Highway developers get relief as govt tweaks cost escalation norms, speeds up payouts

The Government of India has rolled out a temporary cost escalation compensation mechanism for national highway projects, offering relief to contractors and concessionaires grappling with rising input costs triggered by global economic volatility.

The measures, announced for a three-month period from April 1 to June 30, 2026, aim to cushion the impact of higher fuel prices, construction material costs, and logistics expenses, while ensuring that project execution timelines remain unaffected.

At the core of the intervention is a shift towards improving cash flows for infrastructure developers. The government has allowed monthly payments for work completed under both Engineering, Procurement and Construction (EPC) and Hybrid Annuity Model (HAM) projects, subject to quality compliance. This marks a departure from earlier practices that often led to delays in disbursement and working capital stress.

In a significant tweak to price adjustment norms, the reference period for key cost indices has been shortened. Under EPC contracts, the Wholesale Price Index (WPI) for critical inputs such as cement, steel, and construction equipment will now be considered one month prior to the billing cycle, instead of the earlier three-month lag. A similar revision has been made for bitumen pricing, where the applicable rate will now be based on the retail price one month prior to the Interim Payment Certificate (IPC) month.

The move is expected to make compensation more responsive to current market conditions, particularly at a time when commodity prices remain volatile.

Additionally, escalation payouts under EPC contracts will now be released alongside monthly payments. For HAM projects, the government has enabled the release of price escalation calculated through the Price Index Multiple (PIM) on a monthly basis—further easing liquidity constraints for developers.

The latest intervention comes as the government seeks to sustain momentum in highway construction, a key pillar of India’s infrastructure push, despite external headwinds impacting project costs and contractor margins.