Unravelling growth

Due to the Land Acquisition Bill being stalled in the monsoon session, new road projects could hit a familiar hurdle.
At 4.87 million km, India has the second largest road network in the world. Transporting over 60 per cent of the country´s goods and serving 85 per cent of total passenger traffic, it is little wonder the Modi Government has accorded the highest priority to developing roads and highways.

The government has earmarked 20 per cent of the $1 trillion reserved for infrastructure spending in the 12th Five Year Plan to develop roads. The Ministry of Road Transports and Highways plans to award 273 road projects covering a length of around 12,900 km at an estimated cost of Rs 1,26,700 crore ($19 billion) in FY 2015-16. The national highways account for 1.9 per cent of the total road network and are expected to reach 100,000 km by the end of the 2017 from 97,135 km in FY15.

The private sector has emerged as a key player in the development of road infrastructure. Increased industrial activities are also suppor¡ting the growth in road projects. The policy to increase private sector participation has proved to be advantageous with many private players entering the sector through the public-private partnership (PPP) model. As on March 2015, projects worth $32.69 billion have been awarded through PPP model, with as many as 165 PPP projects still under progress. During the next five years (2020), investment through PPP is expected to reach $31 billion.

According to a research note from India Ratings & Research, the 12th Five-Year Plan is likely to see a continuing spike in investment from the private sector over the previous five-year plans in terms of PPP projects. Of the total planned infrastructure investments of $1 trillion during the 12th Plan, the share of private sector is estimated at 47 per cent, up from 25 per cent during the 10th Plan.

With the government permitting 100 per cent foreign direct investment (FDI) in the road sector, several foreign companies have also formed partnerships with Indian players.

As far as overseas funds for roads development is concerned, Canada Pension Plan Investment Board plans to invest $322 million for infrastructural development in India. The government has also received public sector undertakings from countries like Malaysia and Japan for funding the upcoming highway projects. Malaysia is expected to fund these projects internally through the hybrid annuity model. 60 per cent of the investment is to be borne by private investors and 40 per cent by NHAI in five equal instalments.

Emphasis has been placed on the development of a road network in remote areas. Hence, the Special Accelerated Road Development Programme for the North Eastern Region (SARDP-NE) is aimed at road connectivity in the North-East between state capitals and district headquarters.

Programmes like Bharat Nirman and Jawaharlal Nehru National Urban Renewal Mission (JNNURM) are designed to pursue nation-wide rural connectivity, linking all unconnected villages with fair-weather roads.However, procedural delays and cost overruns are inherent risks for road projects. Delays during the construction stage materially impact projects ability to service debt obligations. According to India Ratings & Research, for every delay of a year for every 100 km, cost overrun could be as high as Rs 1.25 billion.

What remains to be seen, however, is the progress on road projects that are yet to be awarded. A number of projects that began over the last year are projects that had been stalled under the earlier regime. The Road Transport and Highways Ministry led by Honourable Union Minister Nitin Gadkari has done an admirable job of clearing stalled projects, speeding up implementation and even awarding some new projects. However, due to the Land Acquisition Bill being stalled in the monsoon session, new road projects could hit a familiar hurdle.