India’s railway construction market is entering a phase of significant opportunity, with dedicated freight corridors, high-speed rail, regional rapid transit systems, new track construction, metro expansion and electrification-related works expected to drive momentum over the coming years. However, the opportunity is accompanied by a familiar set of concerns – intense price-based competition, lack of clarity in tender documents, land and design-related risks, inadequate price escalation protection, shortage of skilled manpower and the persistent challenges associated with project financing. While the long-term outlook for railway infrastructure remains positive, the panellists stressed that the industry’s ability to capitalise on this opportunity will depend on how projects are tendered, contracts are structured and risks are allocated between owners, contractors and consultants. The panel brought together perspectives from major infrastructure players with extensive experience across railways and urban rail. Their combined experience spans metro systems, railway tracks, electrification, tunnels, bridges, freight corridors, high-speed rail and digital engineering. The discussion provided an assessment of where the railway construction market is headed and what needs to change to make growth sustainable. Key takeaways…
From order book growth to profitable growth
For private contractors, the railway opportunity is no longer simply about building order books. The focus is increasingly shifting towards the quality and profitability of those orders.
Dilip Buildcon, traditionally known for its strong presence in the road sector, has diversified into railways, metros, irrigation, airports and power. Its current railway portfolio includes metro works, railway tunnels and track and yard construction. The company is executing the Gurgaon metro, completing tunnel projects on the Rishikesh-Karnprayag and Bhanupally-Bilaspur routes, undertaking a tunnel project in Kerala and constructing 60-70 km of railway track or yard works in Odisha.
However, the company’s strategy reflects a broader shift among contractors. Following the difficult operating environment during and after Covid-19, the emphasis has moved from simply accumulating orders to ensuring that projects generate adequate returns. This is influencing the segments and contracting models that private players are willing to pursue.
For Dilip Buildcon, the emerging opportunity lies particularly in the hybrid annuity model (HAM) and public-private partnership (PPP) projects, including dedicated freight corridor and mineral corridor projects. The company expects five to six mineral corridor projects, with significant investments in addition to opportunities linked to the east-west dedicated freight corridor. Kalpataru Projects International Limited (KPIL) also has a diversified portfolio, covering metro construction, railway engineering, procurement and construction (EPC), tunnelling and electrification. Its railway portfolio includes a second-line project for South Central Railway and the Chandigarh-Baddi project for Northern Railway. Despite significant experience, the company has reduced its presence in the railway segment over the past two years due to heightened competition.
A broadening opportunity landscape
The railway construction opportunity is also becoming more diversified. While conventional railway EPC and track construction remain important, several segments could drive growth over the medium-to-long term.
Metro systems are increasingly moving beyond the largest cities, while regional connectivity is emerging as a major opportunity. The Regional Rapid Transit System (RRTS), in particular, was identified as a potentially important model for connecting large metropolitan centres with their surrounding regions. Corridors such as Delhi-Panipat and Delhi-Alwar, along with possible regional connections around cities such as Lucknow and Kanpur and discussions around Ahmedabad-Surat, could create new demand for construction and systems contractors.
RRTS could have particular relevance in cities where conventional metro systems are already established, but suburban connectivity remains a challenge. Extending the RRTS concept to metropolitan regions such as Mumbai and Chennai could create a new layer of regional mobility infrastructure.
For contractors, this translates into an opportunity to participate in increasingly complex, integrated transportation systems rather than standalone civil construction packages.
High-speed rail presents another major long-term opportunity. The railway sector has the potential to sustain substantial construction activity for at least the next 25 years, driven by dedicated freight corridors, high-speed rail and RRTS.
At the same time, the financing structure will remain critical, particularly for large projects. High-speed rail and other major projects require innovative approaches to project financing and risk allocation. Unless financing gaps and the distribution of operational and revenue risks are addressed, private developers may remain cautious.
The PPP question: Risk allocation remains the fault line
The private sector’s experience with railway PPPs has been mixed. Players have been particularly cautious about models that transfer passenger traffic and revenue risk to private developers when those developers do not control the underlying operations. From the industry’s perspective, this remains a fundamental concern. Contractors and developers are reluctant to take revenue risk when ridership, fares, service levels and operations are largely controlled by the railway or metro authority. This has been identified as one of the reasons why earlier railway PPP attempts did not deliver the expected outcomes.
HAM, therefore, is viewed more favourably because it can separate construction and financing responsibilities from direct exposure to operational traffic risk. The railway authorities are increasingly examining models in which the public authority takes a greater share of traffic and revenue risk.
The industry is not necessarily opposed to private capital in railways; it is opposed to poorly allocated risk. The success of future PPP or HAM programmes will consequently depend less on the label attached to the model and more on whether the underlying risks are allocated to the party best placed to manage them.
Tendering emerges as the biggest concern
Contractors believe that the railway sector continues to rely heavily on the lowest bidder (L1) approach, even as project complexity rises. Selecting contractors purely on price can create distortions, particularly when there are substantial differences between the bids received for the same project. There have been cases where the L1 bid could be 25-30 per cent below the estimate while another bid could be significantly higher. Such wide variations are often a consequence of ambiguity in tender documents and bidders making different assumptions about the project. The industry’s argument is therefore not simply that L1 should be abandoned, but that contractor selection needs to better reflect technical capability, financial strength, project complexity and execution experience.
A greater role for quality-and-cost-based selection is being proposed, particularly for technically complex railway projects. The panel also suggested categorising contractors by financial and technical capability and matching project packages with the appropriate contractor class. The highway sector is cited as an example where contractors are categorised according to their size and capability, creating a more structured bidding environment. A similar framework could help the railway sector avoid situations where contractors with varied capabilities compete for the same project purely on price.
