Highway capex cut as construction lags

Signs of slowdown in road construction became pronounced with the government scaling down capital expenditure for the sector in calendar year 2023. It built just about 23% of highways in the first five months of FY24 against a record target of 13,800 km.

As per latest data from the ministry of road transport and highways (MoRTH), just about 3,196 km of highways had been built between April and August, while capex spent during the period stands at around 43.3% of the record ₹2.58 trillion provided in the budget for this fiscal.

The momentum for capex was maintained in the first quarter of FY24 by when 38% of the amount was spent. Going by this, MoRTH has set targeted spending of 91% of annual capex by December earlier. In its latest report, MoRTH has scaled down capex spend target to 80% by December, 2023.

“The momentum was expected in road construction this year as it falls just ahead of general elections next year. But a mix of climatic conditions and delays in land acquisition for awarded projects may result in slower highway construction this year," said an infrastructure expert from one of the four big consultancy firms on condition of anonymity.

“However, big recovery in construction could be seen in the second half of the year with some government push as monsoon will not be a factor during this period."

In the first five months of the current fiscal construction has limped at around 600 km per month or just about 20 km per day—half the 40 km per day being targeted in FY24.

The provisional highway construction target this year has been set at record 13,800 km. But this pace of construction is unprecedented. Only in the pandemic year FY21 was over 13,000 km of highway constructed at 37 km per day.

The numbers have slipped since, with construction of just over 10,000 km in FY22 and FY23 against a target of over 12,000 km.

Queries sent to MoRTH remained unanswered at press time.

“Highway construction is moving on the slower lane, but a pickup is expected in the second half as projects awarded late last fiscal will come up for construction now. Also, there is 26% growth in construction in the month of August which shows that hereon more roads would be built every month," said Aniket Dani, director-research, Crisil Market Intelligence and Analytics. “But extended monsoon remains a concern if the rains are very heavy disrupting work."

It’s not only the pace of construction that has slowed in the five-month period of the current fiscal. The award of new projects has also slipped to 1,756 km against 2,706 km in the same period of previous year.

The hope now is that the trend of an increase in highway construction in the third and fourth quarters would be maintained this year. But this too is set to fall just before general elections, and awarding can slow down further.

According to Icra Research, the award of road and highway projects is expected to decline by a sharp 25% during FY24 in the run-up to general elections next year which usually sees squeezing of awards in the last quarter. Only around 9,000 km of highways may be awarded in FY24, as against over 12,000 km of highways in FY23. The expected decline is similar to trend seen ahead of the 2019 general elections when awards fell from over 17,000 km in 2018 to just about 5,500 km in 2019.

It is important to ramp up construction pace as a significant award pipeline beckons—indeed, NHAI alone has 43,000 km yet to be awarded, SBICAPS said in a report. The government constructed 10,237 km of highways in the pre-pandemic period of FY20 at 28.04 km per day.

This increased substantially in the first year of the pandemic when the country saw lockdowns, which indirectly helped speed up construction. That year (FY21), a record 13,327 km of highway were built at 36.51 km per day. In FY22, the pace again slowed down to 10,457 km at 28.64 km per day. This remained slow in FY23 as well with just about 10,993 km of construction. This year internal target is to construct 13,800 km of highways but CRISIL expects mote realistic target for this year to be in the range if 11,500-12,000 km.