India likely to fall short of its annual road construction target by 25 percent for FY24
03 Nov 2023 | 2564 Views | By Amit Vijay M
Even though more than 65 percent of road construction activity picks up in the second half of a fiscal year, the Ministry of Road Transport and Highways (MoRTH) is all set to miss its target of building 14,000 km of highways by the end of FY24 by 25%.
According ...
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Even though more than 65 percent of road construction activity picks up in the second half of a fiscal year, the Ministry of Road Transport and Highways (MoRTH) is all set to miss its target of building 14,000 km of highways by the end of FY24 by 25%.
According to construction experts' inputs reviewed by Autocar Professional, India is expected to meet an estimated 10,500 km annually rather than the target of 14,000 km, as National Highways Authority of India (NHAI) awards for construction projects have shown only a marginal 6% growth.
Sources said that the total number of construction projects awarded has decreased by 13% year on year, with total awards remaining in the range of 12,000-13,000 km/year since FY22.
This slowdown can be attributed to the expansion of small, unlisted players in the construction industry. In FY23, out of 157 developers, 102 developers have secured only singular projects, which is one of the likely reasons for a delay in the construction of projects, the same which has been confirmed by SBI Caps in their report on the road sector.
The Union Minister for Road Transport and Highways Nitin Gadkari had earlier expressed his dissatisfaction with the target of constructing 12,500 km of roads during the beginning of the fiscal year. Consequently, MoRTH Secretary Anurag Jain revised the road construction target for 2023–24 to 14,000 km, up from the previous 12,500 km target.
The National Highways Authority of India (NHAI) has been tasked with constructing 6,000 kilometres of roads, while the Ministry of Road Transport and Highways (MoRTH) has been tasked with another 6,000 kilometres. The remaining 2,000 kilometres of road have been assigned to the National Highways and Infrastructure Development Corporation.
A new Vision 2047 is likely to replace Bharatmala Phase 2, ushering in a slew of greenfield projects, which are slated to accelerate the pace of road construction in the near future.
However, over the last 2.5 years, the average project size for listed developers has increased by 27%, while it has decreased by 10% for unlisted players. The Hybrid Annuity Model (HAM) is preferred by the listed players, with half of their projects awarded under this mode in H1FY24.
Nitin Gadkari proposed the Hybrid Annuity Model to revitalise investments in India's road infrastructure projects. NHAI awarded approximately 51% of the 1900 km road projects under HAM during the first half of FY22. This model combines the BOT-Annuity and EPC infrastructure construction models. The EPC model accounts for 40% of this combination, with BOT-Annuity accounting for the remaining 60%.
SBI Caps is optimistic about the future of construction activity, citing data from the Ministry that shows it has already spent Rs 99,273 crore until the end of June 2023, out of a total gross budgetary support of Rs 2.58 trillion for capital spending. The Ministry has planned to spend 91% of its capital allocation for the year by December 2023.
During the first quarter, 2,250 km of national highways were constructed, as compared to 1,966 km built in the same period of FY23.
In addition, the Union Government allocated a record capex budget of approximately Rs. 2.6 trillion to MoRTH in FY24, with more than 60% of this amount already spent by the end of the current fiscal year.