India is currently experiencing a slowdown in road construction, which poses significant consequences for infrastructure development. With estimates suggesting a decrease of 7-10% in road construction activity during the financial year 2025, the country is facing challenges that could hinder growth. In FY24, a total of 12,350 kilometers of roads were constructed; however, projections for FY25 estimate this number to fall between 11,100 and 11,500 kilometers. The primary reasons behind this decline include execution challenges, increasing competition, and delays in project timelines.
Increase in Annual Income from Road Projects
According to Maulesh Desai, Director of CareEdge Ratings, the ongoing projects have a cumulative value of ₹1.83 lakh crore. Alarmingly, over 55% of these projects are currently running more than six months behind schedule. Despite these setbacks, the Total Operating Income (TOI) saw a 14% annual increase from FY21 to FY24, largely due to timely completions during this period. However, projections indicate a decline in revenue due to a reduction in project awards for FY24 and FY25, which may affect financial stability in the sector.
Rising Competition and Project Costs
In addition to delays, rising project costs and increasing competition are expected to contribute to a possible drop of 200 basis points in profits for FY25. The discontinuation of monthly payments under the Atma Nirbhar Bharat scheme may result in a delay of 15-20 days in the working capital cycle, intensifying pressure on developers. CareEdge Ratings analyzed 374 Hybrid Annuity Model (HAM) projects initiated by the National Highways Authority of India (NHAI) from 2015 to 2024. These projects cover a total length of 16,000 kilometers, with a cumulative cost exceeding ₹4.03 lakh crore.
NHAI’s Perspective on Hybrid Annuity Model
The Hybrid Annuity Model (HAM) continues to be a significant framework for road projects, accounting for approximately 55% of total projects from FY21 to FY24. According to the analysis by CareEdge Ratings, the timely execution of projects between FY21 and FY24 has led to a substantial annual increase in Total Operating Income (TOI). However, diminished project awards are projected to negatively impact revenue for FY24 and FY25. The focus remains on improving efficiency and minimizing delays to ensure that infrastructure development keeps pace with India’s growing needs.