Trends and Outlook: Promising prospects despite a slowdown in road construction

A host of policy initiatives, new and emer­ging technologies and equipment, and fo­cus on high quality roads, seamless con­nectivity and sustainable practices are the key factors driving road sector development in India. Road construction and award trends in recent years have also inspired optimism with regard to achieving the high road construction targets.


Project awards and completion

That said, there has been a slowdown in the pace of road construction in recent years. From a record 37 km of road construction in a day in 2020-21, the pace of construction slumped to 28.6 km per day in 2021-22 and further to 19.4 km a day in 2022-23. The Ministry of Ro­ad Transport and Highways (MoRTH) constructed 3,559 km of national highways during the first half (April-September) of 2022-23 as compared to 3,824 km constructed in the corresp­onding period of 2021-22. The reasons for the slowdown are manifold – high input costs, ex­tended monsoons, delays in land acquisition, pandemic-related disruptions, etc.

The year 2021-22 witnessed a 16 per cent increase in the overall project awards. The ministry awarded 12,731 km of length in 2021-22 as against 10,964 km during 2020-21 with ma­ximum projects awarded during the month of March 2022 (over 5,000 km). In 2022-23, however, awarding activity also sl­ow­ed down. The contract award figure stood at 4,092 km during the April-September period of 2022-23, as compared to 4,609 km in the corresponding period a year ago.

The official target of highway construction has been kept at 12,000 km for 2022-23. MoRTH had constructed 10,237 km in 2019-20, 13,327 km in 2020-21 and 10,457 km in 2021-22. In order to achieve the 2022-23 target, the construction rate has to increase to 46 km in the remaining period.

Projects under the government’s flagship Bha­ratmalaPariyojana are witnessing delays and the programme is expected to be completed by 2026-27 at a higher cost of Rs 10.63 trillion as against the original investment of Rs 5.35 trillion. Till date, projects spanning a le­ngth of 22,302 km and entailing a cost of Rs 6.9 billion have been awarded under the programme while 9,548 km of length has been completed. In ad­dition, expenditure of Rs 2.29 trillion has been incurred. The National High­ways Authority of India (NHAI) aims to complete the award of projects under the BharatmalaPariyojana Phase I by the end of 2022-23 and complete around 4,500 km of roads in the ongoing fiscal. The governme­nt has also set a target to build 26 ex­pr­e­ss­ways over the next three years. These expressways will reduce the travel time between Delhi and Ch­an­digarh (2.5 hours), Delhi and Amritsar (4 ho­u­rs), Delhi and Katra (6 hours), Delhi and Srinagar (8 hours), Del­hi and Mumbai (12 hou­rs), and Chennai and Bengaluru (2 hours).

Assets changing hands

The infrastructure investment trust (InvIT) model has met with success in the road sector, with the maximum number of such structures existing in this sector. Sophisticated institutional investors such as CPP Invest­ments, Ontario Teachers’ Pension Plan Board and GIC have invested in InvITs of private developers in the past.

The NHAI InvIT recently raised Rs 14.3 billion from domestic and international investors through the placement of its units, for part funding its acquisition of three additional road projects from NHAI. In addition, the NHAI InvIT has filed a prospectus with the Securities and Exch­an­ge Board of India for the issuance of non-convertible debentures to raise Rs 15 billion. Laun­ched in November 2021, the NHAI InvIT raised Rs 73.5 billion in its maiden round, with an initial portfolio of five operating toll roads spanning 390 km. With the acquisition of the three additional road projects, the NHAI InvIT will own, operate and maintain a portfolio of eight operating toll roads with an aggregate length of 636 km and a concession period of 20-30 years.

With regard to the toll-operate-transfer (TOT) model, a sum of Rs 232 billion has been raised through four TOT transactions. The NHAI had invited bids for two bundles (IX and X), comprising one stretch each, with a cumulative length of 198 km in the states of Uttar Pradesh and Madhya Pradesh. However, the Bundle X auction has been scrapped as the highest bid was lower than the authority’s reserve price and Bundle IX bid is currently under consideration.

Controlled transactions have dominated the asset sale activity over the past few years. Over Rs 380 billion was raised through asset sales during the January-July period of 2022. This is three times more than the Rs 125 billion raised during 2021. Big-ticket transactions such as award of TOT-VII to the Indian Highway Concessions Trust and acquisition of Brook­field’s road projects by the IndInfravit Trust led the deal activity in 2022.

Need for PPPs

During 2021-22, with respect to NHAI awards, the share of engineering, procurement and construction (EPC) contracts stood at 44 per cent while the share of the hybrid annuity mo­del (HAM) was 55 per cent. Build-operate-tra­ns­fer (BOT) projects represent a minuscule sh­a­re of 1 per cent. In 2022-23, HAM is anticipated to account for 45-50 per cent of project aw­ards. The interest in HAM has been high (with a share of over 50 per cent) over the past two years ow­ing to changes in the model concession agreement. The reduction in bid eligibility criteria en­cou­raged mid-sized players to enter the space, which, in turn, led to aggressive bidding.

MoRTH intends to boost the share of the public-private partnership (PPP) mode in order to reduce NHAI’s financial burden. Due to NHAI’s rising debt levels surpassing Rs 3.5 trillion in 2021-22, the authority has no internal and extrabudgetary resource targets for 2022-23; however, its budgetary allocation has jum­ped by 133 per cent to Rs 1.34 trillion. During the course of the year, NHAI can raise Rs 60 billion through capital gain bonds.

The reduction in the lock-in period for BOT projects from two years to one year is needed since developers’ capital will be freed up faster and can be reinvested in other road projects. The industry has embraced the HAM amendment that no longer mandates operation and maintenance (O&M) costs to be factored in during the time of project bidding. The amendment was notified since project bidders were quoting extremely low O&M costs in order to win projects. The amendment will ensure equal footing for all bidders and reduce bidding abnormalities. Moreover, with the reinstatement of EMD/ bid security, competitive intensity in the EPC space is expected to moderate as well.

Due to legacy issues such as delays in land acquisition and right of way, multiple design re­vi­sions, and consequent cost overruns, private sector interest in the BOT model has been minimal in the past few years. As per an ICRA study of 120 BOT road projects that defaulted between 2010-11 and 2021-22, about one-fourth of road projects have been pulled out of default via multiple routes, including monetisation, substitution, improved cash flow position, and debt restructuring.


Timely asset monetisation has become crucial to fund the Bharatmala programme, given the cost escalation due to the steep rise in land acquisition and input costs. NHAI is aiming to raise around Rs 250 billion through this route in this financial year. The authority has also identified a few potential BOT projects to be awarded this year. Following the amendment in the BOT concession agreement, the authority expects the share of BOT awards to increase, going forward.

Healthy traffic growth, expressway development under Gati Shakti, emphasis on sustainability and multimodal connectivity, and the in­flux of private capital (private investme­n­ts are expected to reach Rs 1 trillion by 2030) have ma­de the road sector a bright spot in India’s growth story. Going forward, the sector will witness an accelerated pace of development owing to regulatory interventions, optimistic investor sen­timent and emphasis on improved mobility.

Ishita Gupta