The Ministry of Road Transport and Highways has received an 8% year-on-year increase in allocation to ₹2.94 trillion for FY27, according to reports from Business Standard. States have significantly raised their infrastructure and road spending by 15-20% to ₹2.35 trillion, with the top 15 states accounting for nearly 89% of capital expenditure in state roads and highways. Rural road construction has received particular attention, with the government allocating ₹10,000 crore for 18,600 km of roads under the Pradhan Mantri Gram Sadak Yojana-IV in FY27.
MSMEs typically operate as subcontractors in high-value highway projects awarded to larger corporates, while serving as direct beneficiaries in regional and local road projects including state and rural roads, as reported by Business Standard. Their work encompasses construction of pavements, bridges and drainage systems, earthworks, road widening, material supply, safety works, labour contracts, equipment supply and maintenance activities. The EPC model, which transfers design, procurement and construction responsibility to contractors while maintaining government financial burden and risk, provides financial protection for MSMEs who are usually financially constrained.
The EPC model safeguards MSMEs from input cost volatility, particularly evident during the West Asia conflict that caused a 25-30% spike in bitumen costs by April, according to Business Standard reports. Since 34-37% of India's bitumen supplies originate from West Asia, projects handled by MSMEs would face significant time overruns without long-term sourcing contracts or execution delays. This cost protection mechanism ensures MSMEs maintain operational stability despite global supply chain disruptions.
For FY27, operating margins of road EPC MSMEs are expected to remain stable at 9-14%, as reported by Business Standard. This margin stability reflects the protective nature of the EPC model and the substantial infrastructure spending increases across both central and state government levels, providing a favorable environment for MSME participation in road construction projects.
