A new opportunity knocks on the doors of private developers, especially those in the second-tier or contractors aspiring to be developers. Rural roads are all set to offer large opportunities this year as the government steps on the accelerator to see projects through, after the successful experiment by PMGSY especially in quality monitoring and maintenance contracts. Janaki Krishnamoorthi writes.
Rural roads encompass over 85 percent
(27 lakh km) of the Indian road network that are developed and maintained by state governments. However, building good roads was not in the priority list of many states, and since the responsibility rested with the state governments, these roads received very little attention from the central government too, though it has been allocating some funds for the cause since the 5th Five Year Plan. As a result, until the year 2000, around 40 percent of habitations in the country were not connected by all-weather roads. Even where conneÂctivity existed, the roads were of poor quality due to poor construction or maintenance.
In 2003-04 when detailed District Rural Road Plans were made and Core Network data formulated on the basis of 2001 census, it was found that unconnected habitations were 170,594 requiring about 369,331 km of new roads and existing roads measuring 368,278 km needed to be upgraded. Total requirement of funds for this was estimated as Rs 133,126 crore.
Projects Progress
Only in the last decade, the central government began to focus on rural road development by launching some programmes, notable among them being the Pradhan Mantri Gram Sadak Yojana (PMGSY) launched in 2000. There have been others too like Provision of Urban Amenities in Rural Areas (PURA) that envisaged twinning of rural infrastructure development with other amenities; Bharat Nirman introduced in 2003 to provide rural infrastructure where rural roads taken as one of the components, which has been blended with PMGSY programme.
PMGSY, a centrally sponsored scheme but executed by state governments, was to provide all-weather roads in rural areas connecting all habitations with a population of 1,000 and above by 2003 and those with population of 500 and above (250 and above in hill/desert/tribal areas) by 2007. Upgradation of existing roads was also included as a secondary objective.
However, the project could not be completed within the set time frame of 2007. Of the targeted new road conÂneÂctivity of 367,673 km, only 195,692 km were completed by June 2011. In other words, around 47 percent of the work was yet to be completed. But the degree of impleÂmentation varies widely across the country. While the performance in some states like Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu, Nagaland, Punjab, Rajasthan and Uttar Pradesh have been good others like Assam, Bihar, Jharkhand, Jammu & Kashmir, Meghalaya, Manipur, Sikkim and Uttarakhand are way behind. The reasons cited are insufficient funds, inadequate project execution capacity and inadequate contracting capacity in these states. Evidently, these projects will now have to be implemented during the 12th Five Year Plan.
Knocking on PPP doors
Systematic flow of funds for rural infrastructure started with the creation of Rural Infrastructure DeveÂlopment Fund (RIDF) out of the budget allocation in 1995-96, with a corpus of Rs 2,000 crore. Today, PMGSY projects are being supported by collection of cess on high speed diesel, budgetary support, funding from National Bank for Agriculture and Rural Development (NABARD), Asian Development Bank (ADB) and World Bank. NABARD, established to facilitate credit flow for development of agriculture and integrated rural development, has also been assisting in the development of rural infrastructure including roads and bridges. As per the report of Working Group on Rural Roads (WGRR) in the 12th Five Year Plan (2012-17), in order to achieve the targets of PMGSY, Rs 84,731 crore was released up to March 2011 against the sanctioned projects sum of Rs 118,949 crore. Funds required for yet to be sanctioned projects were estimated as Rs 185,438 crore, which inÂclude left out or new habitations, missing bridges, admiÂÂnistrative expenses, repayment of NABARD loan, lauÂnching of PMGSY-II, etc. So, while the total funding required in the 12th Plan is Rs 219,656 crore, only
Rs 20,000 crore has been available in year 2011-12. Hence, the net funds required during 12th Five Year Plan is nearly Rs 200,000 crore.
WGRR report, however, says that these sources of funding will not be sufficient to complete the projects, and additional financial support would become necessary. But since the scheme has been totally sponsored by the central government, where the funds will come from is almost a rhetorical question. “At this moment we do not know how much funds we will be able to provide as we have to look at the needs of other modes of transport too,” says Manoj Singh, Advisor (Transport), Planning Commission, who is also a member of WGRR. “PMGSY has been a better performing programme and the PlanÂning Commission supports it. Our viÂsion for 12th Plan envisages increasing rural connectivity, and we are exploring various avenues for enhancing the funding to PMGSY.”
