Road construction to moderate through FY27 as subdued project awards squeeze order book: Icra

NEW DELHI: India’s road construction pace is likely to slow over the next two years as weak project awards shrink developers’ order books and weigh on execution, ratings agency Icra said on Wednesday.

Road building by the road transport and highways ministry is projected at 9,500-10,000 km in FY26 and 9,000-9,500 km in FY27, down from 10,660 km in FY25, Icra said in a sector note. The moderation reflects three consecutive years of lower project awarding.

Awards are estimated at 7,250-7,750 km in FY26, largely flat versus 7,538 km in FY25, but well below the levels seen between FY21 and FY23.

In the first eight months of FY26, awards fell 24% year-on-year to 1,951 km. While several projects are under bidding, awards are yet to be finalized, with a pickup expected in the fourth quarter, Icra said.

Execution under the ministry declined 3% to 4,612 km in April-November FY26, from 4,761 km a year earlier, amid a thinner order backlog and disruptions from an early, extended monsoon.

“Owing to the shrinking order book of road developers amid continued slowdown in project awarding and disruptions caused by the early onset and elongated monsoon across the country, road construction under the ministry is expected to decline,” said Suprio Banerjee, co-group head, corporate ratings, Icra.

Revenue growth of road developers is likely to remain subdued over the next 12-15 months, as billing typically begins six to nine months after project award, Banerjee said. As a result, competition for new projects is expected to remain intense, with companies bidding aggressively to replenish order books.

Bidding intensity has stayed high in projects tendered by the ministry and the National Highways Authority of India, despite the reinstatement of earnest money deposits and additional performance security requirements.

About 71% of engineering, procurement and construction projects awarded by the highways authority and the ministry in the past three years were secured at discounts of more than 20% to base prices, due to limited awards and a high number of bidders.

A similar trend has emerged in hybrid annuity model projects, with bidding discounts widening over the past four years. Discounts stood at around 16% in 2024-25 and about 21% in the first 10 months of 2025-26, Icra said.

Healthy collections

Despite the slowdown in awards, toll collections have remained healthy. Icra expects toll revenue to grow 7-9% in 2025-26.

However, growth may ease to 6-8% in 2026-27 due to muted toll rate hikes linked to softer wholesale price inflation, though traffic growth is likely to be supported by robust economic activity.

Inflation-linked toll increases are seen at about 3.3% for newer projects tied to December wholesale price index readings and 2.5–3.0% for older assets linked to March inflation data in FY27.

An Icra study had found the rollout of an annual FASTag pass had a limited impact on toll collections, with initial operational issues largely resolved and most developers receiving weekly payouts from authorities, Banerjee said.