A robust and well-connected road network plays a pivotal role in driving the economic growth and development of a country. India’s road network, the second largest in the world, is the primary contributor to the GDP among various other transportation modes. The road sector’s growth has been propelled by a stable and supportive policy regime, which has also instilled investor confidence. The removal of pre-construction bottlenecks and the adoption of construction mechanisation have resulted in faster project execution. While the narrative of the 2000s revolved around asset creation, asset maintenance is increasingly gaining relevance as the focus shifts towards user centricity. Digital technologies are enabling this shift in a crucial way. Both the government and the private sector are aligned on mainstreaming sustainable practices. Besides, steps such as acceptance of insurance surety bonds as bid/performance security are welcomed as they allow contractors to manage their cash flows efficiently.
A snapshot
As of July 2023, India’s total national highway network stood at 146,145 km, a growth of 60 per cent from 91,287 km in April 2014. The government aims to take this to 185,000 km by 2030, an increase of 1.3 times, and 237,000 km by 2047, an increase of 1.6 times. About 34,800 km of national highways are being developed under the Bharatmala Pariyojana with a capital expenditure of Rs 10.64 trillion, of which around 27,000 km has been awarded and about 14,500 km has been constructed as of July 2023. Further, 27 greenfield expressways are being constructed at a capital cost of Rs 4.5 trillion. Key among these are the Delhi-Mumbai Expressway, Mumbai-Nagpur Samruddhi Expressway, Bengaluru-Chennai Expressway, Delhi-Amritsar-Katra Expressway and Kanpur-Lucknow Expressway.
The central government’s strong focus on the road sector is demonstrated by the Ministry of Road Transport and Highways’ (MoRTH) capital spending, which has increased by over eight times to reach approximately Rs 2.59 trillion in 2023-24 from Rs 0.31 trillion in 2013-14, recording a CAGR of 23 per cent. Around 60 per cent of the capital outlay has been set aside for the National Highways Authority of India (NHAI) in 2023-24.
In the past two years, the hybrid annuity model (HAM) has maintained its share of 55 per cent in project awards, with engineering, procurement and construction (EPC) constituting a 44 per cent share. The government is focusing on reviving the build-operate-transfer (BOT) model for enhancing the quality of projects. It plans to raise the share of BOT projects from the current sub-5 per cent to around 10 per cent in the next two years.
Bidding intensity
Over the years, MoRTH has taken various proactive measures and made suitable amendments to model concession agreements in order to address the concerns plaguing the industry. These measures have intensified competition in the sector. The average number of bidders has increased from five to seven in 2019-20 to 13-17 in 2021-22. As per ICRA, from January 2021 to August 2023, over 90 per cent of the EPC bids were won at a discount, going as high as 30-40 per cent in some cases. In the case of HAM projects, the median premium declined from over 20 per cent during 2018-19 and 2020-21 to 15 per cent in 2021-22 and -1 per cent in 2022-23. Recent bidding trends indicate that aggressive bidding will continue in 2023-24 as well, despite measures taken by the government.
Asset monetisation
Asset monetisation has played a key role in raising fresh capital and the trend is expected to continue with increasing foreign investor participation. As per deals tracked by India Infrastructure Research, during 2017-22, more than 50 asset sale deals in the road sector have raised over Rs 900 billion. Investors including Cube Highways and Infrastructure, the Macquarie Group, KKR, the National Investment and Infrastructure Fund (NIIF), CPP Investments and CDPQ have been actively investing in the sector through direct asset acquisitions or platforms such as infrastructure investment trusts (InvITs). Owing to inflation-indexed toll charges, regulated assets like toll roads have emerged as attractive assets for institutional investors. As per media reports, NIIF is looking to sell its maiden portfolio of five road projects worth around Rs 100 billion ($1.2 billion), on an enterprise value basis, to raise long-term capital.