Funding construction of rural road projects – under PMGSY and other schemes – faces hurdles, despite the support being provided by World Bank and ADB. In its report, WGRR has recommended several options like imposing cess on petrol prices, exploring the probability of Public Private Partnership (PPP), asking the states to allocate some share out of agriculture mandi tax, mining royalty, road tax on vehicle collected by them for PMGSY and other rural road works. A proposal to ask states to bear 50 percent (20 percent for hilly states) of project cost in PMGSY II is also being considered. Some states like Punjab, Haryana, Rajasthan, Madhya Pradesh and Uttar Pradesh are already collecting cess on food grains through their market committees and using the proceeds for various developmental work including construction and maintenance of roads.
As the Rural Road Development Plan Vision 2025 (RRDPV) released in 2007 explains, a broad assessment of the physical and financial requirements for rural roads shows that investments in construction, upgrading and maintenance would need to increase from the current level of Rs 11,000 crore per year to Rs 29,000 crore per year in the 14th Five Year Plan (2022-27). The vision document also states that the proposed current inveÂstment is a mere 0.3 percent of the GDP and should, therefore, be considered modest and realistic.
Quality: PMGSY shows the way
RRDPV also states that about 80 percent of rural roads are in poor condition due to a combination of factors including poor quality construction though it is improving with PMGSY projects. National Rural Roads Development Agency (NRRDA) established to coordinate and monitor PMGSY has set up a three-tier quality control mechanism with the state governments responsible for the first two tiers. The third tier is an independent monitoring mechanism at the central level where national quality monitors engaged by NRRDA inspect the works. NRRDA has also appointed reputed technical and research institutions as Principal Technical Agencies (PTA) and State Technical Agencies (STA) to provide outsourced technical support to the PIUs, take up research projects, study and evaluate different technologies and advise on measures to improve the quality and cost norms of rural roads. “More than 90 percent of the road work carried out under PMGSY are of good quality,” says Dr SL Dhingra, Institute Chair Professor and Emeritus Fellow, Transportation Systems Engineering, Department of Civil Engineering, Indian Institute of Technology (IIT), Bombay, and a member of the Executive Committee of NRRDA. IIT Bombay is the PTA for Maharashtra, Gujarat, Madhya Pradesh and STA for nine districts in Maharashtra.
However, majority of the rural road projects executed under other schemes do not have such rigid quality control systems. In most of the states, the quality is being monitored by a two-tier structure. The first one is normally by an engineer actually executing the project and the second by an independent vigilance and quality control wing which randomly inspects the works. Failure to follow standard specifications is yet another reason behind poor quality, aver experts. “We have standards laid down by Indian Road Congress (IRC) but many do not follow them,” laments Dhingra, adding, “Ideally, all schemes should be integrated with standard specifications and proper quality checks. A third-party quality check is a must. But that is not happening.”
Indeed, the WGRR has also recommended that the specifications prescribed for construction of rural roads under PMGSY and its three-tier quality monitoring system should be uniformly followed for all rural roads and there should be a single agency in-charge for construction and maintenance of these roads in the states for comprehensive planning, construction and maintenance. A similar recommendation was also made by the WGRR in the 11th Five Year Plan in 2006. This kind of system will also ensure proper maintenance of roads, another major issue in quality.
Minimising maintenance
Among several steps to be taken for ensuring maintenance of rural roads on sustainable basis, the need for a government policy, dedicated funds, linking maintenance to construction contracts as it is being done under PMGSY are considered vital. A few states such as Uttar Pradesh and Karnataka have taken the initiative recently in setting up dedicated funds for maintenance. Some others have also set up road funds for both development and maintenance. But there is a wide gap between the need and availability.
All PMGSY roads are covered by a five-year maintenance contract with the contractor constructing the roads, after which it is placed under zonal maintenance contracts again for five years maintenance including renewal as per cycle. “The state government makes the necessary budget provision, but it is not sufficient. We are asking NRRDA to extend maintenance period to ten years so that the states get time to raise funds” says IIT's Dhingra. “Alternatively, we can empower the rural panchayats to take over the maintenance. While we STAs can help them technically, funds can be raised through levies. For instance, in Punjab, marketing societies levy some surcharge on the agricultural produce bought or sold and have been using this for developing and maintaining roads in their area,” he adds.
BN Kurup, Assistant General Manager, NABARD, says that such community-based programmes will be more successful as there will be a sense of belonging. “If the community feels the ownership on a project, proper upkeep ensues naturally. An example is the Jalanidhi drinking water projects in Kerala. Here, the initial capital investment is deployed by the government. Once the asset is created, its operation and maintenance (O&M) is carried out by the beneficiary community. Its success has recently prompted the World Bank to extend its finance for a second phase. If a similar model if adopted in road and bridge projects in rural areas, it will increase the durability of the assets,” Kurup maintains.
