The increase in allocations may, however, be moderate, ranging from between 5% and 10% of the FY24 (revised estimate) levels as the government expects a significant increase in private money flowing into the sector.
The government is anticipating an increase in private investments in road construction projects being awarded under the build-operate-transfer (BOT) toll model on the back of data from the last fiscal year, which showed private investments reaching ₹34,805 crore in FY24.
The government expects this number to almost double in FY25.
Back of the envelop calculations showed private investments were at ₹20,000 crore in FY23.
As BOT (toll) projects allow private sector bidders to take construction risk and invest in developing road projects, they relieve the pressure on the government to spend more money to keep up the momentum of road and highway construction in the country.
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“We are expecting 20-25% of highway project awards this year to be on the BoT (toll) model. This would relieve the pressure on the government to spend on its own for such infrastructure development,” an official aware of the development told Mint.
“The money will continue to be spent by the government but with more private investors, central capex could go into more critical infrastructure projects and ones that have strategic interest attached to them.”
Foot on the pedal
In the interim budget for FY25 presented in February this year, the central government had increased the allocation for MoRTH to ₹2.72 trillion, from ₹2.64 trillion (revised estimates) in FY24. The allocation for FY23 was at ₹2.58 trillion.
The official quoted earlier said that the full budget for FY25, scheduled to be announced in late July, may further increase the allocation to MoRTH moderately.
Queries sent to MoRTH remained unanswered till press time.
The higher allocation is expected to be used by the ministry, both to step up construction of highways, as well as retire the high levels of debt accrued by NHAI that had ballooned to ₹3.5 trillion at the end of FY24.
The government plans to construct between 12,000 and 13,000 km of national highways in FY25, while awarding contracts for about the same levels so that the pace of highway construction is maintained in subsequent years.
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According to ratings agency CRISIL, as the government’s budgetary allocation in the roads sector is moderating, it has made amendments in the build-operate-transfer (BOT) toll model concession agreement to increase private participation in the sector.
However, improvement in traffic estimation accuracy and any increase in the willingness of lenders to fund BOT toll projects will also bear watching, the ratings agency added.
“As fundamentals remains strong, we do see a pick up in private sector capex. This should translate into a good response for roads projects being awarded under the BOT model this year. As a best-case scenario, we expect 20% to 30% of new highway awards this year to come through this route,” said Mohit Makhija, senior director, CRISIL Ratings.
According to India Ratings and Research, budgetary allocation for the road sector has grown at a CAGR of 22% over the past decade, but it is seeing some moderation now.
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In contrast, BOT toll as a model for infrastructure development is expected to grow from this year, with an estimated 20% of the highway contracts likely to be awarded to private players under the route.
This would be similar to the number of contracts awarded to private players in 2016, after which contracts being awarded under the BoT toll model had almost stopped, as delays in land acquisition and other statutory clearances, coupled with faulty traffic projections, had resulted in projects becoming unviable for concessionares, who had bid aggressively for projects.
A clear road map
A look at the expenditure pattern of MoRTH clearly shows that the balance of government spending has shifted towards capital expenditure over the past few years. In 2021-22, MoRTH’s capital expenditure stood at ₹1.13 trillion, while revenue expenditure was just over ₹10,000 crore.
The ratio between revenue and capital expenditure stood at 50:50 in 2014-15. Since then, the MoRTH has increased its capital expenditure significantly, while revenue expenditure has gradually declined and is now flat at around ₹11,000 crore.
In 2023-24, over 96% (budget estimates) of the ministry’s spending was allocated for capital expenditure, while it was at 95% in FY23 and 90% in the fiscal year before that.
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MoRTH’s allocation for capital expenditure has further increased to 98% in the interim budget of FY25.
Apart from a focus on capital expenditure, the quality of expenditure has also seen an improvement, with the maximum funds going to NHAI, which is mandated to build highways and expressways in the country.
Out of the ₹1.24 trillion total allocation (capital plus revenue expenditure) in 2021-22, a substantial, ₹57,000 crore went to NHAI, which was a jump of over 35% from the previous year.
The total allocation to NHAI had further jumped to ₹1.42 trillion and ₹1.67 trillion (revised estimates) in FY23 and FY24, respectively, while the total allocation for MoRTH during these two fiscal years stood at ₹2.17 trillion and ₹2.76 trillion (revised estimates), respectively.
A bumpy drive
In the last nine years, the length of national highways (NH) in the country has gone up by about 60% from 91,287 km (April 2014) to over 146,000 km now. All this has happened despite the adverse situation wrought on by Covid-19 restrictions and the heavy and long monsoon seasons in the interim years.
With allocations for it going up, NHAI proposes to further step-up the construction of highways, taking it up to near 40 km every day in the current financial year, from around 37 km per day in 2020-21.
Highway construction in the pre-pandemic period of FY20 spanned 10,237 km at a daily rate of 28.04 km. The pace of building roads increased during the first pandemic year (FY21), when lockdowns helped accelerate construction, to a record 13,327 km of highways, at a daily rate of 36.51 km per day.
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In FY22, the rate slowed again to 10,457 km at 28.64 km per day. The road ministry had initially aimed to construct 14,600 km of highways in FY22, or 40 km per day. However, it later revised the goal to 12,000 km. Further, FY23 ended with the construction of 10,331 km of highways, at a rate of 28.3 km of roads being built every day in the year.
The government has allocated ₹111 trillion ($ 1.4 trillion) under the National Infrastructure Pipeline for FY 2019-25. The roads sector is likely to account for 18% of this capital expenditure over this period.