Indians have been buying more vehicles than they did a year ago. Toll collections are also rising. But one part of the country’s road economy is moving in the opposite direction: new highway projects are being awarded at a slower pace.

The slowdown has persisted for two to three years.

For the current financial year, the industry had hoped for a pickup, with estimates pointing to as much as 8,000 kilometres of new highway works being awarded by March 2027.

The first three months, however, have offered little evidence of a turnaround.

Industry executives and analysts believe that the weakness is temporary, though there is a disagreement over its cause. Some see it as a structural trend as government agencies wait to resolve land acquisition and environmental clearance issues before putting projects out to tender.

This comes as demand for road infrastructure remains firm.

Commercial vehicle sales are expected to grow 4% to 6% in the current financial year, albeit at a slower pace because of a high base. Toll revenue is also expected to rise 2% to 4%, even after the West Asia conflict weighed on industrial activity, following growth of more than 10% in FY26.

The mismatch is a problem. Road developers are now turning to state projects and other infrastructure segments to offset weaker highway orders, while delays in adding capacity risk worsening congestion.

And the longer projects take to reach execution, the greater the inflation-driven cost of building them.

A Weak Q1

One of India’s largest infrastructure platform companies, IRB Infrastructure Developers, said on a recent analyst call that it had not bagged any new order “because there was no award activity during the quarter”.

Others in the industry have confirmed the slowdown too.

“The pace of awards in the first quarter has been slower than expected,” Anand Kulkarni, director for Crisil Ratings, told The Core. He noted that NHAI has set a highway-awarding target of more than 5,000 kilometres for FY2027, compared with actual awarding of around 3,500 kilometres over FY2024-FY2026 on average.

NHAI, or the National Highways Authority of India, is the nodal agency awarding highway tenders in the country.

Kulkarni said national highway awards by the Ministry of Road Transport and Highways and NHAI combined moderated to around 7,000-8,000 kilometres annually over the three fiscal years through FY2026, from approximately 12,000 kilometres a year during the three fiscal years through FY2023.

For ICRA, the low awarding activity between April and June 2026 poses a downside risk to its estimate of 8,000-8,500 kilometres of awards from the road ministry for the full financial year.

The ministry said in July that around 524 national highway projects across states and union territories that were sanctioned or awarded during the past five financial years had spilled beyond their original completion schedules without reaching various stages of completion.

The reasons include land acquisition, statutory clearances and permissions, utility shifting, encroachment removal, law-and-order issues, poor performance by contractors or concessionaires, and force majeure events such as the Covid-19 pandemic.

Suprio Banerjee, vice president and co-group head at ICRA Ltd, attributed the sluggishness to “the Ministry’s focus on addressing land acquisition issues and environmental clearances before awarding projects”.

Kulkarni from Crisil describes the slowdown as “largely structural, reflecting the ministry's deliberate shift towards awarding projects only after substantial land acquisition and key approvals have been secured. This approach is intended to improve execution timelines, reduce project risks and enhance cost efficiency”.

Demand Hasn’t Slowed

The road-awarding cycle tells only the supply side of the story. Traffic and toll collections suggest that demand for the existing network remains robust.

“While project awards have remained subdued over the last two years, continued growth in traffic volumes and toll collections indicate the strong economic activity and the underlying demand for road infrastructure,” Banerjee from ICRA said.

User Fee Collection Revenue has risen from Rs 27,923.8 crore in FY21 to Rs 72,931.0 crore in FY25 and is estimated to have surpassed Rs 82000 crore in FY26.

Traffic growth on toll roads has also remained healthy, with a compound annual growth rate of 4% to 5% between FY2024 and FY2026, according to Kulkarni. That is expected to moderate to 2% to 4% in FY2027, partly because of the impact of the West Asia conflict on industrial activity.

The longer-term outlook remains strong enough for the National Monetisation Pipeline 2.0 to target an estimated Rs 3.4 trillion from monetising operational road assets through toll-operate-transfer and Infrastructure Investment Trust routes between FY2026 and FY2030.

Under the Toll-Operate-Transfer (TOT) model, the nodal agency bids out completed and operational highway stretches to private or institutional investors for an upfront concession fee, allowing the government to recycle capital into new infrastructure projects under the National Monetisation Pipeline.

In return, the investor receives the right to collect toll revenue for a fixed concession period, effectively taking on operational and traffic risk in exchange for long-term cash flows.

Under the InvIT model, investors hold units in a trust that aggregates multiple operational road assets, with returns distributed as dividends derived from toll collections.

Unlike TOT, which is a direct asset concession, InvITs function more like pooled investment vehicles, offering diversified exposure to infrastructure cash flows while helping reduce pressure on government balance sheets.

Investor interest in both models remains robust, another indication of expectations for continued growth in traffic and toll collections.

The Cost Of Waiting

Road developers are already feeling the effects of the weak awarding cycle.

IRB Infrastructure said its construction-related revenue in the quarter ended July 2026 fell 20% from a year earlier. Its other segments — operations and maintenance, tolling and InvITs, all involving operational road assets — reported positive revenue.

The slowdown has pushed developers to diversify into state road projects and other infrastructure segments, including power, railways, metro and water.

That shift is visible in order books. Non-road and state road projects are estimated at nearly 70% of aggregate order books as of March 2026, according to a Crisil Ratings analysis, compared with less than 20% in March 2020.

Other road construction companies have had a harder time.

HG Infra has also tried to diversify into non-highway segments, but more than half its revenue opportunities remain tied to highways. Its revenue fell more than 40% in the quarter ended June 2026.

For the larger road construction industry, revenue growth was flat in FY25 and is estimated to have risen only 2% to 4% in FY26, according to industry estimates.

The delays also have a direct cost. Inflation and prolonged pre-construction periods can push up the eventual cost of building a highway.

The scale of that problem is visible in Bharatmala Pariyojana Phase I. In July 2025, the road ministry said the government had approved the 34,800-kilometre programme in 2017 at an estimated cost of Rs 5.35 lakh crore. By July 2025, 26,425 kilometres had been awarded, but the cost had risen to Rs 8.53 lakh crore.

The ministry attributed delays and cost overruns in certain projects to land acquisition problems, delays in pre-construction activities, financial difficulties faced by contractors, force majeure events and shortages of construction materials.

For road users, the consequences could eventually be more immediate.

“The slower pace of capacity addition/expansion/upgradation of existing stretches could result in increased congestion on existing corridors and affect the quality of road travel for the rider. Going forward, an increase in project awards will be critical to bridge the developing infrastructure capacity gap and sustain improvements in logistics efficiency and network connectivity,” Banerjee said.

“While the pace of road construction has remained healthy over the past four-five years, the declining project awarding activity is likely to weigh on road execution in the medium term,” he added.

For now, the industry is betting that the second half of FY27 will bring the awards back. IRB expects activity to pick up, while other road-sector participants remain confident of a longer-term revival.

But the longer the government takes to move projects from sanction to tender and execution, the more expensive that revival could become — for developers and, eventually, for the people using the roads.