After several years of frenzied activity, there’s an impending lull in the construction of national highways in the second half of FY25, largely due to a decline in the number of projects awarded in FY24. Projects for the construction of just 2,817 km were awarded till November 2023, compared to 5,382 km during the same period a year ago.

The Ministry of Road Transport and Highways (MoRTH) said that the targeted awards for FY24 can be achieved only by expediting the approval of the revised Bharatmala Phase-1 project or any alternative programme.

The shortfall in NH construction may be exacerbated once the model code of conduct for the Lok Sabha elections comes into effect during January-March 2024. March typically accounts for 40-45 per cent of road project awards in a year.

ICRA Vice President and Co-Group Head (Corporate Ratings) Ashish Modani told businessline, “We went through MoRTH’s commentary. ICRA has maintained that the overall award in FY24 will be lower than last year.”

The ratings agency had recently cut its forecast for MoRTH’s road awards in FY24 to 7,000-7,500 km, which is a 40-43 per cent decline year-on-year, from its earlier estimate of 9,000-9,500 km.

The Bharatmala factor

Breaking down the awarding process, Modani explained, “If you award, say, in July, August or September, then financial closure and so on happen six months down the line, ahead of the appointed date. So, it generally takes 8-9 months for work to begin after the awarding.”

Accordingly, FY24 will not be impacted because most projects are underway at a comfortable clip. However, if there is a slowdown in awarding during the current fiscal, then execution will be impacted in the second half of FY25 and, subsequently, FY26, he added.

ICRA said that the wait for Cabinet approval for the revised cost of Bharatmala Phase-l has slowed the process of project awarding in recent quarters.

While the ‘engineering, procurement and construction’ (EPC) route will likely continue to be favoured in road project awards, there is also a gradual shift towards ‘build, operate and transfer’ (BOT)-toll projects, which require less funding support from the ministry, ICRA added.

Rakesh Kalsi, Managing Director (Infrastructure Practice) of TruBoard Partners, an asset management company, said that in the past five years the government has cumulatively awarded nearly 53,000 km of NH projects and completed around 48,500 km. 

“Construction and awarding of NH projects have suffered on account of cost overruns and delays. As per CAG audit report, while only 75 per cent of the estimated project length under Bharatmala Pariyojana Programme (BMP) Phase-1 has been awarded, 158 per cent of the estimated financial cost has already been expended. The BMP Phase-1 cost is now more than double the initial cost. Once these issues are resolved, the envisaged 65,000-km highways under BMP will be a key driver of growth in the sector,” he added.

Sankar S, co-founder of InCoBAN, an initiative focused on improving the infrastructure and construction industry ecosystem, said that construction under Bharatmala-1, which is dominated by smaller contractors, has declined. This has led the government to recalibrate bidding norms to attract bigger contractors for national asset construction, thereby affecting contractors in the micro, small and medium enterprises (MSME) segment.

Electoral roadblock

On the likely impact of the upcoming general elections on the pace of national highway construction and project awards, Modani said, “This is already built in by participants. Generally, a lot of order awarding happens in February and March every fiscal year. So, only December 2023, and January- February 2024 are left before the electoral model code of conduct comes into effect and awardings grind to a standstill.”