NHAI's Annuity Model Hits a Land Acquisition Wall

The Rise of the Hybrid Annuity Model

When the Cabinet Committee on Economic Affairs approved the Hybrid Annuity Model in January 2016, it solved a problem that had stranded thousands of kilometres of highway. Private developers, burned by traffic forecasts that never materialised under the Build-Operate-Transfer toll model, had walked away from projects.

CRISIL Ratings estimated in 2015 that roughly 7,500 km of BOT highway projects were at high risk, with about half the under-construction stretch unlikely to ever reach completion.

HAM restructured the bargain entirely. Under the new model:

- NHAI would fund 40% of project cost during construction
- Developers would raise the remaining 60% through debt and equity
- Developers would recover investment through semi-annual annuity payments from NHAI over the operations period
- Toll collection became the government’s responsibility
- Developer exposure to traffic risk: zero

For a while, it worked. CareEdge Ratings found that among HAM projects awarded before 2020 — representing over Rs 1 lakh crore in bid project cost — 88% had reached operational status by September 2023.

The Model Under Strain

Then the numbers turned.

In a February 2025 update covering 374 HAM projects awarded between 2015 and 2024, spanning roughly 16,000 km and over Rs 4.03 lakh crore, CareEdge found only 42% of the sample cost had been commissioned as of September 2024.

Among under-construction projects, 55% with an aggregate bid project cost of Rs 1 lakh crore were running more than six months late, up from roughly 33% in June 2023.

India Ratings and Research, part of Fitch Group, flagged the structural cause in May 2024. Newer sponsors — many who moved from EPC contracting to HAM after technical and financial qualification norms were relaxed — were struggling to secure funding as banks tightened capital requirements.

For financially stronger sponsors, the binding constraint was different: land acquisition. More than 110 projects worth over Rs 1 trillion were awaiting an appointed date, mostly stalled on right-of-way issues.

“It shifts traffic forecast risk and revenue collection risk to the government. It does not, and cannot, acquire land or force banks to lend.”

— Asian Development Bank working paper on HAM

Where HAM Stands Today

HAM remains a structurally sound contracting instrument. Annuity payments indexed to inflation, interest rates floating with bank MCLR plus 125 basis points, and zero traffic exposure make it bankable for developers who can actually reach financial close and secure right-of-way. The model’s brilliance is in what it asks developers to do: build well and maintain. Nothing more.

What the model could not fix is everything upstream of the contract. Land that has not been acquired and lenders who will not lend are not risks the annuity structure was designed to absorb.

They are where Rs 1 lakh crore now sits, waiting.