The ratings agency ICRA has adjusted its projection for road contracts awarded by the Ministry of Road Transport and Highways (MoRTH) for the current fiscal year, revising its earlier estimate from 10,000-10,500 km to a lower 8,500-9,000 km. This new forecast mirrors the contracts awarded in the previous fiscal year, which amounted to 8,581 km.
Decline in Road Contracts
The drop in forecasted road awards stems from MoRTH’s recent policy changes, particularly a circular indicating that no new projects would be awarded under the Bharatmala Pariyojana (BMP). The focus is now shifting towards corridor-based highway development rather than the scheme-based projects seen under the BMP. This change has led to a substantial dip in the number of road contracts awarded so far in the current fiscal year.
In the first four months of FY25, MoRTH awarded contracts for only 563 km of road construction, a 50 per cent drop compared to 1,125 km awarded during the same period in the previous fiscal year. ICRA’s revised outlook suggests that overall project awards will remain significantly lower than the levels seen between FY21 and FY23.
Reasons for the Decline
Several factors have contributed to this reduction in road awards. According to ICRA’s Sector Head for Corporate Ratings, Vinay Kumar G, delays in Cabinet approval for the revised costs of the Bharatmala Pariyojana, combined with restrictions on project awards due to the model code of conduct, have impacted the awarding pace. These delays resulted in a 31 per cent year-on-year decline in road contract awards in FY24, falling from 12,375 km in FY23 to 8,551 km.
Impact on Road Developers
The slow pace of contract awards is expected to have a direct impact on road developers, with ICRA predicting a moderation in the growth momentum that the sector has witnessed in recent years. The agency expects this deceleration to continue over the next 12 to 18 months as fewer projects are awarded.
Vinay Kumar G commented, “The overall project award will remain substantially lower than that of FY21-FY23 levels. Consequently, the growth momentum witnessed by road developers in recent years will moderate in the next 12-18 months.”
Changes in Contract Models
While the engineering, procurement, and construction (EPC) model is expected to remain the preferred method for awarding road contracts, ICRA foresees an uptick in the share of build, operate, and transfer (BOT) projects. The BOT model is expected to account for about 5 per cent of road contracts in FY25, compared to less than 1 per cent in the last five years.
This potential rise in BOT contracts could signal a shift in the funding structure for road projects, as BOT models place the responsibility for financing, building, and operating the roads on private contractors, with eventual ownership returning to the government after a certain period.
Future Outlook
The Bharatmala Pariyojana, a flagship programme aimed at developing highways and road infrastructure across India, has faced various roadblocks, including cost revisions and delays in approvals. Despite this, the government remains committed to advancing road infrastructure development across the country, albeit with a shift towards a more corridor-based approach rather than broad-scheme-based expansion.
The reduced road awards in the current fiscal year reflect this transition and signal a period of consolidation for the sector. However, once the revised costs for the BMP are approved and project restrictions are lifted, the pace of contract awards may pick up again in the coming years.