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Roads in India : The journey to connect

Roads in India : The journey to connect

If the road is not good, the journey is always difficult and time consuming.

This has precisely been the case in India since independence. Infrastructure was never given its due importance until the dawn of the new millennium. India inherited very poor network of roads during its independence from Britishers and Post-independence also there were no significant additions to the so-called roads in the country. The importance of road infrastructure was realized only after the incorporation of an autonomous body called National Highway Authority of India (NHAI) in 1988 for developing, maintaining and managing the network of roads in India, even then actual development in the sector began only after liberalization in 1992. Though NHAI was setup for development of roads, the maintenance of these roads was the responsibility of Central government, state government and local authorities. The government today in India is focusing more and more on infrastructure for keeping the cycle of overall growth of the economy running as it realizes that good roads can set the ball rolling for overall development in the economy.

As per the statics of Ministry of Road transport and Highways (MoRTH) dated July 2015, India has the second largest network of roads in the world, second only to USA and carry almost 90% of the country’s passenger traffic and 65% freight. The quantitative density of roads in India is higher than developed nations like Japan, USA and China. The improvements in this sector has contributed to overall growth in the economy as road transport contributes 4.7% of the country’s GDP growth.

Development and maintenance of road infrastructure is now a priority sector and is now receiving strong budgetary support from the government. An amount of USD 8.21 billion was allocated towards growth of road sector and road transportation in Union Budget 2016-17. In addition, NHAI has been authorised to raise USD 8.85 Billion by issue of Sec 54C Tax Free bonds.

Prior to the tenth plan, funding of road projects was done only through budgetary allocations. However, during the development of tenth five year plan the government realized that budgetary allocations alone could not fund the planned development of roads in the country and alternative ways to fund them was needed. That is when the government came up with a plan to attract private investment. Since then, the government has been allocating road construction projects on Public private partnership (PPP). The PPP model of funding has brought about a lot of changes in the road construction industry which was earlier bearing the brunt of red tapism. PPP model has lead to better and quick decision making, flexible procurements, on-time completion of projects, lesser cost-over-runs and lower or no maintenance cost. The PPP has been worked out on various models i.e. Built-Operate-Transfer (BOT), Built-Operate-Transfer Annuity model (BOT Annuity), Special purpose vehicle (SPV), Hybrid Annuity model (HAM) etc.

To promote more investment in this sector, the government has provided various incentives that include 100% FDI in the sector through the automatic route, capital grants to enhance viability of projects, 100% tax exemption for 10 years, duty free import of equipment, easier ECB norms, right to collect and retain toll besides providing easy clearances, bearing cost of feasibility study etc. all these efforts have led to increased interest of private players in the sector. Isolux Corsán invested `USD 400 Million for development of three new toll roads under BOT arrangement in joint venture with Morgan Stanley Infrastructure fund. Brookfield Funds, Canada took over entire portfolio of eleven road projects in high traffic cities including New Delhi, Bangalore, Jaipur, Agra, Gurgaon and Pune among others from Reliance Infrastructure for total value of Rs. 8000 crores in July 2016. As per the estimates of MoRTH, investment of upto USD 31 billion are expected by 2020 for national highways alone.  As per MoRTH statistics, over 250 projects have been awarded under the PPP model of which 113 have been completed and 149 are in progress as of December 2016.

Length of National Highways has grown from 91287 kms as on 31st march 2014 to 101010 Kms in 2016. The government has accelerated the process of awarding projects and has awarded projects for construction of 100989 kms in 2015-16 as against 7980 kms in 2014-15. Further it has provided for measure for accelerated implementation of projects which have resulted into construction of 6029 kms in 2015-16 as against 4340 kms in 2014-15. The government targets to complete 10000 kms of National Highways, award 25000 kms of new National highway projects in 2016-17. Of this 15000 kms shall be awarded by NHAI and balance by 10000 kms by MoRTH. Total of ~63600 kms of road development and improvement has been planned under National highway Development Project (NHDP) for upgrading and strengthening of national highways, Special Accelerated Road Development Program for the North-East region (SARDP-NE) for development and improvement of more than 10,000 kms of road connectivity in the north eastern region of the country, Development of roads in Left Wing Extremism (LWE) affected areas for development of ~7,000 kms of roads in the LWE affected area of Vijaywada Ranchi route and other,  National Highways lnterconnectivity Improvement Project (NHIIP) with the assistance of World Bank for improvement of 1120 kms of National Highways etc.

Though newer models for financing are being explored, they have faced several glitches. Even though it is called public private partnership, they are majorly funded through debt. The ideal funding model suggested by Government is debt: equity ratio of 70:30 which puts high debt burden on projects from the very inception. As per the twelfth five year plan, as against total requirement of ~Rs. 3670 billion, Rs. ~2570 billion shall be funded by debt and balance Rs. 1100 billion through equity. So, if the returns are not high, the project by default becomes less lucrative for investors.  Further, long gestation period makes it difficult to raise equity and the ones raised are mostly through public issue, private placements or internal accruals.

These projects, which were once very lucrative option for investors have seen frequent barren periods post the economic slowdown and investments in these sectors has reduced considerably. Even banks and financial institution which were earlier keen to lending to government backed infrastructure projects now have become very stringent with their parameters for lending thus making it difficult for private investors to invest in new projects.

Inspite of this, there has been steady increase in equity investment and lending to this sector and delays in implementation of projects are mostly bureaucracy related. There are delays in acquiring land, giving clearances, giving toll collecting rights etc. to mitigate these risks, the government is working on improving inter-ministerial co-ordination for providing one window clearances & approvals, providing exit options to private developers within two years of operation of BOT projects, reviving languishing projects, amend model Concession Agreements to facilitate streamline development and operation of projects etc.

The government today is working with the vision of making India a world class business destination and sought after investment hub and is dedicated towards developing and strengthening the road network in the country. With this view, tremendous developments are being planned, committees are being set up & projects are being awarded and approvals being given at lightening speed. With the improved pace of growth, better road infrastructure looks like an achievable mission, however whether this mission will actually be achieved only time and sincere efforts will decide.

 

– C.A Anita D’souza Macwan
   anita@bpaindia.com    

 References: www.morth.nic.in, www.nhai.org, www.makeinindia.com and press releases.

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