Spending to build and expand India’s sprawling highway network has slowed sharply, with the Centre achieving only 55% of the capex target in FY25. With just four months left for the fiscal year to end, it appears unlikely the target will be met even if spending is speeded up, two people aware of the development said.
The April-November period saw road sector capex at about ₹1.49 trillion, road ministry data showed, against a record ₹2.72 trillion allocated by the Union budget. The budget had allocated the sum to complete work on at least 13,000 km of highways, including some stretches on access-controlled expressways. However, backlogs and delays in getting clearances, especially for land acquisition, slowed many greenfield and brownfield projects, one of the two people cited above said. Work is progressing only in projects that have missed deadlines, the person added.
“The pace of construction has been slower than planned. While there were a variety of unique factors this year (for example, the model code of conduct before the Lok Sabha election) that led to this, given that most new national highways are greenfield alignments, construction will continue to be lumpy for such projects,” said Srishti Ahuja, investment banking partner (infrastructure), EY India.
Amid slowdown concerns
The slowing pace of road building comes at a time of rising concern about an overall slowdown in infrastructure capex spending by the Centre and states. Mint reported on 10 December that while the overall capital expenditure (by the Centre, states and central agencies) in FY25 is expected to achieve or approach the target, growth could be lower than in the previous fiscal. The Centre’s capital expenditure plans for FY25 stood at about ₹11.11 trillion, up from ₹10 trillion in the previous year.
A query emailed to the Union ministry of road transport and highways (MoRTH) remained unanswered till press time.
In the April- November period, the National Highways Authority of India (NHAI) and the National Highways and Infrastructure Development Corp. Ltd (NHIDCL) which come under the road ministry, built less than 5,000 km of national highways, lower than of 5,250 km in the same eight months last year.
“From the perspective of fresh investments, we continue to see unabated interest. For operating toll concessions, the interest has been highest from global concessionaires, yield funds and infrastructure funds. For new HAM (hybrid annuity model) projects, given the fewer number of bids, we are now witnessing unprecedented levels of competition amongst domestic developers. There has been very limited action in the new toll roads concessions space, in line with what we have witnessed for the last several years,” Ahuja of EY India added.
According to India Ratings and Research, one reason for the fall in capex could be the highway construction model itself. The NHAI for long relied on the engineering, procurement and construction (EPC) model that requires regular payments to contractors for completed work, leading to steady capex spending. However, in the last few years, the focus has shifted to HAM as well as the build-operate-transfer model.
“…small and mid-sized road construction companies could face challenges in sourcing new orders in the medium term, given the reduced flow of EPC orders from NHAI and the MoRTH with increased reliance on BOT and HAM projects,” Ind-Ra said in a report released on Monday.
Though MoRTH has not set highway construction targets for FY25, the second person said it would be similar to last year’s 12,000-13,000 km.
Pace may sustain
Though road building has been on the slow track, it may maintain pace in the last few months of the fiscal year when activity peaks. Also, a large number of detailed project reports (DPRs) completed before the election may lead to more highway awards. Some complex express or access-controlled highways projects may also be awarded this year through the BOT route, which allows the government to take the back seat while private companies winning construction bids make the investments.
In FY24, India constructed the second-highest level of highways, even though it missed out on achieving the record annual construction target for the year by a wide margin. Last fiscal, a total of 12,349 km of highways were constructed, which is just lower than the record construction so far of 13,327 km reported in FY21 which saw widespread covid-related lockdowns.
While construction picked up pace last year relative to the two previous years, MoRTH also used up its entire record capex provided by budget FY24. This is the first time capex spent has touched 99.93% of the revised capex provided in the budget of ₹2,64,526 crore.
The two people cited above said the road ministry’s capex spending has remained over 90% in the previous five years, and in fact, above 98% in three of the five years with exception of FY20 when it hit 91% level, and FY22 when it stayed at 93%.
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