Indian highway builders are facing a severe cost squeeze, prompting urgent calls for more government support. The National Highways Builders Federation (NHBF) is requesting an 18% cost increase and project extensions, arguing that existing contracts cannot handle the sharp rise in expenses.

Cost Surge Forces Contractor Demands

The National Highways Builders Federation (NHBF) has formally asked the Indian government for an interim measure of 17-18% additional cost support for all ongoing national highway projects. This demand stems from rapidly rising expenses, including a 20-50% surge in bitumen prices and a 15-18% rise in steel costs in March 2026 alone. These increases are driven by geopolitical instability in West Asia. Fuel and logistics costs have also climbed significantly, adding an estimated 5-8% to project expenses, according to industry executives. The NHBF stated these cost increases are "extraordinary, unforeseen, and beyond the control of contractors," disrupting the original contract terms. The federation is also seeking a general extension of three to six months for project deadlines, a waiver of penalties, and protection for cash flows on Hybrid Annuity Model (HAM) projects.

Contracts Fail to Cover Soaring Expenses

Current contracts usually include cost escalation clauses, but the NHBF argues these are tied to standard indices like the Wholesale Price Index (WPI). These fail to account for sudden shocks from geopolitical events and fuel price swings. This leaves existing contract protections inadequate, particularly as contractors have sometimes bid aggressively, quoting up to 48% below estimated project costs. The industry's dependence on imported bitumen, with nearly 40% sourced internationally, increases vulnerability to disruptions in shipping routes like the Strait of Hormuz. Many state and regional projects, unlike NHAI's HAM contracts, lack clear mechanisms to adjust payments for inflation, leading to shrinking profit margins. This situation contributes to a wider trend of delays in India's infrastructure sector, with 85 highway projects already delayed by over three years due to issues such as land acquisition and regulatory approvals.

Market Risks and Financial Strain

This demand for significant cost increases highlights potential structural weaknesses in India's infrastructure development approach. The sector faces an "execution gap"—a difference between planned projects and actual delivery. If escalating costs and delays continue without sufficient government action, it could strain public finances. Central sector infrastructure projects already have a cumulative cost overrun of ₹5.66 lakh crore as of February 2026. Concerns have also been raised about aggressive low bidding, which can compromise work quality and lead to financial difficulties for contractors. Past issues with contractor performance and long dispute resolution times, where claims grow with interest, show ongoing risks. A recent proposal to end arbitration for large road projects, intended to curb bad practices, worries developers about extended dispute processes and higher financial burdens.

Outlook and Industry Solutions

While India's infrastructure market is expected to grow, its long-term success depends on closing the execution gap and building trust with private companies. The government, via the National Highways Authority of India (NHAI), is working to improve transparency and secure raw material supplies, alongside efforts to speed up land acquisition and approvals. However, current cost pressures and underlying structural problems could result in the lowest highway construction length in a decade for FY26. The industry is adapting by using strategic sourcing, long-term contracts, and new building methods like recycled asphalt pavement. The NHBF's suggestions for direct support, inflation-linked adjustments, or enhanced annuity payments point to a need for better, more forward-looking ways to manage cost volatility beyond standard WPI-based clauses.