India’s highway construction has witnessed a remarkable surge over the past decade, but recent indications suggest that the pace may have reached its zenith in 2023-24. In fact, the current fiscal year may witness a decline in construction activity.
The pace of highway construction in India has steadily increased from under 12 kilometers per day in 2013-14 to an impressive 30 kilometers per day by 2018-19. Despite the minor impact of the COVID-19 pandemic, which saw the rate dip to 28 kilometers per day in 2019-20, there was a spectacular rebound to a peak of 37 kilometers per day in 2020-21, resulting in the construction of approximately 13,500 kilometers of highways. However, the pace of construction declined to 10,500 kilometers per year before picking up again in 2023-24 to 12,349 kilometers, with a daily rate of 34 kilometers. As a result, the national highway network has expanded significantly, growing by 60% from 91,287 kilometers in 2014 to 146,145 kilometers in 2023, with the length of four-lane and wider highways increasing by 2.5 times.
The length of highway construction in a given year is closely tied to the projects awarded in the preceding year, which provides an indication of the upcoming year’s performance in terms of highway construction. The uptick witnessed in the previous fiscal year was attributed to the awarding of 12,375 kilometers of projects. However, this number has dwindled to a mere 8,581 kilometers in FY24, representing a significant 31% decrease compared to the previous year and falling short of the government’s target of 13,290 kilometers. This indicates a potential shortage of projects to execute in FY25. According to CareEdge Ratings, highway construction is anticipated to witness a decline of 7-10%, with the construction length estimated to be around 11,200 kilometers or 31 kilometers per day in FY25.
There are several factors contributing to this anticipated slowdown. Delays in approving project costs, particularly under the Bharatmala Pariyojana initiative by the Union cabinet, have played a significant role. Additionally, there have been delays in executing projects awarded under the hybrid annuity model, which constitutes over half of the projects awarded from FY21 to FY24. Notably, a third of these projects are facing delays of up to six months.
While the accelerated pace of highway construction has primarily been driven by government support, with the private sector remaining largely absent, budgetary allocation has also increased significantly. The allocation has grown from 32,000 crores in FY15 to 71,000 crores in FY19 and a substantial 1.41 trillion in FY23. Last fiscal year, this allocation further increased to 1.67 trillion. However, in the current year, there has been only a marginal increase to 1.68 trillion. It is important to note that a significant portion of this allocation is earmarked for repaying the debts of the National Highway Authority of India (NHAI), which is responsible for constructing over half of India’s highways.
NHAI, entrusted with building the majority of the wider highways, has incurred a substantial debt burden of 3.5 trillion, which is primarily raised from the market. The repayment of this debt is projected to peak by FY28 before gradually tapering off. NHAI is expected to become debt-free only by 2040, assuming no further borrowing. In recent years, NHAI has transitioned from engineering, procurement, and construction (EPC) projects, where the highway builder bears the full debt burden, to a hybrid annuity model, where the private investor assumes 60% of the project cost.
