Railways mulling annuity model to boost investment and infra development

The railway ministry is exploring a HAM-like model to boost private participation and speed up infrastructure expansion across the sector

In a bid to boost investment in the railway sector, the Ministry of Railways is considering the possibility of adopting a model similar to the Hybrid Annuity Model (HAM) and bidding out projects on a concession basis under it, according to people in the know of the matter.

 

“Initial discussions have begun in this regard, and there’s an effort to identify what projects can be bid out in this mode along with development of a potential pipeline of projects,” a senior government official said.

 

HAM is a popular investment and infrastructure-creation model, especially in the highways sector, and refers to a system where the authority (National Highways Authority of India, or NHAI, in the case of highways) pays 40 per cent of the project cost upfront. The remaining 60 per cent is paid in instalments or annuities, and the highway concessions are treated as transferable assets during the period of maintenance.

 

According to experts, this de-risked public private partnership (PPP) model allows authorities to push out more projects.

 

The money scattered across 15-20 years in the annuity framework gives tendering agencies more leeway to execute more projects.

 

Queries sent to the Ministry of Railways on October 16 remained unanswered at the time of going to press.

 

The national transporter in the past had also begun a similar exercise to develop certain types of railway infrastructure in the PPP model. However, the complex nature of railway projects means that the road to HAM has not been as smooth for the national transporter as it has been for the highways sector.

 

“Since early 2000s, Indian Railways has been trying out HAM projects — mostly without success. A key challenge in successful HAM execution is the argument regarding safety, which results in some decision-makers being reluctant to pass on the maintenance obligations to the private sector. This limits the scope of HAM projects,” said Kuljit Singh, partner and national leader infrastructure, EY India.

 

According to an analysis by CareEdge Ratings in February, the HAM model has consistently been the preferred mode for awarding highway projects, accounting for nearly 55 per cent of the total projects awarded between 2020-21 (FY21) and FY24.

 

As many as 374 HAM projects were awarded by the NHAI between 2015 and 2024. These projects span 16,000 km and have a total Bid Project Cost (BPC) exceeding ₹4.03 trillion.

 

“Some decision-makers also assume that the government has no resource constraint (or competing end uses), and hence private HAM projects are considered to be more expensive than Railways simply borrowing directly and then developing projects through these lower-cost (and non-constrained) funds. For HAM to work in Railways, the above two aspects will need to be addressed,” said Singh.

 

The ministry is planning a large number of infrastructure projects to increase capacity in all aspects of the Railways. Union Railways Minister Ashwini Vaishnaw told the industry last week that the government will work on capacity expansion in a big way.

 

The national transporter has consistently been getting large capital expenditure budgets by the finance ministry. In 2025-26, the Railways has been allocated ₹2.52 trillion, of which it has already spent ₹1.42 trillion (56 per cent) by September.