Road construction may slow down in FY25 on lower project awards last fiscal: Rating agencies

The MoRTH in its latest monthly summary report had said that the major shortfall in awarding projects in FY24 was because of Bharatmala, where the revised approval of the Cabinet could not be obtained.

India’s pace of constructing national highways may slow down in 2024-25, according to two rating agencies — CareEdge and India Ratings and Research. ICRA, on the other hand, expects the construction to increase on account of a robust order pipeline.

Road construction usually sees a drop in an election year as the execution of projects is delayed during the model code of conduct and project awarding is delayed in the financial year before the Lok Sabha elections.

CareEdge expects the Ministry of Road Transport and Highways of India (MoRTH) and the National Highways Authority of India (NHAI) to construct around 11,100-11,500 km of national highways in 2024-25, as against around 12,349 km of national highways constructed in 2023-24. India Rating and Research said it expects road construction in FY25 to be lower at around 11,250 km and expressed concerns over the roads' engineering, procurement, and construction (EPC) sub-sector, signalling a deteriorating outlook.

ICRA had a different view with its estimate of national highway construction at 12,500-13,000 km in the current fiscal.

Sluggish pace

CareEdge said that a 30.7 percent on-year drop in awarding projects seen in 2023-24 coupled with a rising competitive landscape, escalating execution challenges, increasing project complexities, rising participation of moderate sponsors, and elongation in receipt of appointed date from award are key challenges faced by the roads sector.

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

India Ratings' said that it expects revenue growth of the roads and railways sectors to be sluggish.

Optimism over project pipeline

ICRA in its report said that despite a slowdown in project awarding in 2023-24, MoRTH's project award pipeline remains healthy, at above 45,000 km as of March 2024, which is likely to carry construction targets till a new government is elected.

ICRA noted that a similar trend of lower project awarding was seen before the general elections in 2019, when project awarding had declined by over 67 percent on a year-on-year basis.

ICRA's optimism in the government's ability to match road construction is despite highway construction declining 5.7 percent in 2019-20 when compared to 2018-19.

Around 10,855 km of national highways were constructed in FY19 compared to 10,237 km constructed in FY20.

The report card

The MoRTH in its latest monthly summary report prepared for the Union Cabinet had said that the major shortfall in awarding projects in FY24 was because of Bharatmala, where the revised approval of the Cabinet could not be obtained.

In 2023-24, projects of length 8,581 km were awarded against a target of 13,290 km. The ministry awarded highways of 12,375 km length in 2022-23.

Though awards have remained muted in FY24, the MoRTH plans to use the model code of conduct period in the run-up to general elections to complete the detailed project reports (DPRs) of about 10,000 km of highways. This is aimed at speeding up contract awards and construction as soon as the new government takes charge.

Delays likely

Rating agency CareEdge also said that it has observed significant delays in the execution of HAM projects.

Of the overall sample of HAM projects awarded after March 2020 amounting to Rs 1.50 lakh crore, approximately one-third of the projects with an aggregate Bid Project Cost (BPC) value of Rs 50,000 crore are facing delays ranging from four to six months beyond the grace period of three months. These projects have applied for or received an extension of time (EOT) of a similar or longer period.

Notably, another significant portion of NH-HAM projects with an aggregate bid project cost value of Rs 40,000 crore as of April 1, 2024, are still awaiting issuance of appointed date for more than a year as compared to Rs 14,500 crore as of June 30, 2023.

The central government has set ambitious plans to develop roads and highways in its budgets under the National Democratic Alliance government in the past decade. However, even after a significant increase in construction, the targets were missed for seven years in this period.

On February 1, 2022, Finance Minister Nirmala Sitharaman said in her Budget speech that the national highway network will be expanded by 25,000 km in FY23. The government later clarified that the target was cumulative for FY23 and FY24. However, in the last two years the government has managed to construct 22,680 km of national highways.