Over the past two decades, the road sector has witnessed significant structural shifts. In the early 2000s, impassable and dangerous roads impeded overall economic growth and isolated communities. Connectivity was a far-fetched dream as well as relatively cost-prohibitive at the time. To address this, a series of national programmes – the Golden Quadrilateral, the Pradhan Mantri Gram Sadak Yojana and the Bharatmala Pari yojana – were rolled out with distinct objectives and a shared vision of creating a modern, reliable and world-class road network. Gradually, the national vision grew bolder and the focus sharpened on rapid execution. The latest policy pivot now targets high-speed, access-controlled expressways for the Viksit Bharat @2047 vision.
To support execution, the centre has made significant financial commitments to the sector, as reflected in the current budgetary allocation of Rs 3.1 trillion – higher than the previous year’s Rs 2.78 trillion. Similar support was shown in previous budgets as well. In a broader context, the sector has shifted from sole dependence on government funding to a more diversified model, leveraging cess revenues, foreign capital and asset monetisation proceeds. Therefore, it is clear that financial resources are not the binding constraint, nor is there a lack of development intent. Year after year, the government has announced increasingly bold annual construction targets. Yet, despite the vision, the on-ground progress has consistently fallen short of expectations, delaying the socio-economic dividends so
urgently needed.
As awards fall short of targets, bidding turns aggressive
As a priority sector, road development has traditionally instilled confidence among stakeholders, encouraging them to set ambitious yet meaningful targets in the national interest. This sense of optimism has been built on years of sustained policy focus and commitment. However, recent awarding trends reveal a concerning and uneven trajectory. Over the past three years, on an average, less than half of the targeted road length has actually been awarded – a gap that cannot be overlooked.
Until recently, the entry of several aggressive bidders in the sector created intense competition. In their eagerness to secure projects, many players submitted deeply discounted bids, triggering financial strain and leaving several projects unable to reach financial closure. This frantic attempt to secure projects also exposed the sector’s structural fragilities. Now, a large pool of contractors is contending for fewer projects and resulting in thinning order books. This has increased competitive pressure, promoted risk-taking and raised the stakes for all participants. With fewer highway projects being offered, each tender now attracts a high number of bidders, significantly increasing pressure on contractors to quote lower prices to secure work.
The trend has placed the Ministry of Road Transport and Highways (MoRTH) and executing agencies in an unenviable position. Tasked with balancing speed, fairness and fiscal prudence, the ministry is navigating a highly sensitive and legally fraught terrain. In a recent instance, the ministry cancelled a tender for a highway project in Manipur after the lowest bidder quoted 47 per cent below the estimated cost. The contractor challenged the decision in the Gauhati High Court, which has since granted an interim stay, further complicating matters for authorities. Situations like these underscore the pressures facing policymakers, where well-meaning regulatory actions can quickly become entangled in long legal disputes.
What makes this situation even more concerning is that it is unfolding despite recent well-intentioned policy interventions by the ministry to rein in reckless bidding behaviour. In April 2025, MoRTH introduced the Additional Performance Security (APS) policy – a carefully designed safeguard aimed at deterring imprudently low bids and preventing compromised execution standards.
Efforts to realign sector priorities via decisive policies
In its current form, the APS policy may seem to be an isolated measure, but it supports the broader goal of ensuring timely and quality execution. In fact, it perfectly complements another move by MoRTH, which aims to synchronise project approval, award and appointed date declaration with milestones for land acquisition as well as environment, forest and wildlife clearances. This is intended to streamline pre-construction activities, minimise delays in declaring appointed dates and help avert future project execution setbacks.
The APS policy aims to address such gaps, while also fostering discipline and quality. Moreover, it is expected to deter post-award cost escalations from inexperienced contractors, and aligns with the ministry’s clear stance – cost-cutting at the expense of quality will no longer be tolerated. And so, this new framework sends a strong signal that only
serious, financially sound players should be bidding for national-level tenders.
A key reform under the policy has been the removal of the cap on APS. The APS is now directly proportional to bid deviation. So, lower bids will require higher performance security. Previously, the APS was capped at 3 per cent of the bid project cost (BPC), which limited its effectiveness. For instance, under the earlier cap, a Rs 5 billion bid on a Rs 10 billion authority estimate required only Rs 0.15 billion security, despite being significantly more aggressive than a Rs 6.5 billion bid (which required Rs 0.19 billion APS). The new policy has addressed this loophole. Now, aggressive bidders cannot hit a lower limit while submitting bids without facing significant financial implications in terms of security.
Although this was a much-needed policy intervention, stringent norms for APS on their own may not be sufficient to curb the intense competition in the road sector meaningfully.
