The Union Budget 2025-26 is expected to hike the gross budgetary support (GBS) to the Ministry of Road Transport and Highways (MoRTH) by 5-6 percent to around Rs 2.85 lakh crore to Rs 2.9 lakh crore, multiple officials aware of the ongoing discussions told Moneycontrol.
A combination of slower project execution, fall in project awarding and under utilisation of the funds allocated to the MoRTH coupled with the government looking to increase private capital expenditure in the highway sector is expected to lead to a nominal hike in GBS to the ministry in the next financial year, multiple government officials said.
"A nominal increase in the budgetary support of the highway ministry, which has seen its budgetary support increase around 8 times in the last ten years, will not only help the ministry fully utilise funds but will also help boost private sector participation in the sector," a senior government source told Moneycontrol.
The modest hike expected in the GBS to the highway ministry for 2025-26 comes after budgetary allocation in the Union Budget for 2024-25 to MoRTH was raised by only three percent to around Rs 2.72 lakh crore from 2.64 lakh crore a year back.
"The government is aiming to push for more private participation and monetization of highway assets to fund accelerated development of the road and highway sector in the country," a senior official from MoRTH told Moneycontrol, on the condition of anonymity.
The official added that the central government was keen on awarding more projects under the revamped Build-Operate-Transfer (BOT) model and has so far identified 15 significant road projects valued at Rs 44,000 crore, spanning 937 kilometres, which will be awarded in the future.
However, awarding of BOT projects has been in the slow lane so far in 2024-25 with only one BOT project worth Rs 4,734 crore has been awarded till November 2024.
Emails sent to the Ministry of Road Transport and Highways remained unanswered till the time of publishing.
According to rating agency ICRA, given the higher equity commitment and the inherent traffic and execution risks in BOT projects, "the expectations of a material shift in overall project awards towards BOT (toll) in the near to medium term remain challenging."
MoRTH had introduced a revamped BOT project framework earlier this year to bolster private sector investment in highway development. The updated guidelines are designed to attract more private players by providing greater clarity and support for project execution.
Slower highway construction and awarding; lower fund utilisation by MoRTH
Project execution has also been on the fall in 2024-25 as fewer projects were awarded in 2023-24 after the cabinet did not to clear the proposal sent by MoRTH in October 2023 to develop 30,600 km of national highways by 2031-32 at an estimated cost of Rs 22 lakh crore under the Bharatmala Pariyojana.
"Around 5,100 km of national highways have been constructed in FY25 till December 2024, as against 6,200 km of national highways that were constructed in FY24 till December 2023" another senior MoRTH official said, adding that due to lower awarding and project execution MoRTH's capital expenditure in FY25 has been significantly lower in the first 9 months compared to the same period in FY24.
In FY25, MoRTH awarded road projects for the construction of around 2,500 km and one BoT project till December 2024. In the same period in FY24 road projects for the construction of around 3,100 km were awarded till December 2023. In FY23, road projects for the construction of around 7,100 km were awarded till December 2022.
MoRTH has spent Rs 1.75 lakh crore to Rs 1.8 lakh crore as capital expenditure till December 2024 in FY25, compared to Rs 2.15 lakh crore spent till December 2023 in FY24.
Awarding projects under the Bharatmala Pariyojana scheme had slowed down since October 2023 after the Comptroller and Auditor General (CAG) of India found instances of irregularities in the awarding of projects in August 2023.
In its report on the implementation of Phase-I of Bharatmala Pariyojana, the auditor has found deficiencies in the appraisal and approval mechanism proposed to the Cabinet Committee on Economic Affairs (CCEA) and also flagged huge cost overruns in many of the high-cost Engineering Procurement and Construction (EPC) projects, including the construction of the Dwarka Expressway project and Delhi-Vadodara Expressway.
As of December 2023, construction of only 15,549 km or 43 percent of Phase-I was completed, with awards to construct another 10,869 km having been given out. But the remaining projects could not be awarded as the revised cost estimates were not approved by the cabinet.
ICRA forecasts a 30 percent on-year decline in road awarding to 8,500-9,000 km in FY25, compared with the government’s target of 10,500 km. The Centre awarded 8,581 km of road projects in FY24 against a target of 13,290 km.
The highway ministry had constructed around 12,349 km of national highways in FY24 but had missed its target of constructing 14,000 kms of national highways.
The ministry has missed its highway construction target for the past three years.The building of national highways peaked during the pandemic-hit FY21 when lockdowns helped accelerate construction, touching an all-time high of 37 km a day, leading to a record 13,327 km of highways being built.
The NHAI and National Highways and Infrastructure Development Corporation Ltd (NHIDCL) are primarily responsible for the construction of national highways and expressways in India.
Using Budgetary funds for NHAI debt restructuring
Furthermore, sources told Moneycontrol that a significant portion of MoRTH's capital expenditure in FY25 has gone to help the National Highways Authority of India refinance its debt levels. The NHAI has used around Rs 40,000 crore of the highway ministry's budgetary allocation to repay loans in FY25.
The NHAI’s debt was pegged at around Rs 3.3 lakh crore at the start of April 2024 and is now estimated to have come down to around Rs 2.8 lakh crore.
The highway authority is said to be considering a second round of loan repayments in FY25 using GBS allocated to MoRTH, with final approvals expected by the end of January, sources said.
"The NHAI was earlier expected to repay its debt using funds raised from asset monetization, but the process of asset monetization has been on the downturn so far in the current financial year," the second official mentioned above said.
For the current financial year, the government has set the target of raising around Rs 54,000 crore from monetisation of brownfield road assets and project-based financing in the current financial year which would be used to repay the NHAI's loans. However, project monetisation has been on the downturn in FY25 as well, with the National Highways Infrastructure Trust (NHIT) yet to get government approvals to carry out the fourth round of project monetization.
The NHIT, promoted by the NHAI had plans to raise approximately Rs 15,000 crore through a mix of debt and equity by monetising 12 operational road stretches, spanning over 850 km across Andhra Pradesh, Chhattisgarh, Rajasthan, Gujarat, Uttar Pradesh, and Uttarakhand.
But the process is facing delays as the company finds a new managing director and chief executive officer, after its former MD & CEO Suresh Goyal, stepped down from the position in September 2024.
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