Road Construction in India Poised for Growth
The Indian road construction sector is expected to witness a growth of 5-8% in the current fiscal year, reaching between 12,500 to 13,000 kilometers. This follows a robust expansion of 20% in FY2024, according to ICRA.
Healthy project pipeline: The Ministry of Road Transport and Highways (MoRTH) has a healthy pipeline of projects, standing at over 45,000 km as of March 2024.
The Government of India (GoI) has increased its capital outlay for road construction, which is supporting project execution.
MoRTH is focusing on completing projects ahead of schedule, which is further boosting growth.
Road execution was impacted in the first half of FY2024 due to prolonged monsoon in certain areas. This affected productive days and resulted in muted growth during that period. However, the situation improved from September 2023 onwards, with road construction witnessing a year-on-year surge of 30% in the second half of FY2024.
The share of private investments through the Build, Operate, and Transfer (BOT)-Toll model is expected to improve, but a significant shift towards it is unlikely. The EPC mode, primarily funded by the center, continues to be the mainstay, accounting for 70-75% of awards in FY2024.
Despite government efforts to increase private investment, the BOT-Toll model faces challenges such as higher equity commitment and inherent traffic risks. However, recent changes in the model concession agreement are expected to improve its attractiveness. ICRA expects the BOT-Toll awards’ share to increase to around 10% in FY2025.
The EPC and HAM project bidding process in FY2024 witnessed intense competition, as reflected in consistently discounted bids. The maximum and median discounts stood at 46% and 21%, respectively, against 51% and 25% in FY2023.
The Indian road construction sector is poised for continued growth in the coming years, driven by a healthy project pipeline, increased government spending, and a focus on project completion. While challenges remain, recent initiatives and policy changes are expected to attract more private investment and further boost the sector's growth.