Govt’s ambitious Bharatmala project appears to be in slow lane

The cabinet’s decision to not approve the revised cost of the Bharatmala Pariyojana was taken after the CAG in August 2023 flagged cost overruns in many of the high-cost EPC projects under the scheme.

Seven years after its launch in 2017, the government has restricted funding of the Ministry of Road Transport and Highways' (MoRTH) flagship road construction scheme, the Bharatmala Pariyojana.

“Approvals for Bharatmala are unlikely to come from the Cabinet,” a senior government source told Moneycontrol.

India’s ambitious Bharatmala project, referred to as a garland of national highways, appears to be in cold storage on account of cost overruns and a seeming lack of consensus among ministries.

The cabinet’s decision not to clear the latest proposal sent by MoRTH in June 2024 to develop 30,600 km of national highways by 2031-32 at an estimated cost of Rs 22 lakh crore is the latest setback the ministry has faced after multiple cabinet notes it prepared seeking approval for funds under Phase-I of the Bharatmala Pariyojana were rejected in 2023.

Emails sent to the National Highways Authority of India (NHAI) and MoRTH remained unanswered at the time of publishing.

The Bharatmala project was approved by the Cabinet Committee on Economic Affairs (CCEA) in 2017 and envisaged the development of 74,942 km of national highways, of which 34,800 km were approved under the first phase up to September 2022 involving an investment outlay of Rs 5.35 lakh crore.

Sources told Moneycontrol that due to pushback from other infrastructure ministries, cost and time overruns have bogged down the project.

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 be approved by the cabinet.

The approval and bidding of highways under the first phase of the Bharatmala programme recorded a shortfall of 34 percent in FY24.

Timeline of Bharatmala Pariyojana Phase(1)

Bharatmala-A dream interrupted

MoRTH had exhausted the initial Rs 5.35 lakh crore approved under the scheme by June 2023 and had approached the cabinet to approve an additional funding of Rs 5.6 lakh crore. However, the cabinet rejected this, first in October 2023 and again in January 2024.

The cabinet’s decision to not approve the revised cost of the Bharatmala Pariyojana was taken after the Comptroller and Auditor General (CAG) in August 2023 flagged cost overruns in many of the high-cost engineering, procurement and construction (EPC) projects under the scheme, including the construction of the Dwarka Expressway project and the Delhi-Vadodara Expressway.

The government, amid the pandemic in 2020,  had  extended the deadline for completion of Bharatmala Phase-I  from 2022 to 2024.  In January 2024, the deadline was once again revised to 2027-28, a full six years from the original schedule.

The big clawback—betting on one project at a time

Government officials told Moneycontrol that pushback from other ministries on increased outlays for the roads ministry has been a point of contention, besides the fact that the project was marred by delays that compounded the costs.

Multiple officials Moneycontrol spoke to said that besides lack of consensus among ministries, cost overruns coupled with the need to reduce the NHAI's debt and slow infusion of private capex into the roads sector served to push the ambitious Bharatmala project on to the back burner.

“There is a growing need to allocate higher capital expenditure across other ministries now that an attractive ecosystem for inflow of private capex from both domestic and foreign investors has been created in the core infrastructure ministries,” a third senior bureaucrat who did not wish to be identified told Moneycontrol.

MoRTH has received the highest budgetary outlay from the central government in eight of the 11 full budgets between 2014-15 and 2024-25, data compiled by Moneycontrol showed. Funding for the ministry increased substantially from Rs 34,345.2 crore in 2014-15 to Rs 2.78 lakh crore in 2024-25.

FY25 is also the first time in the last 10 years when the overall budgetary allocations including internal and extra-budgetary resources (IEBR) to MoRTH was higher than for Indian Railways.

However, the highways ministry is now working on constructing projects on a case-by-case basis and is also increasing project awarding through the public-private partnership (PPP) route.

"Construction of five projects that were earlier part of the Bharatmala project were approved by the CCEA on August 2," a senior government official told Moneycontrol.

These are the Four-Lane Kharagpur-Moregram National High-Speed Corridor, Six-Lane Tharad-Deesa-Mehsana-Ahmedabad National High-Speed Corridor, Six-Lane Agra-Gwalior National High-Speed Corridor (earlier part of the Agra-Mumbai Economic Corridor), Raipur-Ranchi National High-Speed Corridor (earlier part of the Raipur-Dhanbad Economic Corridor) and the the Kanpur Ring Road project.

Officials in the know are hopeful that the Bharatmala scheme being delayed will not have a major impact on the pace of road construction in India going forward.

"MoRTH is working in mission mode to make up for time lost over the last year in getting cabinet approval for projects under Bharatmala," another senior government added.

MoRTH is also planning to award road projects under the PPP model with the NHAI expected to soon come up with tenders for 15 projects worth Rs 44,000 crore, covering 900 km, for bids under the build-operate-transfer (BOT) mode. If successful, this could mark the comeback of PPP projects in highways.

The ministry is also looking to use some of the Rs 2.78 lakh crore allocated to the ministry as part of the budget for 2024-25 to retire NHAI's debt. “A portion of the fund allocated to the ministry will be used for the prepayment of NHAI bonds which is being considered as an option for reducing its debt," the first official said.

Issues that have plagued Bharatmala

The project has battled issues like land acquisition delays, and a nearly 100 percent rise in cost overruns that has hit the implementation of the scheme since the start.

According to RK Pandey, former member, projects, NHAI, the cost of construction of a four-lane national highway in India has risen from around Rs 10 crore per kilometre in 2014-15 to is about Rs 25-26 crore per kilometre in 2023-24 as the NHAI is continuously evolving better specification and improving road safety standards, which has resulted in the increased cost of funding the Bharatmala scheme.

"When we constructed the Golden Quadrilateral, we thought full laning was good enough but with the number of fatalities on the road, NHAI’s focus shifted to road safety. If we compare the last one decade, our cost has more than doubled. At one time, we used to say Rs 10 crore per kilometre is good cost and now, it is in the range of Rs 25-26 crore per km," Pandey said.

However, the cabinet's move to cut funding under the scheme also comes at a time when the government may be considering setting a cap to the extent of its capital expenditure spending.

“The government cannot sustain a 20-odd percent growth in capital expenditure every year for the next five years. Private capex needs to be brought in to sustain growth in the future,” said the first government official cited above.

Investment bank Goldman Sachs had also in multiple reports in 2023 and 2024 mentioned that the rapid pace in the government’s capex growth in the past few years cannot be sustained for long. The investment bank had added that private investments will need to pick up as public capex peaks.

"Growth of private investment in the highways sector has been slow despite the Centre's ambitious capital expenditure in the highways industry for the last five years,” one of the officials cited above told Moneycontrol.

He added that unlocking private capital investment is key for sustainable growth of the industry in the coming years.