India’s highway development ambitions hit a speedbump in FY24

highway development, infrastructure, capex
Despite economic challenges, India pushes ahead with its highway development plans, only to fall short of its ambitious targets.

As the financial year 2023-24 draws to a close, the ministry of road transport and highways faces a significant shortfall in meeting its ambitious highway development targets. With only two months left, January saw the awarding of contracts for a mere 370 km of National Highways, underscoring the challenge of reaching the revised goal of 10,000 km for FY24. Despite efforts by executing agencies, including the National Highways Authority of India, the total projects awarded this year amount to 3,481 km, 60% less than the previous year.

The slowdown, attributed to delays in revising cost estimates for the Bharatmala Pariyojana, raises concerns about future construction impacts, especially with the looming Lok Sabha elections and the enforcement of the model code of conduct expected to further constrain ministry actions. Yet, amid these challenges, there is a silver lining as highway construction has shown a 40% increase in pace compared to last January, suggesting a possible surge in execution as the year progresses.

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The government may only manage to award between 6,000 to 6,500 km, falling short of not only its ambitions but also last year’s achievements, when the government developed 7,658 km of highways. Given the current pace, it seems highly improbable that the government will attain its ambitious goal of building 14,400 km of highways annually (approximately 40 km/day), a target it has consistently missed in previous years.

Highway development in nation-building

The government’s vision is to elevate the Indian road network to global standards through extensive expansions and renovations. Highways play a critical role in the functioning of a country as they facilitate the connection between people, the transportation of goods, and other raw materials. India’s focus on highway development is a strategic move to ensure that the nation does not fall behind in infrastructure, which is essential for any country aspiring to develop. Significant investment in infrastructure is a prerequisite for economic growth, and as India positions itself as a global powerhouse, the capital allocated to infrastructure development lays the groundwork for a robust economy.

The Bharatmala Pariyojana initiative underscores the central government’s belief in the power of a comprehensive network of roads, highways, and expressways to bolster India’s economy. With around 60% of India’s cargo movement relying on roads and highways, the expansion of this network is more vital than ever. This expansion is expected to reduce logistics costs from the current 16-18% of GDP to 10%, as per Nitin Gadkari, Union Minister for Road Transport and Highways. A more efficient road network will not only make India more competitive internationally but also boost exports.

State of highway development

A report by Bank of America Securities indicates that India is set to construct more national highways in the decade ending 2025 than it did cumulatively between 1950 and 2015. The highway construction sector is expected to see a remarkable 133% growth by 2025, outpacing any other country’s growth in recent times. Although India’s ambitious target of constructing 60 km of roads per day remains unmet, achieving an average of 30 km per day is already a significant milestone.

However, the road ministry has expressed concerns to the Union Cabinet about the slowed pace of construction due to the reduced number of awards this financial year, which could affect future construction efforts. While this may not significantly impact the sector’s capital expenditure in FY25, the repercussions could be more pronounced in FY26.

The economic downturn has adversely affected India’s highway construction programme, as highlighted by Policy Circle in November 2023. Diminishing government spending and challenges in securing new project financing have slowed progress. Additionally, the economic slowdown has curtailed private investment and, coupled with rising land acquisition costs, has hampered the pace of construction. The government is exploring ways to attract additional investment from market-collected funds and private sectors, considering the auctioning of completed highway projects, and seeking investments through foreign debt and bond markets.

As India strives to maintain its economic growth momentum, it must give urgent attention to highway awards. With the Lok Sabha elections approaching, the government faces the challenge of awarding nearly 6,500 km of highway contracts in the next two months. Industry experts, however, remain hopeful for a resurgence in contract awards in the 2024-25 period, post-elections.