Toll collections on national highways are expected to grow 10-12% in 2027-28, compared with an estimated 7-9% growth in 2026-27, driven by higher toll rate revisions and stable traffic growth, rating agency ICRA said.
Traffic growth on national highways is expected to moderate to 4.5-5.5% in 2026-27 from 6% in 2025-26, while toll rate increases are estimated at 3.4-4%. This is expected to limit toll collection growth in the current fiscal.
ICRA expects traffic growth to stabilise at 4-5% in 2027-28. Toll rate growth is expected to be 6.2-6.4% for newer projects linked to December Wholesale Price Index inflation, and 4.5-5.5% for older projects linked to March WPI inflation.
The agency estimates WPI inflation at 8-8.5% in December 2026 and 4.5-5.5% in March 2027. It said the expected movement in WPI inflation, amid the ongoing crisis in West Asia, is likely to support higher toll rate revisions in 2027-28.
Suprio Banerjee, Co-Group Head, Corporate Ratings, ICRA, said traffic growth on national highways is closely linked to gross value added (GVA) growth in construction, mining and manufacturing (CMM).
CMM GVA grew 8.1% in 2025-26, contributing to 6% traffic growth on national highways and, along with higher toll rates, 10% growth in toll collections. ICRA expects CMM GVA growth to remain at 7-8% in 2026-27, translating into traffic growth of 4.5-5.5%. Export-related traffic challenges could weigh on this growth, it said.
Road construction to remain range-bound
Road execution by the Ministry of Road Transport and Highways (MoRTH) is expected to remain at 9,000-9,500 km in 2026-27, compared with 9,380 km in 2025-26.
ICRA attributed the expected moderation to a slowdown in project awards over the past three years. Road construction was also affected in the first quarter of FY27 by higher bitumen prices and supply disruptions linked to the ongoing West Asian crisis.
MoRTH awarded around 7,000 km of roads in 2025-26, down from 7,538 km in 2024-25. The decline came as the ministry focused on resolving land acquisition and environmental clearance issues before awarding projects.
However, higher budgetary allocations are expected to support an increase in project awards to 8,000-8,500 km in 2026-27. ICRA said this would still be below the levels recorded between 2020-21 and 2022-23.
Engineering, procurement and construction (EPC) has remained the main awarding route for MoRTH, accounting for 65-70% of awards in recent years. Hybrid annuity mode (HAM) projects accounted for 25-30%.
ICRA expects HAM projects to account for 24-26% of awards in 2026-27, as projects costing more than Rs 500 crore are likely to be awarded through HAM or toll-based models. EPC is expected to remain the dominant route, although MoRTH is gradually increasing its focus on build-operate-transfer (BOT) toll projects.
Reviving private participation
The revised BOT (Toll) model concession agreement is intended to increase private sector participation by addressing issues that affected earlier concessions, including traffic risk, revenue uncertainty and disputes over traffic assessments.
The new framework includes revenue support mechanisms when traffic falls short of projections and provisions for project termination. These measures are intended to reduce downside risks for concessionaires and lenders while retaining incentives for efficient project operations.
EPC and HAM Project Discounts Remain High Amid Competition
Competition for EPC projects has remained high despite the reinstatement of earnest money deposits and requirements for additional performance security. Median discounts in NHAI/MoRTH EPC projects stood at around 30% and 35% in 2024-25 and 2025-26, respectively.
ICRA expects competition to remain strong because of the slowdown in project awards. Similar competition has emerged in HAM projects, where median discounts stood at 16% and 19% in the two respective years.
To improve pricing discipline and keep competition at sustainable levels, the ministry introduced additional performance security norms in June 2026 and strengthened bidding requirements. It is also planning to award larger national highway packages through a bundling approach.
ICRA said the slowdown in project awards has contributed to weaker road construction activity in 2024-25 and 2025-26. While the revised BOT model could support greater private sector participation, the extent of any revival in construction activity will depend on the increase in project awards.
The agency added that stricter bidding norms and bundling of projects are unlikely to reduce competition significantly unless awarding activity increases materially.