The PMGSY has been a remarkable scheme, with substantial potential in ushering in the much-needed bottom-up reforms. Despite its obvious effectiveness in various economic, social and business domains, availability of funds and trained resources has dampened the implementation, and unsurprisingly, holds the key to the pace of execution, writes Debal Mitra.
The Pradhan Mantri Gram Sadak Yojana (PMGSY) has arguably been one of the most significant infrastructure development programmes planned and implemented over the last decade by the Ministry of Rural Development (MoRD) jointly with the state governments. While the highways sector has been hogging most of the limelight, primarily on account of the predominant participation of large corporations and the financial sector, the focus on India’s flagship rural roads programme has been rather dim, especially considering that it has a substantially larger scope than the highways programme in terms of both the physical infrastructure being put in place (7.3 lakh km of rural roads to be newly connected or upgraded as against around 50,000 km of highways under NHDP and other programmes) and the significant positive socio-economic externalities that it would entail for rural India.
Participatory and unprecedented
Few centrally sponsored programmes have elicited such a large-scale pervasive participation involving all levels of government from village and district through states to the Centre, and with such a sizeable capital outlay (around Rs 1 lakh crore has already been spent). PMGSY was launched by the government on 25 December 2000 to address the long-pending imperative of ensuring efficient road connectivity, to facilitate socio-economic transformation of rural India. The scope of PMGSY primarily entailed provision of all-weather connectivity (with roads operable throughout the year with necessary culverts and cross-drainage structures), to all habitations with a population of 500 or more, by 2007. For hill states, tribal and desert areas and areas affected by left-wing extremist activities, minimum population limit for habitations is 250 persons. Around 1.7 lakh habitations were scheduled to be connected with new roads. The emphasis would be on creating new roads; however, the programme also allowed upgrading of the existing roads with preference for existing through routes.
The construction of roads was to be financed entirely by the central government through budgetary support, complemented by a cess on diesel (amounting to around Rs 4,800 crore per year), internal borrowings (including loans from institutions like NABARD) that would leverage on the fuel cess inflows, and external aid from the World Bank ($2.5 billion) and the ADB ($750 million). The onus of maintaining the assets lay with the state government, which would have to fund a five-yearly routine maintenance and a renewal, depending on the type of road. The state government would also be responsible for the programme implementation, with its nodal department supervising the work of the executing agencies or Programme Implementation Units (PIUs) in the districts through an autonomous State Rural Road Development Agency (SRRDA). The SRRDAs would be entrusted with vetting and consolidating the proposals generated at the district Panchayat/PIU levels, as well as receiving and disbursing the funds received from the Ministry. Simultaneously, the impact of the scheme in terms of improving rural livelihoods and bettering lives of rural people would be assessed regularly through periodic studies by accredited research agencies.
The PMGSY has run its course for 13 years, and the results of several impact assessment studies across various states show that the scheme has been, by and large, achieving its objectives of generating positive socio-economic externalities in rural India with greater road connectivity.
In agriculture, construction of all-weather roads has helped farmers get better access to both agri-input and crop markets across the year and diversify from food crops like paddy into more remunerative vegetables and cash crops.
Better roads have meant availability of irrigation facilities like bore-pumps and use of tractors, enabling multiple cropping and efficient farming.
Dairy and poultry farmers have also benefited. Roads have enhanced rural employment—both on- and off-farm—and encouraged setting up of small enterprises, including those by women. Small-scale industries have benefited from easier access to raw materials and availability of commercial vehicles to transport bulk product to markets, leading to economies of scale. Pottery and brick-making industries in Orissa, handloom industry in West Bengal and cottage and agro-based industries in Tamil Nadu and Assam are among the industries which have benefited.
On the social front, road connectivity has improved access to public health centres and district hospitals, accessibility to preventive and therapeutic healthcare facilities and easier attending to emergencies, besides improvement in ante-natal and post-natal care. It has enhanced school enrolment of students, and attendance of students and teachers. The road connectivity has increased the mobility of women as they can now travel alone in buses and cycles. It has also accelerated, albeit to a limited extent, the conversion of kutcha to pucca houses in some states.
Its effectiveness notwithstanding, the programme—originally scheduled to have been completed by 2007—has been delayed by many years. Arguably, the original seven-year horizon may have been an aggressive challenge to start with, especially considering the serious impediments that were foreseeable in both financing and implementing the programme across the diverse socio-geographic dimensions of the country.
