Resumption of Road Construction Gains Momentum Despite Fiscal Caution

Road construction projects resumed significantly in July 2024 following a pause due to the election model code of conduct. A Nuvama report highlighted a 43% year-on-year surge, with 600 km constructed. The government remains cautious about NHAI's finances, aiming to reduce its debt substantially.

Road construction projects that had to be halted during the first quarter of FY25 due to the imposition of the election model code of conduct have picked up significantly, according to a research report by Nuvama. The report noted a substantial uptick in road construction during July 2024, with a combined total of 600 kilometers constructed, representing a 43 percent year-on-year surge.

"Road construction in July 2024 at the combined level was 600 km, surging 43 percent year-on-year; of this, NHAI constructed 291 km. Year-to-FY25 construction stands at approximately 2,534 km at a pace of 20.8 km/day, of which NHAI constructed 1,135 km," the report stated. Due to the election model code of conduct, many road projects could not be awarded during the first quarter of FY25. However, the awarding of road projects has picked up since then, with 468 kilometers being awarded in July 2024.

The report added that for the current financial year (FY25), road construction stands at approximately 2,534 kilometers as of July, reflecting a 5 percent year-on-year decline and an average construction pace of 20.8 kilometers per day. The National Highways Authority of India (NHAI) contributed 1,135 kilometers to this figure. In comparison, FY24 saw a total road construction of 12,349 kilometers at a pace of 33.7 kilometers per day, with NHAI constructing 6,644 kilometers.

NHAI's contribution to road construction will drop further as the government also focuses on reducing NHAI's debts, which have surged to over Rs 3.35 lakh crore. The government plans to reduce it to Rs 1 lakh crore. "In recent years, NHAI's debt has been a point of concern, and the current strategy focuses on stabilizing its financial situation rather than increasing its borrowing capacity. By maintaining a minimal budgetary outlay and avoiding new debt, the government aims to manage NHAI's resources more prudently," the report stated.

NHAI is seeing limited financial growth in its budgetary allocations, with an increase of just around 1 percent for the current fiscal year 2025. According to the report, the Internal and Extra Budgetary Resources (IEBR) projection for NHAI remains at zero for FY25, signaling the government's cautious approach to managing the authority's finances.

This conservative stance reflects the government's clear intention to curb further debt accumulation for NHAI.

(With inputs from agencies.)