Inflation: Road projects envisage 2-5 per cent increase in inflation-linked toll rates in FY24: report

Inflation-linked toll rates for various road projects will increase moderately by 2 to 5 percent in the next fiscal year due to the falling wholesale price index, a report said on Monday. Ratings agency Icra revised the outlook for the toll road sector down to stable for FY24 from positive, citing slowing wholesale price inflation, which fell to 4.95 percent in December 2022.

Inflation based on the wholesale price index (WPI) is expected to fall further and is expected to settle below 2 percent in March 2023.

Accordingly, the increase in the toll rate due to inflation will be relatively modest at 2-5 percent in FY24, compared with the 8.7-14.6 percent increase in FY23, the agency said in its latest notice.

Regarding changing the outlook from positive to stable, the revision said the revision primarily reflects expected moderation in toll collection growth to 6-9 percent in FY24, compared to excellent growth of 17-20 percent in FY24 23, which was driven by a healthy increase in toll rates due to high inflation, as well as improved economic activity.

The number of road users or traffic volume and tolls are the main factors affecting toll collection in the country.

Traffic volumes are highly correlated with the gross value added of construction, mining and manufacturing, as around 65 percent of freight transport depends on these sectors. Growth in these sectors is estimated at 5 to 7 per cent in FY24 and is likely to result in overall traffic growth of 4 to 5 per cent, the agency said.

Vinay Kumar G, Sector Head of Corporate Ratings at Icra, said that WPI-related toll rates will see a 5 percent growth in December, while those related to the WPI in March will see growth of just under 2 percent. Consequently, FY24 toll collection growth is estimated at 6 to 9 percent, mainly supported by traffic growth of 4 to 5 percent. Despite more modest growth in toll collection, lower outflows in operations and management and larger maintenance expenses due to the recent weakening of key commodity prices, particularly bitumen and steel, should support toll road equipment debt coverage metrics, he added.

There is a 25 per cent jump in gross budget support to the Department of Roads from Rs 2.59 lakhcrore in FY24 from 2.06 lakhcrore in FY23, which should support the increased execution target of road projects of 14,500km versus 12,000km in FY23.