Highway expansion struggles despite government’s capex push

Highway building in FY25 lagged previous year’s levels while new project awards remained virtually unchanged, latest data for the period up to February showed. While construction was completed on just about 8,330 km against over 9,088 km built the previous year, awards were around 4,874 km, almost identical to the previous year’s 4,872 km. Even if March throws up a surprise, the construction will still remain far short of the 12,000 km targeted for the year.

The slowdown in construction and awards comes despite record capital expenditure of over ₹2.35 trillion. The Union budget for FY25 allocated ₹2.72 trillion for the road ministry, which is primarily responsible to building highways across the country.

Road building that peaked at around 13,000 km in FY21 has plunged in the years that followed to 10,000-11,000 kms per annum.

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The hybrid annuity model (HAM) dominated projects awarded in FY25. About ₹26,156 crore worth of HAM and BOT (build-operate-transfer) projects were awarded in FY25 up to February, with the bulk of going it into HAM projects. In HAM, the government supports developers with 40% of project cost at the beginning of construction, while the developer has to get 60% of equity into the projects at later stage. In BOT, the entire construction risk is borne by contractor, who recovers money through tolls after the highway becomes operational.

New projects

“The fewer kilometers of highway construction should not be looked at as a slowdown in highway construction, as the government is now taking up complex projects including construction of higher laned highways and access-controlled expressways,” an executive at a private sector highway developer said on condition of anonymity.

According to Kuljit Singh, partner and infrastructure leader, EY India, there is significant scope for new highway development and expansion in India, as four-lane highways still comprise a small share of the network.

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“…it would be important to also focus attention on enhancing the pace at each of level of project development i.e. increasing pace of land acquisition and land compensation payments, increasing pace of state govt support, increasing pace of utility shifting, tree clearing and encroachment removal, increasing pace of preparing viable DPRs etc. Unfortunately, on such pre-development activities, little information is available and hence, we end up seeing spikes and plunges in highway bidding and construction,” Singh said earlier.

Road and highways minister Nitin Gadkari recently said the only target that the government is now looking at is to touch 100 km of highway construction per day. This would mean more than tripling the current rate of around 30 a per day.

The road ministry hopes to achieve around 12,000 km road construction over next decade, after which it may slow down as most highways required in the country would have been built and focus would shift to maintenance.

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Under the Vision 2047 plan, the road ministry is targeting 50,000 km of access-controlled highways that would add more lane kilometer to the network as most of these would be 4-8 lane networks. So, in terms of lane kilometers, more additions would be made in the highway network across the country, but linear km coverage would remain slower than post-covid levels of over 10,000 km per annum.