Why NHAI's plan to let highway builders toll parallel routes is unfair to commuters

The move is aimed at addressing the traffic-diversion risk for developers, as users often opt for cheaper or free routes, causing projected revenues from new highways to fall short.

By bundling the alternative route with the new project, the government hopes to make BOT tenders more attractive. The selected bidder would either be allowed to collect tolls on the existing route or be awarded an operation and maintenance contract for the older road, with an option for the developer to adjust tolls if traffic falls below projected levels on new stretches.

This may help the heavily indebted National Highways Authority of India (NHAI), whose outstanding debt as of 31 March 2025 stood at ₹2.44 trillion, to hopefully shift more of the task of building new roads to the private sector and focus on maintaining its existing network of over 146,000 kilometres of highways and expressways.

Fiscal prudence vs natural justice

This may sound attractive from a fiscal point of view, but it is a terrible idea from the perspective of natural justice for road users. For starters, it shifts the risk of errors in traffic demand and revenue forecasting from the government and the developer—who should rightfully bear it—onto road users.

The bundling of alternative routes and allowing ex post tolling on older, legacy options creates two problems. First, there is the issue of moral hazard. Removing accountability for faulty demand estimation from planners and concessionaires encourages inefficiency and opens up avenues for graft while passing the burden of cost to users.

Second, forcibly removing alternative options removes the competitive aspect, leading to poorer service and quality overall. A developer no longer needs to provide better quality, speedier, and more efficient connectivity to attract users. Monetizing the existing alternatives removes pressure on developers to maintain service quality, already a chronic problem with many of the newly built toll highways.

Price-sensitive traffic, which prefers existing alternative routes over “better" but costlier options, includes users with the least agency—rural users, agricultural transport, micro, small, and medium enterprises, among others.

Imposing toll—likely to be structured by the concessionaire to incentivize use of the newer development—increases logistics cost for these low-margin users and can have a potentially inflationary pass-through impact.

The argument for bundling of alternatives is that doing so allows for cross-subsidy, lowering the cost of use for users of the new road. However, in practice, without proper regulation and caps on user charges, the incentive would be to push the lower cost up, rather than the higher charge down.

Then, there is the legal aspect. If the alternative route proposed for bundling is already tolled, either under a BOT or TOT (toll-operate-transfer) arrangement, transferring and layering rights is legally and contractually complex and can be costly, involving revenue balancing or buyouts, and restructuring security for lenders to the older project.

If the alternative is untolled, introducing a toll requires fresh notification, statutory clearances, public consultations, and a requirement to meet quality standards consistent with norms for tolled roads. In either case, there is the potential for further legal challenges. This could further exacerbate the financial stress on the NHAI, which is already facing adverse arbitration awards of ₹1 trillion, according to this Mint report.

Article 19(1)(d) of the Constitution guarantees freedom of movement, subject to reasonable restrictions in the public interest, as outlined in Article 19(5). Courts have upheld highway user fees as permissible “fees for service". However, if all viable routes are tolled and local users lack any reasonable, untolled access, this could be legally challenged.

Furthermore, allowing a single entity to control a particular corridor, especially when practicable alternatives exist, is also likely to contravene India’s competition laws.

Unaddressed issues

The original BOT model faltered due to several interconnected issues, including land acquisition hurdles, delayed execution, and the resultant cost inflation that rendered original projections awry. The problem was compounded by overly optimistic demand forecasts, leading to financial stress among concessionaires.

Regulatory hurdles to debt restructuring and restructuring of projects, plus the reluctance of a banking system already burdened with high non-performing assets to fund high-risk, long gestation infrastructure projects, forced the government to shift to a largely engineering, procurement, and construction (EPC) model, which has now proved unsustainable due to budgetary stress and the NHAI’s rising debt.

The proposed new BOT model addresses none of the issues faced by the earlier model and focuses solely on derisking investment for private capital, at the expense of users.