The government has announced an ambitious plan to significantly reduce the debt of the National Highways Authority of India (NHAI) from the current level of INR 3.4 trillion over the next five years. This is aimed at allowing NHAI to focus more on expanding India's national highway network by freeing it from huge debt servicing obligations. Key elements of the plan include prepaying old high-interest debt, swapping it with cheaper loans, utilizing funds raised through InVITs, and retiring bonds maturing between 2025-2030 followed by those extending up to 2040. The move comes as NHAI's debt has increased 14-fold since 2015 and a major portion of its budget now goes towards debt repayment instead of new construction.
The government is looking to significantly reduce the National Highway Authority of India's (NHAI) INR 3.4 trillion debts within the next five years. This would allow the agency to focus its resources on strengthening India's highway network.
As part of the road and highways ministry's 100-day agenda, the debt retirement plan involves letting go of long-term, high-interest debt and lowering interest payments. The Centre wants to prepay some of NHAI's debt while reducing its debt servicing obligations.
The high debt level and rising debt servicing are resulting in much of NHAI's budget not being used for infrastructure creation. Steps being taken include pre-paying old debt, swapping high-cost debt for lower interest loans, and using infrastructure investment trusts (InvITs) to reduce debt. This aims to free NHAI from debt obligations and allow it to use funds for construction.
The NHAI has raised funds through fixed coupon rate bonds with tenures of five, 10, 15, 20, 25 and 30 years. Several of these bond issues, the last of which came in FY22, are maturing between 2025 and 2030. The plan is to first retire bonds maturing between 2025-2030. It then aims to give early exits to long-term bondholders with maturities extending up to 2040.
NHAI is expected to pay over INR 30,000 crores in debt servicing in FY24, peaking at INR 62,000 crores in FY28 when earnings of INR 69,000 crores will provide a surplus. Since FY15, NHAI's debt has risen 14-fold from INR 24,188 crores to INR 3.48 trillion as of September 2023.
Since FY23, the government has suspended major borrowings by NHAI, so capital needs must now be met solely through budget allocations. NHAI borrowed close to INR 65,000 crore and INR 76,000 crores in FY21 and FY22 respectively. Experts said that if borrowings had continued at the same level in FY23 and FY24, total debt would have exceeded INR 4 trillion by now. While fresh major borrowings have stopped, NHAI continues project-level financing through special purpose vehicles (SPVs).
Despite the borrowing ban, NHAI's overall debt has not reduced significantly in FY24. It targets decreasing debt by INR 50,000-75,000 crores annually to become debt-free within five years. However, relying only on budgetary funds, debt-free status may not be achieved until FY42. Experts suggest looking into InVIT's and Hybrid Annuity Model (HAM) to support this objective.
The Union Budget for FY25 set NHAI's allocation for roads, highways and bridges at a record INR 1.68 trillion, marginally higher than FY24's revised estimate of INR 1.67 trillion and FY23's amount of INR 1.41 trillion.
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