India's highway construction to slow to 26-27 km per day in FY19-20

Steep land acquisition costs are partially to blame.

The overall pace of highways construction in India is projected to slow down to 26-27 km per day during FY 19-20 from the current 30 km per day, according to CARE Ratings.

Slowdown in the pace of awards, limited budgetary support, high risk aversion of public sector banks to infrastructure projects, worsened liquidity position of non-bank financial companies, disruption of construction during monsoon and cost of land acquisition were attributed to this decline.

CARE Ratings said that private investment under the Build Operate Transfer (BOT) model is necessary to maintain the current rate, but road developers and lenders were wary of BOT road projects due to the associated traffic and construction risks.

The construction rate for NHs grew to around 31 km per day during the first quarter of FY 19-20, from 30 km per day in FY 18-19 and 26.93 km in FY 17-18.

However, the cost of land acquisition continued to occupy 25-30% of total capital expenditure for National Highways (NH) construction, as it has increased to about $431,500 (INR 3.07 crore) per hectare in FY 18-19 from $126,500 (INR 0.9 crore) in FY 13-14.

Average capital outlay of NHs grew 16% to $1.66m (INR 11.8 crore) per km in FY 18-19 from $1.44m (INR 10.2 crore) from last year. Capital outlay for projects under Bharatmala project stood at around $2.17m (INR 15.4) crore per km.

The National Highways Authority of India (NHAI) acquired 47% more lands at 13,982 hectares in FY 18-19, and total expenditure for land acquisition rose to $4.86b (INR 34,527 crores) from $4.11b (INR 29,200 crores) in the previous year.

Under the Bharatmala project, 178 projects totalling 7,998 km was awarded until March, 23% the planned 34,800 km. As on June 30, there were 46 projects where the appointed date was due for more than three months, mainly from delays in obtaining land for the projects.

As on 31 March, there were 1495 NHs projects which are under construction or development stage, of which 453 development projects were running behind scheduled timelines.