Union Budget: Funds use in slow lane, MoRTH budget allocation likely to see meagre hike

Union Budget of India: The ministry of road transport and highways could see a muted 1-2.5% increase in budgetary allocation for 2026-27, reflecting a high base, slower fund utilisation in the current fiscal and a growing reliance on private and non-budgetary financing, according to people familiar with the matter.

This hike could take the allocation for the road sector to ₹2.9-2.94 lakh crore for FY27, which is likely to cover ongoing projects and meet funding requirements for works in the pipeline. The budgetary allocation for FY26 was ₹2.87 lakh crore, while for FY25, it stood at ₹2.80 lakh crore.

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A senior government official said the ministry is not anticipating a sharp jump in budgetary support due to lower-than-expected resource utilisation so far in 2025-26 and the availability of alternative funding avenues. "Any increase is likely to be marginal and broadly aligned with the overall rise in capital expenditure," the official added.

Analysts and industry experts broadly expect a status quo or a small increase, as the Centre revives the build-operate-transfer (BOT) model for highway projects.

Under BOT, private developers finance, build and operate roads for a fixed period, recover investments by collecting toll, and then transfer assets back to the government, majorly reducing the need for upfront budgetary support.

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However, funding commitments under the hybrid annuity model (HAM) continue to constrain spending flexibility. Under this, the Centre pays about 40% of project costs during construction and provides annuity payments over 15-20 years, creating long-term fiscal obligations.

"With BOT projects being rolled out, the budgetary allocation may remain flat or even decline marginally," said Jagannarayan Padmanabhan, senior director and global head of consulting at Crisil Intelligence. "But it cannot fall sharply because the government must continue to service existing HAM projects."

Padmanabhan added that a marginal increase in allocations remains possible as funding needs for ongoing HAM projects rise and targeted interventions are required to revive delayed or stalled projects.

Despite multiple amendments to concession agreements aimed at improving risk-sharing and returns, India has yet to see a meaningful shift from HAM to BOT, limiting the pace at which budgetary dependence can be reduced.