Nonetheless, against a target of 164,849 habitations, till December 2012, around 75 per cent habitations have been sanctioned and only 54 per cent connected (see Table 1), which means that 46 per cent of the habitations remain to be connected with new roads. In terms of length, 42 per cent of new connectivity remains to be achieved. While upgradation projects have fared somewhat better, it is largely because the programme in the first place was primarily intended to trigger new connectivity, and hence upgradation target was lower.
Financially tardy: The implementation on PMGSY has historically been constrained by many factors, not least among them being the lack of funds year-on-year especially in the earlier stages, with the government not being able to either provide adequate budgetary support or garner enough from diesel cess. The assistance from multilateral institutions has been around 12 per cent (see Figure 1); in absolute numbers, it has been far lower than what had been envisaged at the outset. It may be noted that besides sources of funds mentioned in Figure 1, NABARD has disbursed a loan of Rs 18,500 crore to NRRDA in a staggered manner from 2007 to 2009.
A personnel problem: Besides funding, the other issues that have plagued the progress of the scheme have been the non-availability of sufficiently qualified and trained personnel, inadequate capacity-building in state and district level institutions, and inexperience at the grass-root level in project management techniques, apart from the more unmanageable issues like inclement climatic conditions resulting in restricted working days, problems in acquiring land, especially in forest areas, and extremism and militancy in some parts of the country. Quality has been an issue in many projects, as evaluated by both the State Quality Monitors (SQMs) and the National Quality Monitors (NQMs) appointed directly by MoRD. Moreover, there have been slippages in requisite maintenance on many projects, with maintenance funds remaining underutilised notwithstanding the five-year maintenance inbuilt in the PMGSY programme for the states to adhere to.
The inadequate pace of implementation, in turn, has had its impact on clearance of fresh funds, since the PMGSY links release of funds (which happens in two instalments) to completion of project stages within stipulated time and in accordance with pre-decided quality specifications. In addition, many states have not been able to spend the allotted funds in time because of lack of contracting capacity, or in others, lack of enough will. On the other hand, some of the states have been significantly active and regular in terms of contracting, managing and completing their projects, making them eligible for fresh projects; in short, they have churned their project portfolio fast. The variations in experience across states are encapsulated in Figure 2, which picks out and compares PMGSY implementation in four of the states.
As observed in the figure above, states like Madhya Pradesh and Andhra Pradesh were able to manage their project implementation better, resulting in their satisfactory completion, thereby meriting both sanction of new projects and release of fresh funds. For the two states, the actual amount spent at any point of time has closely tagged their cleared amount through the entire period. On the other hand, for lagging states, inability to contract out and spend on sanctioned projects or their tardy and erroneous implementation have meant slow clearance of new projects from the MoRD and intermittent release of fresh funds. Bihar is an extreme example, not having spent even a rupee in the initial three years, whereafter a substantial part of the programme was awarded to central agencies such as CPWD, NBCC, NHPC, IRCON and NPCC, and no fresh project was given to the state government till 2012. It is only in the last year that the state government was allowed to resume execution of its own projects exclusively by itself. In Jammu & Kashmir, on the other hand, the operation of the scheme has been plagued by widespread quality issues and underutilisation of maintenance funds.
Second leg opening up greater challenges
In the coming years, the states will be tested even more rigorously for their skills in project execution, especially with the second leg of PMGSY (PMGSY-II) being mooted this year, where the focus will shift mainly on upgradation of the rural roads constructed during PMGSY-I. The scope of PMGSY-II will be the roads constructed or upgraded under PMGSY-I experiencing comparatively higher volumes of traffic, eg, through roads, totalling approximately 50,000 km. PMGSY-II will run parallel with the unfinished portion of the first leg, with all states which would have received sanctions for all the new connectivity and upgradation projects under PMGSY-I becoming eligible for upgradation. The parallel implementation would call for a substantial enhancement in implementation capacity for states, especially those which have a large proportion of sanctioned but unimplemented projects from Phase I. Besides implementing projects, in Phase II, states would have to additionally worry about part-financing them, since 25 per cent of the cost of the upgradation projects would have to be borne by the state. This is unlike Phase I, where the entire construction/upgradation cost was borne by the Centre, while states had to bear only the staffing costs and a part of the administrative and travel expenses (to the extent greater than a certain cap).
