Where are the orders?
Highway construction this year is even slower than 2020 – the first year of the pandemic that brought life to a grinding halt all over the world.
Data from the Ministry of Road Transport & Highways (MoRTH) showed that only 4,766 km of the targeted 12,000 km of highways for FY23 had been built from April to November, indicating a decline of nearly 7 per cent from 5,118 km in the same period last year. NHAI awarded 5,382 km of highways from April till November, a decline of 4 per cent against over 5,600 km of roads awarded a year earlier.
The Government constructed 10,237 km of highways in the pre-pandemic period of FY20 at 28.04 km per day. This increased in the first year of the pandemic when the country saw lockdowns, which indirectly helped accelerate construction. In FY 21, a record 13,327 km of highways were built at 36.51 km per day. However, last year in FY22 the pace has slackened to 10,457 km at 28.64 km per day.
The Ministry of Statistics & Programme Implementation (MoSPI), which measures project delays, reported that the number of projects showing cost overruns as on December 1, 2022, was 22 per cent, higher than 13 per cent in March 2018 with a cost escalation of Rs 4.5 trillion, which is 22 per cent more than the original project cost, or roughly Rs 1 trillion a year of escalation!
As I have been tracking this regularly, it now seems a foregone conclusion that the roads target of 12,000 km will not be achieved. Even though the numbers during the April-November period are not too different from those of the previous year, the tardiness despite absence of any obstacles this year is worrisome and does not infuse confidence that this is achievable in the next four months.
The year 2022 has been a mixed bag. While COVID fears receded and order books began humming, the infrastructure story did not accelerate after hitting a normal pace. Inflation hurt margins. Building material prices, particularly steel, took off vertically. Questions about the Government’s ability to spend money in infrastructure seemed validated with the tardiness in contracts awarded. Yet again, the Government diverted its core focus to elections. Exports are shaky with Europe in economic doldrums. China has just about abandoned its COVID policy of extreme caution but has been hit with a pandemic wave. Inflation is currently being battled with monetary tightening, causing interest rates to be increased, which has begun to hurt demand. Cement is facing a demand slump and the rural areas, too, have hit a pause button. However, the outcome of the rabi crop is likely to set it back on ‘play’ positively. The last quarter of this fiscal is not likely to warm the industry’s pockets even though costs have begun to rationalise. Credit disbursal is the lone bright star that continued to rise through the year.
According to CMIE, while Central Government capex spending is up, state government capex spending, which is of comparable magnitude, is sluggish. Also, new orders received by capital goods and construction companies dropped in July 2022 and have remained low since then. The average monthly orders between July and October 2022 were to the tune of Rs 142 billion, which is the lowest in many years.
We have a challenging last quarter to deal with. However, if India continues its reform programme and the ruling party does not get too involved in assembly elections, we stand a chance to attract over $ 100 billion of FDI and our PLI schemes can begin to add value to the economy.
Author: Pratap Padode is the Editor-in-Chief of Construction World and President of FIRST Construction Council.
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