Whalesbook
Geopolitical conflict in West Asia is directly driving up expenses for India's national highway development program. Executives anticipate 5-8% cost increases and timeline disruptions. These rising input costs for bitumen, steel, and fuel add to existing pressures on the sector. However, the industry is actively responding with increased strategic sourcing and faster adoption of cost-saving and sustainable construction methods.
Rising Input Costs
Geopolitical instability in West Asia is amplifying input costs for India's infrastructure sector. Bitumen prices have jumped 20-50% in March 2026, significantly increasing costs for road tarring. Steel prices have also climbed; hot-rolled coil (HRC) prices are up by approximately ₹2,000/tonne to around ₹55,000/tonne, contributing to an estimated 18-25% overall steel price increase. Cement manufacturers expect price hikes by late March or early April 2026, driven by rising crude-linked expenses, especially petcoke prices which rose by about $13 per tonne in February 2026. Fuel costs, a critical project expense, are also pressured by escalating crude oil prices, worsening the financial strain on highway construction. Total construction costs have already risen by nearly 40% in the past five years.
Industry Response to Rising Costs
Construction firms are countering these rising expenses by prioritizing strategic sourcing and long-term supply agreements. Many are also using contractual clauses, such as price escalation provisions, to absorb some of the increased costs. The National Highways Builders Federation (NHBF) has formally asked the National Highways Authority of India (NHAI) for extensions of time (EoT), penalty waivers, and compensation for extraordinary cost increases. While contractual clauses exist, their interpretation and application by authorities like NHAI have often led to disputes. The NHBF points to past instances where price escalation clauses were interpreted in the authority's favor, creating uncertainty due to this uneven application of safeguards.
Sustainable Materials and Methods
The sector is increasingly using innovative and sustainable materials to manage costs and improve durability. Recycled Asphalt Pavement (RAP) is being adopted, offering potential reductions of 10-20% in material needs and significant cost savings. RAP can lower construction costs by up to 4.92% for earthworks and 4.12% for base courses. Warm Mix Asphalt (WMA) technology enables production and laying at lower temperatures (20-40°C less than hot mix asphalt), cutting energy consumption, emissions, and fuel costs while improving workability. Other sustainable materials like Crumb Rubber Modified Bitumen (CRMB), bio-bitumen from agricultural waste, plastic waste, and steel slag are also being used, offering greater durability and environmental advantages. Concrete is another viable alternative to bitumen for road construction.
Challenges: Margin Pressure and Supply Chain Risks
Despite these efforts, the sharp rise in input costs and supply chain disruptions are pressuring margins, especially for smaller or less diversified companies. ICRA estimates construction industry operating margins will stay around 10.25-10.75% in FY26, down from previous years. Revenue growth is revised down to 6-8% due to challenges in road awarding and project execution. Mid-sized road construction companies with order book-to-revenue ratios below 2.0 may face near-term revenue stress. Sluggishness in the real estate sector, with launches down 44% year-on-year in January 2026, also impacts cement demand. While major steel companies' stock prices have surged 8-18% over the past quarter, outperforming the Nifty 50, this performance is not seen across the whole construction sector. Vulnerability to imported materials and global energy volatility remains a key risk. This was highlighted by the West Asia conflict's impact on bitumen supply and pricing, which stalled about 80% of road tarring work in Bengaluru.
Outlook for Infrastructure Spending
Government capital spending on infrastructure remains a strong support. The Union Budget 2025-26 allocates Rs 11.21 lakh crore (3.1% of GDP) and projects total infrastructure investment to increase from 5.3% to 6.5% of GDP by FY29. The sector is expected to see strong growth, with the Indian infrastructure market valued at $204.06 million in 2025 and projected to grow at a CAGR of 9.57% through 2033. Analysts are cautiously optimistic about the cement sector due to anticipated price hikes and steady demand. However, the ongoing geopolitical situation and persistent input cost inflation mean contractors across India need to closely monitor project profitability and execution timelines.