The slowdown in new highway contracts by the centre for the past two years is expected to slow down the construction pace to in 2025-26 to the lowest since 2017-18, according to a report
The awarding activity by the central agencies has remained subdued for the past two years and in this financial year the highway construction is expected to drop 10-15% on year to 9000-9500 km from 10,660 km in 2024-25, according to India Ratings. The construction of national highways this financial year will be lowest since 2017-18, it said.
The frequency of awarding activity
Awarding activity has remained weak since FY24, with annual awards stagnating at 8,500 km per year, compared to construction activity exceeding 10,500 km, leading to reduced order backlogs.
This decline is also driven by a flat capex allocation of Rs 2.72 lakh crore for FY26, after just a 3% yoy increase in FY25. This is a marked slowdown from a robust 19% CAGR during FY21–FY24.
Internal and Extra Budgetary Resources (IEBR) has fallen to negligible levels recently as National Highway Authority of India (NHAI) focuses on debt reduction, shifting towards budget-supported capex and monetisation.
The Ministry of Road Transport and Highway (MoRTH) and NHAI have changed focus to corridor-based development and more access-controlled highways and expressways, planning 11,000 km by FY27 and 15,000 km by FY32, up from nearly 3,000km currently, moving away from the Bharatmala project.
What does India rating expect?
India Ratings expects ordering activity to revive in FY26, in view of the likely 10,500-11,000 km awards from the central government. Project awards from MoRTH and NHAI have not yet picked up, although there has been some activity resumption with NHAI disclosing clearance status for projects worth Rs 1.15 lakh crore, where bids have been invited. Earlier, NHAI announced a project pipeline worth Rs 3.5 lakh crore to be awarded in FY26, indicating significant awarding potential.
While the awarding activity by the centre is weak, the new contracts by states have spiked in 2024-25. Ind-Ra expects continued momentum in state awards in FY26, after a significant spike in FY25, led by Maharashtra state projects worth over Rs 1.1 lakh crore.
In fact, prior to FY15, state road construction activity consistently outpaced central road activity, a trend expected to return in the coming years. State highway activity is likely to remain strong across states of Maharashtra, Uttar Pradesh, Bihar, Gujarat, Karnataka, Andhra Pradesh, Telangana, Punjab, and West Bengal, where several projects have been announced and awarded, with states increasingly opting for hybrid annuity model (HAM) /BOT model.
The slowdown in awards and relaxed bidding norms has increased competition among road builders. Ind-Ra expects the highway sector’s margins to bottom out in FY26, after plunging about 500bp during recent years.