The roads and highways sector which has hit a rough patch since 2007 is set for a huge boost by the Modi government. The sector has been given due attention and consideration with maximum allocation in this year’s Budget. This can be expected to generate large-scale employment.
According to the National Highway Authority of India (NHAI), construction of road works by the ministry in the past two years has been progressing at a speed of 17.3 km per day. The Ministry has targeted constructing 40km roads per day in the next three years. This will certainly augment the country’s roads and highways sector and enhance connectivity. Between 2014-15 and 2016-17, the overall allocation in this sector has increased by 73%, from `1.3 lakh crore to `2.25 lakh crore.
The 12th Five Year Plan has targeted rapid development in regions which are yet to be connected with the National Highways (NHs). Although the current NH network (71,772 km) comprises of 1.7% of total roads, it carries 40% of the total traffic across the country.
While Phase I of National Highways Policy incurred construction of a total length of 5,477 km, phase II contains a total of 8,014 km which is likely to be completed by March 2017. According to an IBEF report, the value of roads and bridges infrastructure in India is projected to grow at a Compound Annual Growth Rate (CAGR) of 17.4% over FY12–17. The country’s roads and bridges infrastructure, which was valued at $6.9 billion in 2009, is expected to touch $19.2 billion by 2017.
While presenting the Union Budget 2017-18, Finance Minister Arun Jaitley said, “In the road sector, I have stepped up the budget allocation for the National Highways from `57,676 crore in the budget estimate of 2016-17 to `64,000 crore in 2017-18. For the transport sector which includes railways, road and shipping, the government plans to provide `2.41 lakh crore.” The FM also said that 2,000 km of coastal connectivity roads have been identified for construction and development. This will facilitate better connectivity of ports and remote villages. Jaitley also added that the total length of roads including those under the Pradhan Mantri Gram Sadak Yojana (PMGSY) built from 2014-15 to the current year is about 1,40,000 km, which is significantly higher than the previous three years. He said, “133 km roads per day were constructed under the Pradhan Mantri Gram Sadak Yojana (PMGSY) as against 73-km in 2011-14.”
This year, the Budget allocation for highways increased by 11.94% compared to the last financial year. A total of `2,41,387 crore have been announced for the transportation sector, which includes railways, roads, and shipping.
The Budget also focused on constructing 20,000 kilometres of national highways over the next three years. This includes the Bharat Mala project that envisages developing 6000 km roads along coastal and border areas, the Char Dham project connecting four pilgrimage spots including Badrinath and Kedarnath and Sethu Bharatam which involves building 350 bridges and rail over bridges in two years.
Major projects & Funding
The government in the last two years has taken a slew of policies and initiatives to increase revenue and lure back private sectors to invest in highways. The ministry decided to emphasise the Engineering Procurement Contract (EPC) model where the government will fund the entire project.
The major projects approved by the government are corridors connecting Delhi-Chandigarh, Bengaluru-Chennai, Delhi-Jaipur, and Vadodara-Mumbai. The government is also likely to take up the development of 135 km long Eastern Peripheral Expressway at an estimated cost of `5,763 crore. The Eastern Expressway on the outer periphery of Delhi will be constructed in 400 days, according to the government. The government will also try to provide 5 lakh litres of bio-diesel to the capital and work on big cars run on ethanol.
Highway connectivity between India and Bangkok is also in the anvil, which will boost the country’s exports. Bangladesh, Bhutan, Nepal and Myanmar would also be connected with highways. `30,000 crore would be funded by banks for the same. A water transportation agreement has also been signed with Bangladesh for cost cutting measures.
A new model of hybrid annuity had also been initiated where the government funds 40% of the construction cost and the developer invests the remaining 60 %. The new model will not only lead to low equity investments by developers, but will also reduce initial capital outflow for NHAI. The Government of India (GoI) has earmarked 20% of the investment of $1 trillion for infrastructure during the 12th Five Year Plan (2012–17) to develop the country’s roads.
According to the Minister of Road Transport and Highways, Nitin Gadkari, “The Government has decided to increase the national highway cover from the current 96,000 kilometres to 200,000 kilometres in the country. The project includes development of four-lane and express highways.”
Nitin Gadkari has announced the government’s target of `25 trillion investment, including `8 trillion for developing 27 industrial clusters and an additional `5 trillion for road, railway and port connectivity projects. NHAI is expected to invest around $250 billion in 240 road projects spanning 50,000 km over the next five to six years.
The Ministry of Road Transport and Highways has undertaken development of about 7,000 km of national highways under Bharatmala Pariyojana at an estimated cost of `80,000 crore with state governments. The Union government has also approved the construction of around 1,000 km of expressways at a cost of `16.68 crore on a design-build-finance-operate-transfer (DBFOT) mode.
Nitin Gadkari also said that creating a world class infrastructure in highways is among the top priorities of the government and contracts worth $45 billion has been sealed between May 2016 and May 2017. Another project, the 8-laning of Lucknow – Kanpur highway, is estimated to be worth $1.49 billion. It will include access-control mechanism which will let commuters ply their vehicles at a speed of around 150 to 160 kilometres per hour.
The Asian Development Bank has signed a loan of $800 million to the Indian government out of which the third installment of $273 million is still to be utilised. This loan will fund the construction of 6,000 km of all-weather rural roads in Assam, Chhattisgarh, Madhya Pradesh, Odisha and West Bengal by December 2017.
Land acquisition disputes, delayed clearances, poor traffic and poor bank loans have held back several construction projects. Crisil said that during the last fiscal year, the number of high-risk projects fell 13% from the year before, after analysing 85 under-construction projects and 104 operational Build, Operate and Transfer (BOT) road projects. The pace of road construction has also improved by 40%.
According to the Crisil report, “Within the 85 under-construction BOT projects, there has been a 10% reduction. However, as much as 4,600 km of projects are still in the high-risk category because delays in land acquisition and approvals have increased costs by 20% or `11,000 crore, and the financial health of sponsors remains weak.”
However, regulatory policies and initiatives by the government have paved the way for the sector’s revival. Most highway projects have since the second half of fiscal 2016 reported a rise in traffic and toll incomes, raising investor interest in the sector. The report also observed that while stronger developers are likely to be able to raise funds for their under-construction projects through stake sales in their operational portfolio and from investment trusts (InvIT), weaker developers are still facing a funding gap of about `6,300 crore.