Road Construction by MoRTH to Decline by ~5% in FY2026: ICRA

ICRA predicts a 5% decline in MoRTH road execution in FY2026, ranging from 9,500-10,000 km, due to lower awarding in FY2024 and FY2025E. The ministry expects road awards between 8,500-9,000 km in FY2025, similar to FY2024, with improvement expected in November 2024, resulting in 9-11% growth.

ICRA’s Sector Head, Vinay Kumar G, predicts a decline in road construction under the MoRTH from 12,349 km in FY2024 to ~10,000-10,500 km in FY2025 due to shrinking order books, Model Code of Conduct, and extended monsoons. The decline is expected to continue to 9,500-10,000 km in FY2026 due to slow awarding.

The National Highway Authority (NHAI) reported a 5.8% decline in road execution in 9M FY2025, compared to 6,216 km in 9M FY2024. The NHAI monetized around Rs. 83 billion in 10M FY2025 through two toll-operate-transfer bundles, but is expected to surpass the NMP target of Rs. 534 billion in FY2024. Moderation in construction, manufacturing, and mining GVA is expected, with toll collection growth expected to moderate in FY2026.

ICRA, a prominent credit rating agency, has projected a 5% decline in road construction by the Ministry of Road Transport and Highways (MoRTH) for the fiscal year 2026 (FY2026). This anticipated reduction is attributed to a slowdown in project awarding over the past two years, which is expected to impact the execution momentum in the upcoming fiscal year.

Decline in Project Awards

In FY2024, MoRTH’s project awards experienced a significant decrease of approximately 31%, totaling 8,551 kilometers, down from 12,375 kilometers in FY2023. This downward trend continued into FY2025, with ICRA revising its forecasted awards to 8,500-9,000 kilometers, closely aligning with the previous year’s figure of 8,581 kilometers. The primary reasons for this decline include delays in obtaining Cabinet approval for the revised costs under the Bharatmala Pariyojana (BMP) and restrictions on project sanctions.

Impact on Road Execution

The reduced awarding activity has direct implications for road construction. ICRA has adjusted its FY2025 road execution forecast to 10,000-10,500 kilometers, a decrease from the earlier estimate of 12,500-13,000 kilometers. This moderation is expected to persist into FY2026, with projections indicating a further 5% decline, bringing the estimated execution down to approximately 9,500-10,000 kilometers.

Factors Contributing to the Slowdown

Several factors have contributed to the deceleration in project awards and execution:

• Cost Escalations: The BMP has witnessed a doubling of project costs, leading to delays in approvals and subsequent project sanctions. icra.in
• Shift in Project Models: Pending approvals for revised costs have prompted MoRTH to shift its focus towards Build-Operate-Transfer (BOT) toll projects, which may have longer gestation periods compared to other models.
• Financing Challenges: The road construction sector has faced a tight financing environment, further exacerbating the slowdown in project awarding and execution. icra.in

Outlook for the Road Sector

Despite the current challenges, there are positive indicators for the road sector. ICRA anticipates a 9-10% growth in toll collections for FY2026, driven by an estimated 4.5-5.0% increase in toll rates coupled with a 4-5% growth in traffic.

icra.in This suggests a potential recovery in the sector’s revenue streams, which could support future project investments.

To mitigate the impact of the current slowdown, it is imperative for MoRTH to expedite pending approvals and consider alternative financing models to rejuvenate project awarding and execution. A strategic focus on streamlining processes and enhancing financial mechanisms will be crucial in reversing the downward trend and achieving the country’s infrastructure development goals.

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