM = 40:60 split, authority tolls. TOT = existing road leased for a lump sum. InvIT = existing roads bundled into a SEBI-regulated trust. The first two create assets, and the last two monetise assets that already exist.
The Policy Scaffolding: Kelkar, VGF, NIP and NMP
| Year | Step | What to remember |
|---|---|---|
| 2006 | Viability Gap Funding (VGF) | Central grant of up to 20% of project cost for PPP projects that are economically justified but not financially viable; the sponsoring authority may add up to a further 20% |
| 2015 | Kelkar Committee report | Led by Vijay Kelkar, it reviewed the PPP model after many stalled projects. It stressed risk sharing that is realistic, an independent regulatory framework, better contract management and a faster way to settle disputes |
| 2016 | HAM and TOT approved | New models for highways after BOT stalled |
| 2017 | Bharatmala Pariyojana Phase I approved | About 34,800 km of roads, including economic corridors, feeder routes, border and coastal roads and national corridor efficiency |
| Dec 2019 | National Infrastructure Pipeline (NIP) | A list of projects across sectors with a capital spend of over ₹100 lakh crore for 2020-25 |
| Aug 2021 | National Monetisation Pipeline (NMP) | Target of about ₹6 lakh crore from leasing existing public assets, 2021-25 |
| Feb 2026 | NMP 2.0 | Launched on 23 February 2026: target of ₹16.72 lakh crore of monetisation over FY2026-30 (about ₹5.8 lakh crore of it private investment), under the Asset Monetisation Plan 2025-30 announced in the 2025-26 Budget |
VGF is a one-time capital grant for projects, such as a water plant or a rural road, that bring great social benefit but cannot earn enough to repay a lender. It closes the "gap" and makes the project bankable. It is not a subsidy on running costs, and the Department of Economic Affairs administers it.
A word on Bharatmala. Phase I was approved in 2017 and is the successor to the older National Highways Development Project, whose Golden Quadrilateral joins Delhi, Mumbai, Chennai and Kolkata. Much of Bharatmala was built in EPC and HAM modes. It is a road programme, while HAM and TOT are contract models, so the two do not compete. It is not Sagarmala, the port-led programme. For the geography of the corridors, see our transport and highways page.
Money for infrastructure also comes from a sovereign-anchored fund, the National Investment and Infrastructure Fund, covered in our article on how NIIF finances infrastructure. Idle land is monetised too, as in NLMC's auctions. The planning background is on our economic planning page.
The Toll Plaza Itself: User Pays and Why MLFF Matters
The reason a toll road can attract a private partner is the user-pays principle: those who use the road pay for it. The toll rates on national highways are fixed under rules made under the National Highways Act, and FASTag, the RFID-based electronic toll system, has since replaced cash lanes at plazas. MLFF goes one step further. Overhead gantries read the vehicle's tag or number plate and charge it while it moves, so there is no barrier. NHAI's aims are to end queues, cut fuel burnt while idling and make journeys safer. Our article on MLFF tolling on NH-48 shows how the pilot works.
Since vehicles do not stop, fewer lanes are needed than at a conventional plaza, which also saves land. Now connect this to the PPP table. Where a concessionaire collects the toll (BOT-Toll, TOT), its revenue depends on the plaza, so a design change in an existing contract usually has to be settled through the contract's own provisions, as the PIB release says. Where the authority collects the toll (HAM, EPC), the change is simpler for the developer, because only the build changes. Contract design and technology policy are linked.
How UPSC Has Asked It: Past Papers Solved
The questions below are real CDS and NDA papers since 2018. The pattern is factual: the name of a programme, the structure of an agency, or a statement on a public fund. UPSC rarely asks for a formula here, but the vocabulary has to be exact.
Which of the following scheme(s) is/are included under Bharatmala Pariyojana? 1. Develop the road connectivity to border areas 2. Development of coastal roads 3. Improvement in the efficiency of National Corridors
(a) 1 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3
Answer: (d). Phase I covers economic corridors, feeder routes, national corridor efficiency, border and international connectivity roads, coastal and port connectivity roads, and expressways. All three statements are correct.
Which one among the following statements about National Highways Authority of India (NHAI) is not correct?
(a) NHAI collects fees on the National Highway. (b) NHAI conducts training of Highway Engineers at entry level and in-service. (c) NHAI provides consultancy and construction services in India and abroad. (d) NHAI regulates and controls the plying of vehicles for its proper management.
Answer: (d). NHAI builds, maintains and collects user fees on national highways. Regulating vehicles on the road is done under the Motor Vehicles Act by transport and police authorities, not by NHAI.
Which one of the following is not a fund managed by NIIFL (National Investment and Infrastructure Fund Limited)?
(a) Master Fund (b) Fund of Funds (c) Strategic Opportunities Fund (d) Global Investment Fund
Answer: (d). NIIFL runs the Master Fund, the Fund of Funds and the Strategic Opportunities Fund. There is no "Global Investment Fund" in this set.
The Golden Quadrilateral Highway does not pass through which of the following cities? 1. Bhubaneshwar 2. Jaipur 3. Lucknow 4. Indore
(a) 1 and 2 (b) 1 and 3 (c) 2 and 3 (d) 3 and 4
Answer: (d). The Golden Quadrilateral links Delhi, Mumbai, Chennai and Kolkata. The Delhi to Mumbai arm runs via Jaipur, and the Kolkata to Chennai arm via Bhubaneswar. Lucknow and Indore are not on it, so the answer is 3 and 4.
