India’s highway construction slows again due to elections, delayed land approvals

Highways construction

India's highway construction slowed in the past two months as national elections started, stalling land acquisition approvals. About 483 km of national highways were constructed in April and 600 km built till May 20, data from the Ministry of Road Transport and Highways of India showed.

The pace of road construction in the first two months of FY25 was the slowest since the pandemic, according to the data seen by Moneycontrol.

"Highway construction has fallen due to a slowdown in land clearance after the Model Code of Conduct kicked in and voting began on April 19," a senior government official said.

National elections are being held in seven phases across the country from April 19 to June 1. Counting of votes takes place on June 4.

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The code of conduct consists of guidelines for political parties, candidates, ministers and other authorities that are in force from the announcement of the election schedule until the completion of the process. It prohibits the government from announcing new projects, including making promises of construction of roads.

Construction companies faced labour disruptions as workers went back to their villages to vote and stayed on for extended periods, causing a further slowdown, the official said.

Historically, highway construction slows in India during an election year. Road building declined 5.7 percent to 10,237 km in FY20 from 10,855 km in FY19. In an election year, road construction usually drops because the implementation of projects is delayed due to the Model Code of Conduct that is in force and delays in awarding projects in the financial year before the Lok Sabha polls.

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Key challenges

Rating companies including CareEdge and India Ratings and Research expect the pace of constructing national highways in India to slow in FY25. CareEdge estimates that the ministry and the National Highways Authority of India will construct 11,100-11,500 km of national highways in FY25 as against 12,349 km of highways in FY24, a decline of 6.9 percent.

India Rating and Research expects about 11,250 km of roads to be constructed in FY25 and expressed concerns over the road engineering, procurement, and construction (EPC) sub-sector, signalling a deteriorating outlook.

ICRA, on the other hand, expects road construction to increase on account of a robust order pipeline. It estimates 12,500-13,000 km of national highway construction in the current financial year.

CareEdge said a 30.7 percent drop in awarding projects in FY24, coupled with a rising competitive landscape, escalating execution challenges, increasing project complexities, rising participation of smaller companies, and prolonged periods between the announcement and signing of contracts are the key challenges faced by the road sector.

According to Maulesh Desai, director at CareEdge, these factors have stretched the project completion cycle for highways to 3.5-4 years now from 2.75-3.25 years earlier.

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India Ratings said it expects the revenue growth of the road and railway sectors to be sluggish.

ICRA said in its report that despite a slowdown in awarding projects in FY24, the ministry’s pipeline remains healthy at above 45,000 km as of March, which is likely to carry construction targets till the next government is elected in June.

ICRA noted that a similar trend prevailed before the general elections in 2019, when projects awarded declined by over 67 percent.

CareEdge also said it observed significant delays in the execution of Hybrid-Annuity Model (HAM) projects. Of all the HAM projects awarded after March 2020 amounting to Rs 1.50 lakh crore, one-third with an aggregate bid project cost value of Rs 50,000 crore faced delays ranging from four to six months beyond the grace period of three months. These projects have applied for or received an extension of a similar or longer period.

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NH-HAM projects with an aggregate bid project cost value of Rs 40,000 crore as of April 1, 2024, have waited for the final contracts for more than a year as compared to projects worth Rs 14,500 crore as of June 30, 2023.