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Highway construction activity under the Ministry of Road Transport and Highways (MoRTH) is expected to moderate next fiscal as project awards remain subdued, according to a recent report by rating agency ICRA. Execution is projected to decline to around 9,000-9,500 km from about 10,660 km achieved in the previous fiscal. Although awards this year are expected to remain similar to last year at 7,250-7,750 km, they are well below earlier peak levels. Toll collections are likely to stay stable, but growth may ease due to lower inflation-linked rate revisions.
Highway construction under the Ministry of Road Transport and Highways is expected to ease in the next fiscal year as muted project awarding continues to impact developers order books, according to a recent sector update by ICRA. Advertisement
The agency estimates that highway execution could decline to about 9,000-9,500 km in the coming fiscal, compared to around 10,660 km completed in the last fiscal year. Execution during the current fiscal has already remained lower than earlier highs, reflecting the limited flow of fresh projects.
Project awards during the ongoing fiscal are expected to remain in the range of 7,250-7,750 km. While this is broadly similar to the previous year, it is significantly lower than the levels seen between FY2020-21 and FY2022-23, when annual awards had crossed much higher levels amid a strong infrastructure push. The slowdown in awarding over the past two years has directly reduced the executable order book available with road developers.
ICRA indicated that because most road projects take around six to nine months from award to meaningful revenue recognition, the weak awarding trend is now affecting revenue growth prospects. With fewer large projects being bid out, competition has intensified across both engineering, procurement and construction (EPC) and hybrid annuity model (HAM) segments.
Despite the government's reinstatement of earnest money deposits and additional performance security requirements, bidding activity has remained aggressive. A large proportion of EPC projects over the past three years have been awarded at discounts exceeding 20% to the base project cost. Similar trends have been observed in HAM projects, where discounting has widened as developers compete to secure work amid shrinking pipelines.
On the tolling side, collections are expected to remain healthy in the current fiscal, supported by steady traffic growth across national highways. However, growth in toll revenue is likely to moderate in the next fiscal as inflation-linked toll rate revisions remain lower. For projects linked to the December wholesale price index, toll rate increases are expected to be around 3.3%, while assets linked to the March index could see increases of about 2.5-3.0%.
ICRA also noted that operational challenges linked to the annual FASTag pass system, which had earlier affected cash flow timelines for some developers, are gradually being resolved. Payout cycles from authorities have become more regular, reducing working capital pressure to some extent.
The overall sector outlook remains stable, but growth momentum in core highway construction is expected to soften unless project awarding accelerates meaningfully.
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