One tendering framework for a fragmented system
Another concern is the fragmented manner in which railway projects are tendered and evaluated. Multiple railway organisations and entities invite tenders, with variations in evaluation practices and qualification criteria. A contractor may qualify under one railway zone or authority and face different requirements elsewhere for a comparable project. The proposed solution is greater standardisation of tender evaluation, with one centralised authority responsible for inviting and evaluating tenders, while the concerned railway entity could remain responsible for project execution.
For a private contractor operating across multiple railway zones, standardised qualification criteria and contractual frameworks could reduce transaction costs, improve predictability and make bidding decisions more efficient.
The cost of ambiguity
Incomplete tender documentation is another major impediment. Tenders are sometimes floated before the project is adequately defined, with additional documents subsequently uploaded or issued. This creates uncertainty over the scope of the project, the hierarchy of documents and the allocation of responsibilities. The consequence is speculative pricing. Bidders are effectively required to price unknowns, and different bidders make different assumptions about what is included or excluded from their scope.
For the industry, the answer is relatively straightforward. Projects should reach a sufficient level of readiness before tenders are invited. This includes clarity on design, land availability, project scope, technical requirements and funding. The panel specifically stressed that executive agencies should not rush to issue tenders without first addressing critical prerequisites such as land and project financing.
Greater use of technology has been proposed to improve tender quality. One suggestion is for all railway tender documents to be hosted on a common platform governed by the Railway Board, with an artificial intelligence (AI)-based system used to assess whether a tender document contains the necessary information and is sufficiently clear for bidding.
Land, design and variations remain execution risks Land acquisition continues to be a significant risk, particularly for large railway projects.
Design-related risks are equally important. From a design consultant’s perspective, repeated revisions and delayed approvals can consume the entire budget allocated for design work.
Lack of clarity around variation assessment is an issue. Consultants may undertake several rounds of revisions before a design is finally approved, yet the contractual framework may not adequately recognise the additional effort involved. For contractors, these uncertainties can ultimately translate into cost overruns. Better project preparation before tendering can potentially be more valuable than simply accelerating the tendering process.
A more balanced contract framework
The FIDIC Yellow Book is suggested as a possible model for EPC contracts, with the argument that a more balanced contractual framework could improve risk allocation between employers, contractors and consultants.
The existing railway General Conditions of Contract are highly one-sided from the contractor’s perspective. A balanced contract would recognise the contractor as a development partner rather than simply an executing agency. This issue has wider implications. When risks are perceived to be unfairly allocated, contractors may price those risks in bids, avoid certain tenders altogether, or pursue claims and arbitration during execution. The objective, therefore, should be to minimise the need for dispute resolution by providing greater clarity at the contracting stage.
Escalation clauses need to reflect market realities
Input costs represent another area of concern. While cement and steel constitute a significant share of civil construction costs and are generally covered through price variation mechanisms, there exists considerable exposure in other construction materials, particularly electrical and systems packages.
Design consultants face a similar challenge. Their contracts are often not adequately protected against escalation, even though project delays can result in a substantial increase in employee costs before actual project execution begins. Salary increases of 30-50 per cent over the period between bidding and project commencement were cited as a major concern for design firms. The industry calls for escalation mechanisms that better reflect actual industry costs rather than relying solely on indices that may not capture real-time movements in input prices.
Technology is advancing, but skills are lagging
Technology is increasingly finding its way into railway construction and design, but adoption remains uneven. For contractors, AI is already being used during the bidding process to analyse tender documents and generate risk matrices.
This points towards a wider shift in which AI can support contractors in identifying contractual, technical and commercial risks before they commit to a project.
Design automation is another major area of development. The design industry is moving towards workflows where project conceptualisation, alignment generation, structural analysis and design outputs can increasingly be automated. Building information modelling (BIM), however, illustrates the gap between technology availability and actual implementation. Despite being discussed in the industry for nearly a decade, BIM is still not being used holistically across projects. The constraint is not necessarily the technology itself. It is the availability of people who can deploy it effectively. Consequently, skill development has emerged as a critical enabler of digital transformation.
Mechanisation and integrated delivery
For contractors, productivity improvement will increasingly depend on mechanisation and more integrated project delivery. Advanced machinery is being deployed to reduce manpower requirements and working hours, and improve project cost efficiency. This becomes particularly important against the backdrop of an industry-wide shortage of skilled labour.
There is a need for a more integrated approach in future railway projects, with multiple activities brought under a single contractor where appropriate. End-to-end responsibility can reduce interface risks and create clearer accountability for project delivery. Such integration could become increasingly relevant as railway projects become more complex, combining civil structures, track, systems, electrification and other components.
A sector with a long runway – if reforms keep pace
The overarching message from the private sector is therefore one of cautious optimism. The opportunity pipeline is substantial. Dedicated freight corridors, mineral corridors, high-speed rail, RRTS, metro systems, track construction and electrification-related works can support a long runway of infrastructure investment. But the scale of the opportunity makes institutional reform more urgent, not less.
For the private sector, the next phase of railway development cannot be driven only by larger expenditure and increased tendering. It will require better-prepared projects, clearer documentation, transparent and capability-based contractor selection, more balanced contracts, appropriate escalation mechanisms and more predictable risk allocation. There is also a need for better long-term planning. Railway planning should provide the industry with a clearer view of the network and project requirements over a multi-decade horizon.
Ultimately, the railway construction market is moving from a relatively conventional EPC environment towards a more sophisticated ecosystem involving integrated delivery, digital engineering, new financing models and increasingly complex transportation systems. The private sector is willing to participate in this transformation, but it is asking for a framework in which risks are understood, priced and allocated fairly.
The opportunity is no longer in question. The bigger question is whether the contracting and project delivery ecosystem can evolve quickly enough to convert that opportunity into profitable, timely and high-quality infrastructure.
