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Road construction to slow down in FY20: CARE report

Written by PaperDabba

The pace of constructing roads is likely to slow down to the levels of FY18 or even below as more than 340 projects are stuck at the pre-awarding stage without having received the appointed date, CARE said in a report. Nearly half the projects are reportedly under the Bharatmala scheme.

The report also stated road constructions may peak in the second half of the current fiscal due to the elections.

The limited availability of funding for new projects as well as National Highway Authority of India’s (NHAI) slow progress, on land acquisition for awarding new projects under EPC model and hybrid annuity model (HAM), will lead to a slowdown in road construction pace, it added.

“The overall pace of construction is expected to decline in FY20 on account of funding shortage for new projects. Funding will be constrained by the limited number of banks which are in a position to lend outside the Preventive Corrective Action (PCA) framework. Further, the tight liquidity situation in the non-banking financial companies (NBFC) space will constrain future lending. The budgetary support may not be able to compensate for this shortfall,” the report noted.

According to CARE’s analysis, there was a slow down in the construction pace to 23 km per day (in comparison to 27 km per day for FY18) for the first in 7 months of the current financial year due to the monsoons and seasonal disruption.

The report said that the following four months of FY19 the pace could peak at 30-32 km per day.

It, however, did not specify the reason for the sudden increase in construction pace. Sources said that the upcoming elections are likely to increase the pace of construction.

CARE expects the budgetary expenditure, for the development of roads and highways, in the current fiscal to be higher than the allocation of Rs 1,20,557 crore; taking the upcoming elections into consideration.

This, in turn, may lead to a higher outgo for land acquisition to speed-up the awarding of projects.

The government has been trying to monetize the existing road projects to meet the excess capital requirements. This is to help fund new projects and the first bundle of highways under the toll-operate-transfer (TOT) model. Although the model has fetched the government Rs. 9,861 crore (1.5 times more than the estimate), CARE analysts believe, “The scope to raise funds through this medium may be short-term and has limited prospect as the number of attractive road projects that can be bundled and offered to the investors is limited.”

Land acquisition

While the government has set high targets for the constructions of highways and new projects award, the NHAI’s progress in land acquisitions has been stalled due to a sharp rise in the average cost of land acquisition by around 300 per cent over the last 4 years on an average.

Experts point out that the construction pace, of 30-32 km per day, is still far behind the government’s target of 45 km per day for this fiscal. The highways construction target for FY19 has been set at 16,418 km, which is 67 per cent higher than the result achieved in FY18, CARE noted. So far a little over 9800 km of National Highways has been constructed, it added.

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