Private participation under annuity
In addition, the limited capacity of local contractors has resulted in poor quality roads. Nor are big renowned contractors keen on undertaking these projects due to their low order value.
“We would welcome private partiÂcipation but how far the big contractors will be ready to participate is another issue” says PlanÂning Commission's Singh. The bigÂgies as of now are not keen, as exemÂplified in the case of L&T. DK Sen, Senior Vice President & Head, TransÂpoÂrtation SBG, Infrastructure IC, L&T Construction, says, “The conÂtÂracts are very small in value and size, mainly labour-oriented and not mechanised.Our company does highly mechanised work and would need a critical mass (order value) to execute work as per global standards. Hence, it becomes unecÂonomical for us undertake rural road projects.”
To attract big contractors, a number of small road projects in the same area should be grouped together to form a bigger package, avers Sen. “A bunch of minimum 200 km of such rural roads in the nearby proximity can be awarded to one contractor. The minimum value of a single contract (in this case the bunch of 200-250 km) should be Rs 500 crore.” WGRR too has suggested the implementation of rural road projects in the future including those under PMGSY through modified Engineering, Procurement and Construction (EPC) mode. The suggested proposal aims at clubbing a few projects in a specific area and awarding it as a package of about Rs 75-100 crore to a private party. Based on the principles of EPC it would include financing of conÂstruction, upgradation and maintenance for seven years including two year construction period, and the bidding parameter would be the lowest annuity sought. The payment of annuity will be performance based. (See interview with Arvind Mayaram in this section for Union Ministry of Rural Development action.)
An annuity-based financial model may be more suited for rural road projects, agrees KR Nair, Chief General Manager, NABARD. “Private parties can raise resources from financial agencies for rural road projects and repayments can be made out of annuity payments by state governments made out of budgetary allocations spread over time. Here also, the complete costs are borne by the state government but in the form of deferred payments. Through this private sector, efficiency is brought in for creation of quality assets and making it durable for its estimated life.”
A model of this nature is being successfully implemented in rural housing sector in Kerala, where local self-governments are borrowing from banks for construction of houses for rural poor, and the state repays out of annuity payments spread over few years.
A project has to be made bankable to attract big contractors and private participation, maintains Dhingra, who has submitted a proposal to NRRDA that makes rural road development an attractive proposal for all stakeholders. His proposal envisages the deveÂlopment of a model road in each of the nine districts in Maharashtra where they are operating as STA. “The model road will have all the good ingredients like quality road, good connectivity, mobility, solar power lighting, flower beds and fruit trees on either side, rest places, kiosks etc. It will be like a rural resort where the nearby villages can become bed & breakfast stops for visitors.”
The first model road is being planned at Elephanta where the road development has already commenced. The three-kilometre stretch along the coast connecting three villages will also have some view points on the hill side and a toy train facility which the village Sarpanch (head) has offered to run. Dhingra and his team are now in the process of identifying partners/sponsors to execute the project.
An enabling path
The multiplier effect of rural roads has never been lost either on governments or on other agencies, but can this be a year when focus on rural roads can swing the economy? An ADB study on its rural road projects in Madhya Pradesh, “India-ADB Development Partnership in 2011”, reveals greater improvement in several develÂopment outcomes in villages covered under the project as compared to those in a sample of control villages not serviced by the ADB project or by any other road project, but similar in socio-economic characteristics.
For example, the report says, while project villages saw a 61 percent increase in buses serving them, control villages experienced a 23 percent decline; post-primary dropout rates among girls declined by 7.2 percent in control villages, the decline was 9.7 percent in project villages; attendance of teachers increased by 5.5 percent in project villages but declined marginally by 0.3 percent in control villages. While the proportion of farmers who accepted crop diversification increased in both types of villages, the increase was greater in project villages (4.5 percent ) versus that in control villages (1.3 percent ). Similarly, the percentage of agricultural produce that was spoilt in transit declined by 9.7 percent in project villages but increased by 2.6 percent in control villages. Crucially, the percentage of below-poverty-line (BPL) families declined in both types of villages. However, in line with the other variables discussed so far, the percentage of BPL families declined by 4.6 percent in project villages versus 2.8 percent in control villages.
Studies confirm that as the rural connectivity improves, the rural poverty levels come down. Facilitating movement of men and material they also provide the last-mile connection for other modes of transport such as railways, airports and ports. Farmers find it easier to take their produce to market in time increasing their earnings, school/college enrolments go up, families' access to healthcare improves, and families in villages even receive better marriage proposals.
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