Budget 2026 Road Sector Allocation Rises to 3.09 Lakh Crore

Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2026-27, announced a significant fiscal boost for India's infrastructure landscape. The Ministry of Road Transport and Highways (MoRTH) has been allocated 3.09 lakh crore for the upcoming financial year. This represents an 8 percent increase over the 2.87 lakh crore earmarked in the previous fiscal year. The move signals the government's continued reliance on capital expenditure to drive economic growth and improve logistical efficiency across the country.

The increased funding is intended to support the development of national highways, expressways, and greenfield access-controlled corridors. This allocation comes at a time when the sector is navigating challenges such as rising interest rates and the increasing cost of land acquisition. By providing higher budgetary support, the government aims to maintain the momentum of highway construction while reducing the reliance on market borrowings for key agencies.

NHAI Allocation and Debt Management Strategy

A central component of the road sector budget is the allocation for the National Highways Authority of India (NHAI). For FY27, the NHAI has been granted 1.87 lakh crore, up from 1.70 lakh crore in the previous year. This 10 percent increase is part of a broader strategy to recapitalize the authority's balance sheet. The government has shifted toward a model of zero market borrowings for NHAI, relying instead on direct budgetary support and asset monetization.

NHAI is also making significant strides in improving its financial health. A senior government official noted that the authority plans to bring its total debt below 2 lakh crore by the end of March 2026. This is a substantial reduction from its peak debt of 3.5 lakh crore in 2021-22. As of December 31, 2025, the debt stood at 2.35 lakh crore. The reduction in debt liability is expected to lower interest costs and provide the authority with greater flexibility for future project awards.

New Scheme for Construction and Infrastructure Equipment

In a move to strengthen domestic manufacturing, the Finance Minister announced the Scheme for Enhancement of Construction and Infrastructure Equipment (CIE). This scheme is designed to support the production of high-value and technologically advanced equipment within India. The scope of the scheme is broad, covering everything from tunnel-boring machines used in metro and high-altitude road projects to smaller equipment like lifts and fire-fighting gear.

By incentivizing the domestic production of CIE, the government hopes to reduce import dependency and lower the overall cost of infrastructure projects. This initiative aligns with the broader goal of positioning India as a global manufacturing hub for specialized machinery. The availability of advanced equipment is also expected to improve the quality and speed of road construction, particularly in difficult terrains like the North-East and Himalayan regions.

Expansion of the National Highway Network

India's road network has undergone a massive transformation over the last decade. The national highway network has expanded by approximately 60 percent, reaching over 1.46 lakh kilometres. This growth has been supported by a six-fold increase in expenditure by the Ministry of Road Transport and Highways during this period. The focus has shifted from merely increasing the length of roads to improving their quality and capacity.

Recent budgets have emphasized the development of four-lane-and-above highways and access-controlled expressways. These high-speed corridors are essential for reducing travel time and lowering logistics costs, which currently remain high in India compared to global benchmarks. The government is also prioritizing the maintenance of existing assets, with 5,020 crore allocated for highway maintenance through the Central Road and Infrastructure Fund (CRIF).

Asset Monetisation and Revenue Models

To supplement budgetary resources, the government is aggressively pursuing asset monetization. Till November 2025, the ministry has cumulatively monetized 1.52 lakh crore through various modes. For the current fiscal, the target for asset monetization is set between 30,000 crore and 45,000 crore. These funds are raised through models such as Toll-Operate-Transfer (ToT) and Infrastructure Investment Trusts (InvITs).

The proposed Raajmarg InvIT is expected to play a crucial role in this strategy by bringing operational highway stretches to the market. This allows the government to unlock capital from completed projects and reinvest it into new construction. Additionally, the Build-Operate-Transfer (BOT) model is being revived to encourage greater public-private partnership (PPP) and reduce the burden on the exchequer.

The PPP Project Pipeline and Future Targets

The Ministry has outlined an ambitious pipeline for the next three years, planning to develop 13,400 km of projects under the PPP model. This initiative involves an estimated investment of 8.3 lakh crore. For the upcoming fiscal year 2026-27, the government has set a highway construction target of approximately 10,000 kilometres. However, the emphasis is shifting toward qualitative benchmarks rather than just quantitative targets.

New contracts are expected to include stricter punishment clauses for contractors who fail to meet quality standards. This focus on quality is intended to increase the lifespan of road assets and reduce long-term maintenance costs. The government is also looking at self-financing models where the ministry relies less on central grants and more on internal revenue generation through tolls and monetization.

Broader Infrastructure Synergy

The road sector's growth is being integrated with other transport modules to create a seamless logistics network. The Union Budget 2026 also allocated 2.78 lakh crore for the Indian Railways, a 10 percent increase. A key highlight is the development of seven new high-speed rail corridors, including routes like Mumbai-Pune, Hyderabad-Bengaluru, and Delhi-Varanasi. These projects, along with new dedicated freight corridors, will complement the highway network.

Market Impact and Corporate Performance

Major infrastructure players such as Larsen & Toubro (L&T) and IRB Infrastructure are expected to be primary beneficiaries of the increased outlay. L&T recently reported record order inflows of 1.35 lakh crore, bringing its total order book to 7.33 lakh crore. While the stock saw some volatility on budget day, the long-term outlook remains positive due to the massive project pipeline. IRB Infrastructure, a specialist in road development, also stands to gain from the revival of the BOT model and the focus on toll-based projects.

Execution Challenges and Conclusion

Despite the robust funding, the sector faces persistent execution hurdles. Land acquisition remains a primary challenge, with the government maintaining a rule that 80 percent of land must be in hand before work begins. Slower project approvals, cost overruns, and contractual disputes also continue to weigh on the pace of execution. Addressing these structural issues will be critical for meeting the 10,000 km construction target.

In conclusion, Budget 2026 reinforces the government's commitment to building a world-class road network. By balancing aggressive expansion with fiscal prudence and debt reduction at NHAI, the policy framework aims for a sustainable infrastructure model. The focus on domestic manufacturing of equipment and asset monetization further strengthens the sector's long-term viability.