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India Highway Construction Slightly Up In FY24: Faces Slowdown Ahead
The construction pace of national highways in India saw a slight increase in FY24, reaching 34km per day. This was still lower than the peak of 37km per day achieved in FY21. CareEdge Ratings, in its recent analysis of the Indian Roads & Highways Sector, highlighted a slowdown in the speed of project execution.
Despite this uptick, challenges in execution and increasing complexities in projects are anticipated to reduce the construction pace by 7-10% in FY25, bringing it down to about 31km per day. This slowdown would lead to a decrease in national highway construction from 12,350km in FY24 to between 11,100 and 11,500km in FY25.
Factors like heightened competition and complex project requirements have been identified as key reasons behind this expected slowdown. In FY24, the government's infrastructure development efforts saw a reduction in project awards, which dropped by 31% from the previous year.
This decline was more pronounced than expected, largely due to delays in obtaining cabinet approvals for revised project costs under the Bharatmala Pariyojana and the effects of legislative elections and the code of conduct that followed.
The Hybrid Annuity Model (HAM) remained the preferred project award mode, accounting for about 55% of all projects awarded between FY21 and FY24. However, projects awarded under this model have faced significant delays.
For instance, about one-third of the projects awarded post-March 2020, valued at Rs 1.50 lakh crore, have seen delays of 4-6 months beyond the initial three-month grace period. Moreover, projects worth Rs 40,000 crore are still waiting for their appointed dates more than a year later, exacerbating the challenges of land acquisition for greenfield expressways and highways.
The standard two-year execution span for projects, regardless of their scope, has led to extended project completion times of around 3.5 to 4 years. This has contributed to a slower execution pace across the sector. To combat these issues, the Ministry of Roads Transport and Highways (MoRTH) has updated the BOT Toll concessions.
CareEdge Ratings predicts a shift in awarding preferences from EPC to HAM and Toll projects in the medium term. This shift is expected to not only reduce the funding requirement for the National Highways Authority of India (NHAI) but also improve construction quality.
DriveSpark Thinks
This analysis by CareEdge Ratings serves as a crucial indicator of the future direction of India's road and highway sector. It underscores the need for strategic adjustments in project management and financing to sustain growth and improve infrastructure quality across the country.
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