A race to the bottom
According to projects tracked by India Infrastructure Research, the National Highways Authority of India (NHAI) has awarded around 7,100 km of highway length under the engineering, procurement and construction (EPC) mode (including item-rate contracts) between 2020-21 and 2025-26 (till December). When compared to other implementation models, projects awarded in the EPC mode accounted for around 40 per cent of the total NHAI awards between 2020-21 and 2023-24. However, in 2024-25, the share of EPC projects decreased, with only around 25 per cent of project activity undertaken. Length wise, 580 km was awarded on an EPC basis. In fairness, this decline must be viewed in the context of an overall sluggish awarding environ ment that year, shaped by the national elections and protracted procedural delays in project clearances.
Yet, the momentum has not fully recovered in 2025-26. So far, the NHAI has awarded only around 90 km under EPC, representing roughly 24 per cent of total awards, even as it plans to roll out nearly 30 EPC projects over the year. Meanwhile, the bidding frenzy has increased with average participation rising from just four to five bidders in the first half of FY 2025 to an intense 20-21 bidders per project in the October-December quarter of 2025-26. This sharp escalation in competition and the steeply discounted bids it has produced reflect the sector’s constrained project pipeline and the anxious scramble to secure work. Notably, even in earlier periods of relative normalcy, there was a similar rush for EPC contracts. Taken together, these trends point to a fragile equilibrium in the EPC landscape, underscoring the need to restore steadier awarding momentum so that healthy competition can coexist with financial viability and timely project delivery.
Meanwhile, the hybrid annuity model (HAM) has regained traction after Covid-19. Between 2021 and 2024, the share of HAM projects soared to an average of over 50 per cent. Provisions such as the availability of 80 per cent right of way before the appointed date, and inflation and interest rate hedging through indexation of cash flows for concessionaires helped sustain interest in these projects. Significantly, during 2024-25, a year marked by overall sluggish awarding activity and parallel efforts to revive the build-operate-transfer (BOT) toll model, HAM not only held its ground but decisively dominated NHAI project awards, accounting for around 65 per cent of total activity. This represents a striking shift, as HAM has now clearly outpaced EPC, historically the preferred and dominant mode of execution.
Looking at the longer trend, over the past five years since 2020, HAM’s share in total highway awards has averaged over 60 per cent – a substantial and structural transformation rather than a temporary spike. According to projects tracked by India Infrastructure Research, the NHAI has awarded over 11,600 km of highway length under HAM between 2020-21 and 2025-26 (till December). In 2025-26 so far, 290 km of highway length has been awarded under HAM, representing 76 per cent of total activity. Further, the NHAI plans to award around 80 HAM projects during the year.
Bidding activity for HAM projects remained intense throughout 2024-25, attracting 8-10 bidders per project – a level that signals both strong market appetite and growing competitive pressure. By the fourth quarter of 2024-25, this already elevated participation increased further to an average of 10-11 bidders, reflecting a visibly aggressive competition for projects that translated into persistently discounted bids against the base price.
More concerningly, this surge in competition has not eased in 2025-26. During the October-December quarter, the average number of bidders per HAM project climbed to 24-25 bidders per project, indicating a crowded market chasing a limited pipeline of opportunities. While this enthusiasm reflects continued confidence in HAM road projects as a preferred model and a safer choice, the aggressive nature of bidding raises serious questions about financial sustainability and long-term project execution.
Finally, despite clear policy announcements and repeated commitments to revive the BOT toll model, the reality on ground is very different. During 2025-26, as of December 2025, not a single project has been awarded under the BOT model. However, the NHAI has signalled its intent to award around 12 BOT projects during 2025-26. While this reflects willingness to revive the model and awarding momentum, the delay so far highlights the urgency of translating intent into timely action.
What lies ahead?
In a solid policy environment like ours, developers and contractors should be well positioned in the bidding space. While the policy’s intent to curb reckless bidding is sound, its impact is being neutralised by the collapse in project awards. Awarding volumes have been decimated – plummeting from over 12,000 km a few years ago to around 2,300 km now. With nearly 20 firms fighting for a single project, bid discounts have spiralled. This threatens the industry’s stability. The policy’s true impact will materialise only over the long term, once MoRTH and the NHAI stabilise the overall awarding pipeline to previous levels. Unless this happens, contractors will be stuck in a cycle of hyper
competition and unsustainable margins, rendering the policy pointless.
Infrastructure development, by nature, cannot rely on shortcuts. Project planning and execution must be forward-looking and resilient, ensuring road assets are built to endure rather than merely meet immediate targets. Going forward, the APS policy has the potential to eventually encourage the participation of serious, credible and well-capitalised bidders, thereby improving performance outcomes and road construction quality. That said, it is also important to assess contractors’ execution capabilities and expertise, particularly in cases involving discounted bids.
Harman Mangat
