India has planned thousands of kilometers of new highway projects, yet only a fraction of them have been completed.

India's construction market in 2012 swallowed a bitter cocktail of policy paralysis, tight liquidity, rising inflation and increased activism, bringing double-digit economic growth in 2010 to an estimated rate of less than 6% this fiscal year. For many firms, this feels like a recession. The present economic crunch and inflationary pressures are adversely affecting workloads in the infrastructure sector. Even leading construction companies, such as Gammon India and Nagarjuna Construction, are recording flat revenue growth.

Developers are confronting legal and policy issues, increased labor costs and a cash-flow crunch, which are slowing down the real estate market, says Ramesh Upadhyay, Associate at Currie & Brown, an asset management and construction consultancy. However, some are more optimistic. The most recent market analysis from the Royal Institute of Chartered Surveyors (RICS) says the construction arena remains relatively upbeat for both the private housing and private industrial sectors, though public non-housing, energy and oil-and-gas have slowed.

Hit by recent corruption charges and facing a general election in 2014, the national government is making few decisions, a frustrated developer tells ENR, saying, "There are no hot spots in the sector this year. Hardly anything has been completed. Only road development has shown some progress." So far this year, only 575 kilometers of the expected 5,500 km of road projects were awarded. Seventy-five percent of the orders by the National Highways Authority of India (NHAI) were build-operate-transfer projects.

NHAI's slowdown, Kotak Institutional Equities analysts contend, is because of "already awarded projects failing to make progress on the back of stringent conditions put forth by banks, execution issues led by land-acquisition and environment-clearance delays, slowing traffic growth and lower interest levels."

The story continues in the power sector. A shortfall of 82% in the hydro-electric sector led to just 1,550 MW commissioned instead of the 8,054 MW envisaged in the last five-year plan, funded through 2012. Of the 3,380 MW that was to be added in thermal power, only 880 MW have been commissioned.

The Indian Railways—the third-largest rail network in the world—also is suffering financial woes. "There is a huge shelf of ongoing projects and limited availability of resources," the Ministry of Railways informed India's parliament in August. "The projects are progressing as per availability of resources." Still, as rail supports the capital-goods industry, including machine tools and rolling stock, there is vast opportunity for the private sector.

A major hurdle in the real estate sector is the human-resources challenge. While skill shortages are a given, there is a lack of trained engineers for design, execution and management. "We find it difficult to get experienced people to manage projects," says Srinivas Belvadi, head of business development for Bangalore-based A.N. Prakash Construction Project Management Consultants. The company has now launched an internal training school.

In terms of projects, townships are the next big thing, says San Diego-based Pacifica Cos., which plans to launch projects in Chennai and Hyderabad. Cities and towns in India expanded to 7,935 in 2011 from 5,161 in 2001, and the number of cities with one-million-plus people grew to 53 in 2011 from 35 in 2001, according to the Planning Commission. By 2031, India will have more than 87 metropolitan areas.

As land prices peak in cities and basic infrastructure lags, real estate property developers are building adjunct cities near metro hubs. Iconic, smart-growth projects such as the Lavasa township near Pune, however, have fallen victim to policy delays. Lavasa serves as an antithesis to the unplanned urban sprawl in Gurgaon, a booming commercial satellite of New Delhi. "It is imperative new planning models differ from conventional urban development by focusing on urban intensification, encouraging mixed-use development and placing a greater focus on the role of public transportation and quality urban design," says RICS South Asia Managing Director Sachin Sandhir.