Mint Primer: Why building of highways in India is slowing down

Construction work in progress on National Highway 24 in UP
Construction work in progress on National Highway 24 in UP

Summary

  • The national highway network has risen 60% from 91,287 km in 2014 to 146,145 km in 2023 with the length of four lanes and above rising 2.5 times

India has built highways at a frenetic clip over the past decade. Now there are signs that the pace may have peaked in 2023-24 and it may even fall in the current fiscal year. Mint explores the reasons for this and whether this is a temporary blip or long-term in nature.

What has been the pace so far?

The rate of construction of highways in India has consistently gone up from under 12 km per day in 2013-14 to touch 30 km per day by 2018-19. The covid-19 pandemic had only a minor impact when it fell to 28 km per day in 2019-20 but it rebounded spectacularly to hit a peak of 37 km per day—nearly 13,500 km was constructed—in 2020-21. Post that year, the pace of construction declined to 10,500 km per year before picking up again in 2023-24 to 12,349 km for a daily rate of 34 km. The national highway network has risen 60% from 91,287 km in 2014 to 146,145 km in 2023 with the length of four lanes and above rising 2.5 times.

 

 

How is fiscal 2025 likely to be?

The length of highway construction in a year is a factor of projects awarded in the previous year, which gives an indication of how a year is going to turn out in terms of highways. Last fiscal’s uptick was on the back of 12,375 km of projects being awarded in the previous fiscal. That number has come down to just 8,581 km in FY24—31% less than the previous year and way below the government’s target of 13,290 km, which indicates there are fewer projects to execute in FY25. As per CareEdge Ratings, there will be a 7-10% fall in construction of highways to 11,200 km or 31 km per day in FY25.

What’s behind the anticipated slowdown?

Delays in approving project costs—due to a rise in raw material and land prices—under Bharatmala Pariyojana by the Union cabinet is a big reason. There have also been delays in execution of projects awarded under the hybrid annuity model that makes up more than half the projects awarded from FY21 to FY24. A third of these are facing delays of up to six months.

 

Has government allocation fallen?

The accelerated pace of construction has largely been on the back of government support as the private sector has tended to stay away so far. Budgetary allocation has gone up from 32,000 crore in FY15 to 71,000 crore in FY19 and 1.41 trillion in FY23. Last fiscal year, this went up to 1.67 trillion. In the current year it’s been hiked marginally to 1.68 trillion. Yet, a significant part of this goes towards repaying the debts of the National Highway Authority of India, which builds more than half the highways.

How big is NHAI’s debt overhang?

NHAI is tasked with building most of the wider highways and to do that it has to borrow heavily from the market. Its debt has gone up to 3.5 trillion. Repayment will peak by FY28 before tapering. NHAI will only be debt-free by 2040. That’s if it doesn’t borrow anymore. In the past two years, NHAI has been shifting from engineering, procurement & construction (EPC) projects, where the highway builder bears the full debt burden, to a hybrid annuity model, where the private investor bears 60% of the project cost.

 

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