In the past one year, there has been significant development in India’s road infrastructure, with a continued focus on improving connectivity, establishing bridge and tunnel links, and leveraging technology in construction. Moreover, there has been an emphasis on the use of sustainable materials, and on safety by ensuring that all road structures adhere to technical standards and engineering practices.
Sustaining the sector legacy
Since the early 2000s, a number of road construction programmes have been launched, each with distinctive objectives, yet collectively aimed at establishing a top-tier road network. Notable among these initiatives are the Golden Quadrilateral Highway Project, the Pradhan Mantri Gram Sadak Yojana and the Bharatmala Pariyojana. Building on the sector’s significant role in advancing infrastructure development, the focus has now shifted towards high speed access-controlled highways, fuelled by achieving the aim of Viksit Bharat 2047.
To support these ambitious goals, the centre has provided strong budgetary backing, as evidenced by the current allocation of Rs 2.78 trillion, similar to the extensive support in past budgets. Alongside this, the sector has transitioned to a more flexible fiscal environment, leveraging sources such as cess, foreign and private equity investments, and proceeds from monetisation.
Construction strides
As a priority sector, road construction and award trends have often given confidence to stakeholders to aim for and achieve high targets. In 2023-24, highway construction reached 12,349 km, marking a notable 20 per cent increase over the previous year. Although the sector fell short of the annual target of 13,814 km, the pace of construction reached 37 km per day.
For 2024-25, the centre has set a moderate but realistic highway construction target of 12,000-13,000 km, lower than the initial target of 13,814 km, in light of election-related activities, delays in state clearances, a proposed shift in measurement methods (from km to lane km), extended monsoons, etc.
However, despite the imposition of the model code of conduct prior to elections, until June 2024, around 1,934 km of highways had been constructed. While the diverted focus of authorities has impacted the construction pace, the Ministry of Road Transport and Highways (MoRTH) has set ambitious post-election targets to construct over 1,700 km and award over 3,000 km of highways. With the election now over, rapid execution can be expected in the second half of the year to support the aforementioned targets.
Unlocking value via monetisation
After overcoming initial challenges, asset monetisation has emerged as a crucial strategy for generating fresh capital, owing to private sector interest in well-structured and viable road assets. With its impeccable track record, so far, road asset monetisation has crossed Rs 1 trillion.
The toll-operate-transfer (TOT) mode and infrastructure investment trusts (InvITs) have now become the primary financing vehicles for road monetisation, bolstered by multiple regulatory interventions. During 2023-24, around Rs 403 billion was raised. In one of the largest monetisation efforts, the National Highways Infra Trust completed fundraising via InvIT Round-3 for stretches spanning 889 km, achieving an enterprise value exceeding Rs 160 billion. The TOT route was also a success, with the realisation of Rs 159.68 billion, while securitisation efforts raised around Rs 86.46 billion. Moreover, bids are currently underway for five more TOT stretches.
To ensure efficient and effective programme implementation, the National Highways Authority of India (NHAI) has established a dedicated monetisation cell responsible for planning and methodology, and conducting feasibility studies.
Deal dynamics
Significant balance sheet-friendly acquisition opportunities exist in the sector, resulting in a flourishing investment climate driven by both foreign and domestic investments. Over the past 15 months, merger and acquisition activity worth over Rs 450 billion have taken place. A major chunk of these deals comprised acquisitions of operational assets, a trend expected to continue. This includes IndInfravit Trust’s acquisition of four operational assets from Brookfield Asset Management Inc. for around Rs 82.7 billion.
The increase in TOT awarding activity has increased the average deal value by over 70 per cent from 2023 within only the first six months of 2024, with the award of five bundles (9, 11, 12, 13 and 14) worth almost Rs 190 billion. Another key deal was KKR’s acquisition of 12 assets from PNC Infratech Limited for over Rs 90 billion. While traditional buyer classes, such as companies, have been relatively inactive in acquisition activities, InvITs are emerging as a dominant buyer class.
Stepping stones towards sustainability, safety and superior roads
As decarbonisation efforts advance, sustainability has become a cornerstone of modern road construction. The sector is adopting innovative practices, techniques and materials to mitigate environmental impact and improve the long-term viability of projects. In this context, bitumen, fly ash, plastic waste and geosynthetics have not only enhanced the durability and sustainability of roads, but have also addressed critical issues such as resource scarcity and carbon emissions reduction. However, the wider adoption of clean mobility practices is contingent upon supportive policies that incentivise contractors to adopt cutting-edge, eco-friendly technologies.
India is at the forefront of deploying innovative practices and techniques, fostering inclusive development of urban and rural roads. In response to the perennial pothole situation, which has long plagued road users, NHAI is embracing innovation by advocating the use of self-healing materials. This can extend asset lifespan to around 80 years and eliminate the need for conventional operations and maintenance. Furthermore, NHAI has introduced performance-based maintenance contracts to make highways pothole-free.
Quality assurance efforts have been revolutionised through advanced survey techniques such as high resolution digital cameras for comprehensive imagery and laser road profilometers for measuring distress. Network survey vehicles, equipped with light detection and ranging technology, are now conducting highway mapping. Drone videography is gaining prominence for recording the construction, and operations and maintenance of all national highways.
Growth potential
All in all, the road sector has demonstrated promising potential, bolstered by a comprehensive suite of measures such as a substantial 11 per cent hike in budget allocation, a 100 per cent foreign direct investment allowance, elimination of the pre-qualification criteria, shift to a quality-cum-cost based bidder selection, and the implementation of the pre-cast policy. With these favourable policies in place, private participation in the form of investments and project bidding is expected to continue. Additionally, last year, modifications were made to the model concession agreement for the TOT model and build-operate-transfer (toll) projects, aimed at enhancing stakeholder confidence and boosting private investments. This has further reinforced the sector’s growth potential.
MoRTH is currently seeking cabinet approval for a Rs 22 trillion (approximately $293 billion) investment to accelerate infrastructure development. With this, it aims to construct 30,600 km of highways by the end of 2031-32, including 18,000 km of expressways and high speed corridors, and decongest 4,000 km of national highways around cities. The private sector is expected to contribute around 35 per cent of the total investment. This strategic focus on rapid road development has led to a bullish outlook for the sector to achieve and surpass construction targets.
Going forward, the sector will witness a convergence of innovative materials and sustainable practices. There will also be a wider adoption of local and marginal materials, utilisation of industrial by products such as slag, recycling of materials and employment of better mix design practices. Furthermore, customer centricity is anticipated to be a top priority, with focus on safer roads, better wayside amenities and improved last-mile connectivity.
Harman Mangat