The InvIT as a means of monetisation has gained popularity in the road sector. Multiple regulatory interventions have improved the attractiveness of the product. While developers such as L&T IDPL, IRB Infrastructure Developers and Oriental Structural Engineers have their own InvITs, foreign investors such as KKR and CDPQ have also jumped on the InvIT bandwagon. Besides, Actis is planning to monetise its Indian portfolio of operating road assets through an InvIT.
Owing to NHAI’s high outstanding debt of Rs 3.5 trillion, as of March 2022, the authority has been actively exploring alternative financing mechanisms to raise funds. The toll-operate-transfer (TOT) model, launched in 2016, is one such route through which NHAI monetises its highway assets to private players for a minimum period of 15 years. So far, the authority has successfully raised about Rs 330 billion through the award of seven TOT bundles spanning over 2,010 km. The most recent awards, TOT-11 and TOT-12, were granted to Cube Highways and Infrastructure (Rs 21.56 billion) and IRB infrastructure Trust (Rs 44.28 billion) respectively. NHAI also raised Rs 102 billion by monetising 636 km of projects through an InvIT, becoming the first public sector agency in the country to launch a business trust. Meanwhile, NHAI has floated a corridor-specific special purpose vehicle (SPV) that allows investors to finance large-scale road projects during the construction phase. Till March 2023, Rs 335.61 billion has been raised through the SPV for the Delhi-Mumbai Expressway.
MoRTH plans to raise Rs 350 billion through asset monetisation in 2023-24, including Rs 100 billion each through InvITs and TOT, and Rs 150 billion through project-based financing for other flagship corridors.
Safety and sustainability
Sustainability is the prominent theme in the discourse around decarbonisation. India’s road sector is also witnessing the use of innovative practices, techniques and materials to reduce the environmental impact and improve long-term viability of projects. Alternative construction materials such as recycled aggregates, waste plastic, crumb rubber, steel slag, modified bitumen, geosynthetics and fly ash are being used to ensure sustainable development.
New-age technologies including building information modelling (BIM), precast construction and virtual twins are making inroads into highway projects. The government has mandated the use of 25 per cent factory-manufactured concrete elements, excluding foundation work, in national highway projects initiated within a 100 km radius of the precast concrete factory. The aim is to reduce pollution at construction sites, expedite construction and improve aesthetics. In addition, companies are exploring robotics and automation for asphalt and concrete laying.
Digital technologies are playing a crucial role in highway operations and maintenance, with a growing demand for smart infrastructure and connectivity. Advanced traffic management system, wireless sensors and electronic tolling have gained popularity. The use of differential GPS-based LiDARs and drones for field surveys, and BIM for road design have significantly accelerated pre-construction activities.
Technologies such as automated speed enforcement, surveillance systems and driver assistance systems are improving road safety. Energy-efficient lighting solutions, such as LED street lights, are being used to reduce energy consumption and maintenance costs. Smart solar energy grids alongside roads can also contribute to energy generation and sustainability.
Looking ahead
The government is planning to launch a 20-year project, with a focus on highway construction, at an investment of around Rs 20 trillion. Under Vision 2047, the country is expected to withness the construction of a 50,000 km highway network, which will include 30,000-35,000 km of fenced-off expressways.
During 2023-24, MoRTH plans to award 13,290 km and construct 13,185 km of national highways, of which 8,126 km will be awarded and 5,145 km will be constructed under the Bharatmala Pariyojana. NHAI aims to award around 6,000 km of national highways in 2023-24. Meanwhile, 35 multimodal logistics parks (MMLPs) are planned to be developed across the country to strengthen the logistics infrastructure. Around six MMLPs are planned to be awarded during the current fiscal.
As the focus shifts towards smart and sustainable development, highways will be developed with features such as satellite-based tolling, eco-friendly construction, technology integration and an electrified network. Customer centricity will be the topmost priority with safer roads, better wayside amenities and improved last-mile connectivity.
Ishita Gupta