Which of the following statements are correct about 'Arnala', an Anti-Submarine Warfare Shallow Water Craft? 1. It is indigenously designed in India. 2. It is named after the historic Arnala fort located in Maharashtra. 3. It has been built under a Public-Private Partnership (PPP) of GRSE with M/s L&T Shipyard.
(a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
Answer: (d). The PIB release on its delivery in May 2025 says that it was indigenously designed and built by GRSE, that it is named after the Arnala fort off Vasai, and that it was built under a PPP of GRSE with L&T Shipyard.
UPSC tests PPP through programmes and institutions (Bharatmala, NHAI, NIIF, the Golden Quadrilateral) and through defence and current-affairs applications. The contract models behind them (HAM, TOT, InvIT) are in the news every year and are a likely next step, so learn the table in this article.
Practice MCQs (with answers)
- Under the Hybrid Annuity Model, the share of project cost paid by the authority during construction is
- 20%
- 40%
- 60%
- 100%
- In a BOT-Toll project, the party that collects the toll and bears the traffic risk is
- the National Highways Authority of India
- the State government
- the EPC contractor
- the concessionaire
- In the Toll-Operate-Transfer model, the private party
- pays a lump sum upfront for the right to collect toll on an existing road for a fixed period
- builds a new road and receives only a fixed annuity
- is paid 40% of the cost during construction
- collects no toll
- The InvIT Regulations were issued in 2014 by
- the Reserve Bank of India
- NITI Aayog
- the Securities and Exchange Board of India
- the Department of Economic Affairs
- The committee of 2015 that revisited and revitalised India's PPP model was chaired by
- Bimal Jalan
- Y.V. Reddy
- Vijay Kelkar
- Urjit Patel
- Consider the statements about HAM: 1. The authority collects the toll. 2. The developer bears construction and financing risk. Which is/are correct?
- Both 1 and 2
- 1 only
- 2 only
- Neither 1 nor 2
- Viability Gap Funding is meant for projects that are
- of no social benefit
- already highly profitable
- fully fundable by private lenders
- economically justified but not financially viable on their own
- Which of these packages operating road assets into a trust whose units investors can buy?
- EPC
- InvIT
- HAM
- BOT-Annuity
1-b, 2-d, 3-a, 4-c, 5-c, 6-a, 7-d, 8-b. Q1: HAM is a 40:60 model. Q2: the toll is collected by the concessionaire, which is why it carries the traffic risk. Q4: SEBI regulates InvITs because they are market-traded units. Q6: both are correct, and that is why traffic risk stays public while the developer keeps the build and finance risk. Q7: the gap between economic and financial viability is what VGF fills. Q8: EPC and HAM build roads, and an InvIT holds finished ones.
Quick Revision
- PPP = a long-term contract where private partners build, finance or run a public asset. Compare models by who bears construction, traffic, financing and O&M risk.
- EPC: authority funds 100%. BOT-Toll: concessionaire funds and tolls (traffic risk private). BOT-Annuity: fixed payments, authority tolls. HAM (2016): 40:60, authority tolls. TOT: existing road, upfront lump sum, concessionaire tolls.
- InvIT: SEBI 2014; sponsor, investment manager, trustee; at least 90% of net cash flow is distributed. NHAI's public InvIT, Raajmarg (RIIT), listed in March 2026.
- VGF: up to 20% central grant (plus up to 20% more by the sponsor) for projects that are economically justified but not financially viable. Run by DEA.
- Kelkar Committee 2015 (PPP review). Bharatmala Phase I 2017 (about 34,800 km). NIP Dec 2019. NMP Aug 2021 (₹6 lakh crore); NMP 2.0 (launched 23 Feb 2026; ₹16.72 lakh crore, FY26-30).
- PIB 28 May 2026: 17 projects, 1,692.5 km for TOT/InvIT in 2026-27. PIB 6 Nov 2026: MLFF plaza guidelines. Defence PPP: Arnala. Golden Quadrilateral: Delhi, Mumbai, Chennai, Kolkata.
Frequently asked questions
What is the difference between BOT and HAM?
In BOT-Toll the private concessionaire pays for the road and collects the toll, so it bears the traffic risk. In the Hybrid Annuity Model, the authority pays 40% of the cost during construction and the developer arranges 60%, which is repaid through annuities. The authority collects the toll under HAM, so traffic risk stays with the public side.
What is the TOT model for highways?
Toll-Operate-Transfer is a way of monetising a highway that is already built and earning toll. A private bidder pays a large lump sum upfront and then collects toll and maintains the stretch for the concession period, usually up to 30 years. The government uses the cash to build new roads.
What is an InvIT and why is it used for highways?
An Infrastructure Investment Trust is a SEBI-regulated trust that holds revenue-earning infrastructure assets and sells units to investors. It lets NHAI recycle capital from finished roads and gives investors a steady income. NHAI listed its first public InvIT, Raajmarg, in March 2026.
What is Viability Gap Funding?
Viability Gap Funding is a central grant, up to 20% of project cost and usually paid during construction, for PPP projects that are economically justified but cannot earn enough to be financially viable. The sponsoring authority can add up to a further 20%. It is administered by the Department of Economic Affairs in the Finance Ministry.
What are NIP and NMP?
The National Infrastructure Pipeline (December 2019) lists projects with a spend of over ₹100 lakh crore for 2020-25. The National Monetisation Pipeline (August 2021) targets money raised by leasing existing public assets, and NMP 2.0, launched in February 2026, aims at ₹16.72 lakh crore for FY2026-30.
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