Finance

Highway construction bulldozes Covid-19 roadblock, clocks record level in FY21

Availability of land and less traffic on highways because of the pandemic also helped speed up construction levels.

Bucking the trend in other infrastructure sectors which suffered on account of the pandemic, 2020-21 turned out to be a stellar year for the highway sector. A record 13,298 km of highways were constructed in the financial year, as against around 10,240 km in FY20, which made for ~30% y-o-y growth and a pace of 36.4 km/day. On the award front, 10,467 km of projects were awarded, up ~17% over 8,948 km in the preceding year. A host of industry-friendly measures taken by the government are said to be behind this performance, with analysts holding that continuation of measures to boost liquidity and relaxation in norms for bidders could see construction pace crossing the 40 km/day mark in the new fiscal.

The performance of the Nitin Gadkari-led highway ministry is specially commendable given that no construction activity was allowed in the first 20 days of April 2020, owing to the Covid-induced lockdown. To boost cash flows for contractors in the pandemic-hit months, the ministry reduced the quantum of the performance guarantee and released the excess money. It also released all pending payments and nudged companies to achieve mandated milestones and receive payments speedily. These measures boosted the confidence of sector players, leading to brisk activity, said Jagannarayan Padmanabhan, director, CRISIL Infrastructure Advisory.

Highway construction bulldozes Covid-19 roadblock, clocks record level in FY21

Icra’s Rajeshwar Burla says relief measures like a shift from milestone-based billing (typically ranging between 45 and 75 days) to monthly billing and release of retention money or performance security in proportion to the work already executed, among others, helped contractors immensely by reducing the cash conversion cycle. “Due to the improved cash conversion cycle for Ministry of Road Transport and Highways (MoRTH)/National Highways Authority of India (NHAI) projects, many road contractors made special arrangements to facilitate the return of labour, notwithstanding the high costs involved. As a result, execution witnessed a sharp improvement, with liquidity-boosting measures aiding it further,” Burla says.

Besides these initiatives, the robust project monitoring system the ministry has evolved over recent years and its proactive approach to resolving issues contributed to last year’s performance. Availability of land and less traffic on highways because of the pandemic also helped speed up construction levels.

Over the last seven years, the total length of India’s National Highways has gone up from 91,287 km (April 2014) to 1,37,625 km, (20 March, 2021), an increase of 50%, the road ministry has said. Average annual project awards in the FY15-21 period witnessed growth of 85% over the FY10-14 period.

While MoRTH has not set any target so far for construction and award of highway projects in the current fiscal, the speed of construction is widely expected to exceed 40 km/day. Making the highest-ever capital outlay of Rs 1.18 trn in the 2021-22 Budget, Finance Minister Nirmala Sitharaman had said more than 13,000 km of roads, costing Rs 3.3 trn, had already been awarded under the Rs 5.35-trn Bharatmala Pariyojana project, with 3,800 km of highways having been constructed. By March 2022, another 8,500 km of projects would be awarded and an additional 11,000 km of highways be completed, she had pointed out.

Speaking to FE recently, NHAI Chairman S S Sandhu said the agency planned to award projects worth around Rs 2.25 lakh crore in the current fiscal, as against projects worth Rs 1.71 lakh crore in 2020-21. Exceeding the 4,500-km target, the NHAI awarded 141 projects totaling 4,788 km in length in 2020-21.

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