As may be inferred from the foregoing, the future holds out umpteen challenges for the rural roads programme, in terms of both its financing and implementation. For the 12th Five Year Plan, completion of all pending PMGSY-I works, besides the portion of PMGSY-II falling within these five years (PMGSY-II is envisaged to run for 16 years starting 2012-13) would require an estimated outlay of Rs 2 lakh crore, or a whopping Rs 40,000 crore every year. On the other hand, the collections from cess on diesel, at the current level of Re 0.75/litre, a fixed rate which has been continuing for several years, while diesel prices have shot up) are not likely to meet a significant portion. While there have been some demands from the Ministry of Road Transport & Highways (MoRTH) to charge fuel cess on an ad valorem basis, persisting inflation and public opposition have dissuaded the government from taking such a step. However, another point of contention is the method for fuel cess allocation by the Central Road Fund (CRF) within the constituents of the road sector itself. The formula is skewed in favour of highways, which are already toll-financed anyway. Rural roads’ entitlement is a smaller proportion of the overall cess, which is collected by levying Rs 2/litre of diesel and petrol. A rough estimate for current levels of diesel and petrol consumption in the country would put rural roads component at Rs 5,500 crore as against highways component at Rs 10,000 crore (see Figure 3). For cess to constitute any significant portion of rural roads financing, the allocation on rural roads would need to be increased, perhaps by allocating a portion of the petrol cess to rural roads as well.
Besides fuel cess, the Working Group on Rural Roads (WGRR) for 12th Five Year Plan has also suggested attempting PMGSY implementation in PPP-annuity mode. The idea would be to bundle a few projects (new and/or upgradation) to reach a critical size (say, Rs 75-100 crore) and bid them out to private entities for a period of seven years (including two years construction and five years of maintenance). This way, the government could defer its outflows through performance-based annuities, while transferring the construction risks on to private contractors. The risk of overrunning the implementation schedule – the bane of the programme in many states – could be considerably reduced. However, projects of such size can be funded only by the larger construction companies, which, on the other hand, may not have the appetite to venture into the hinterland. Nonetheless, the model may be tested out in select states/districts, with proven inadequacies in execution capacities, where the value for money from PPP could be significant. Besides these means, grants from multilateral agencies also need to be shored up; the institutions can focus on extending more of output-based aid to states, which would serve as incentive for efficient project execution. In addition to multilateral financing, the dependence on loans from NABARD and other rural financing institutions is expected to increase in future.
As discussed, states have to henceforth take up some part of the funding. Consequently, new financing avenues have to be found, which, for most states, could be a difficult proposition. The WGRR suggests allocating a share out of agriculture mandi tax or mining royalty, and road tax on vehicle collected by the state governments for PMGSY. Different states would have to work out which strategies to choose to garner the required funds.
As regards project management issues, it may be noted that there has been a marked improvement in timeliness in execution and quality compliance on projects, over the past couple of years. The PMGSY is the only scheme of its kind with three levels of inspection; the NQMs, as the last checkpoints, have been effective in ensuring the adherence to stipulated quality norms. However, it is important that implementation issues are taken care of at the project level itself, thereby precluding wastage of time and resources in redoing a road or a stretch thereof later on. It is important to have stringent accreditation procedures for consultants working at the project level – Programme Implementation Consultants (PICs), working with the PIUs, and Performance Audit Consultants (PACs), thereby ensuring smooth implementation of the projects. With its nationwide coverage and proven efficacy in bringing socio-economic change in rural India, the PMGSY has been a remarkable scheme, with substantial potential in ushering in the much-needed bottom-up reforms. Rural connectivity also facilitates removal of supply-side inefficiencies, a major cause of inflation. This has further macro-economic implications, for example, in terms of obviating the need for using high interest rates, a growth-hindering measure, to control price rise. Consequently, it is important to sustain the vigour in executing the PMGSY projects, and complete its mandate. However, availability of funds and resources hold the key to the pace with which this could be done. As India’s flagship rural programme begins the second leg of its journey, it needs a minimum visibility on funding and assurance on implementation capacity across states.
The author is Vice President – Financial Advisory, Feedback Infrastructure Services.