Poll code may dampen road construction tenders in FY24

According to industry estimates, only around 9,000 km of highways may be awarded in FY24, as against just over 12,000 km awarded in FY23. The expected decline is similar to the trend seen before the 2019 general election when awards fell even more sharply from over 17,000 km in 2018 to 5,500 km.

“The impact on awards is seen this year on account of general elections next year as the model code of conduct would be in place during Q4 FY24,” Vinay Kumar G, sector head, Corporate Ratings, ICRA, said.

“With the election process coming close to the fourth quarter period, when around 50-60% of the annual targeted road contracts are awarded, the fall would be substantial in line with what has been seen in 2019 as well.”

However, according to two officials privy to the development, though awards may slow down in FY24, this will not impact construction as there is already a pipeline of over 55,000 km of highways, work on which is set to start in a phased manner.

One of the two officials quoted above said not only would road construction in FY24 be higher than the previous two years at over 12,000 km, but agencies such as the National Highway Authority of India have already been told to see if construction can be increased to more than 15,000 km this year.

According to data from the ministry of road transport and highways and ICRA Research, the award of highway projects rose from 1,916 km in FY13 to 17,055 km in FY18. But due to the general elections in 2019 falling close to the fourth quarter of FY19, awards fell to 5,493 km.

Since then, road awards have gradually risen to 12,375 km in FY23.

But, ICRA Research has projected that in FY24 (just ahead of election year) awards will dip to 9,000-9,500 km.

The fall in road awards would come at a time when the bidding premium for HAM or hybrid annuity model projects has declined over the last two years owing to increased competition. With even core sector project developers such as those involved in building airports, railway lines and ports now allowed to bid for highway projects, the competition is expected to stiffen.

Officials said lower awards in FY24 would impact project execution in subsequent years till some balance is restored in the system. To offset this situation, the plan is to maximize road awards in the second and third quarters of the current fiscal. Highway projects are being fast-tracked to facilitate the awards.

The government built 10,237 km of highways in pre-pandemic FY20 at 28.04 km per day.

This increased substantially in the first year of the pandemic when lockdowns indirectly helped speed up construction.

That year (FY21), a record 13,327 km of highway were built at 36.51 km per day.

In FY22 the pace again slowed down to 10,457 km at 28.64 km per day. FY23 ended with 28.3 km a day with 10,331 km of highways being built.

The roads and highways ministry wants construction activity to reach 45 km per day in FY24 with over 16,000 km of construction, though internally the expectation is that construction may reach just about 34 km per day at 12,500 km.