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Monday, 14 Nov 2011
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 India's Roads & Highways:
 Current & Future Scenario

India's Roads & Highways_ProjectsToday

Mahesh Koirala_ProjectsToday
Mahesh Koirala,
CFO - Atlanta Ltd.


 

Over the last few years, the Indian economy has been in a phase of unparalleled growth of about 8-10 per cent per year, making it one of the fastest growing economies in the world.

 

The high GDP growth has led growth in individual incomes as the data suggests that the rate of domestic savings grew and the per capita income has shot up from just $300 levels to approximately $1,700 levels in the two decades, since the beginning of economic liberalization in India.

 

However, the momentum of economic growth could come to a halt unless our country strengthens infrastructure. In this regard, roads and highways are the veins and arteries of a nation. Sustaining around 8 per cent rate of growth will need huge investments in physical infrastructure such as roads and highways. I am not much impressed with the recent performance of the Indian infrastructure sector relative to what we actually need.

 

Despite years of economic boom, India's infrastructure is wobbly and its manufacturing sector sluggish. Transporting goods is expensive and slow -- it can take more than two weeks to move a container from Delhi to Mumbai. Investment in infrastructure in a country of India's size is relatively low (~7.5 per cent of GDP) and is much lower if we compare with some other countries in Asia. The 11th Five Year Plan has fallen short of its targeted spend, which has given way to an imperative need to increase speed of government investments in the infrastructure sector. One solace is the news that the construction of highways, which had dipped to dismal levels in the past few years, has picked up pace and official data shows that 11 km of roads are being added every day. If the trend is sustained, the government could well be on track of achieving 20 km per day, which Kamal Nath had over ambitiously projected, immediately after taking charge of the ministry.

 

The government plans to increase the share of infrastructure spending as a percentage of GDP to 9 per cent by the end of the 11th Five Year Plan. In the 12th Five Year Plan, it has projected investment of around Rs 1.2 trillion for the infrastructure segment, involving significant private sector participation. However, rigid commodity price inflation, hardening of interest rates and slow growth in government investments owing to growing fiscal deficit can impact spending on infrastructure.

 

But, even the government has sensed the need for infrastructure development and its focus on private sector participation for the infrastructure development are clearly demonstrated by the steady escalation in road infrastructure projects. I foresee a fair amount of bidding in the coming years. The bid pipeline is significant with projects worth around Rs 900,00 crore, comprising approximately 13,000 kms. These projects include both NHAI projects and State Government projects.

 

The ambitious plan to build a vast network of rural roads, hit by delays linked to a shortage of funds, is going the highways path. The government is planning to throw it open to the private sector under a public-privatepartnership (PPP) model that would bring in investments on the one hand and assure reasonable returns to entrepreneurs on the other.

 

The Pradhan Mantri Gram Sadak Yojana (PMGSY), which connects far-flung villages through all-weather roads to help farmers and agricultural trade, will likely take a leaf out of the National Highway Development Programme (NHDPs).

 

As rural roads are unlikely to be run on revenues levied through toll charges, the government is considering annuitybased schemes to incentivize private parties to invest in these. Under such schemes, private developers are empowered to design, finance, build and maintain the roads in a model, where the government is contractually obliged to pay them on an annualised basis after the project's completion.

 

In the current fiscal year (2011-12) an outlay of Rs 20,000 crore has been allocated for construction of rural roads. Spread across seven phases, the NHDP includes the up-gradation of more than 50,000 km of National Highways. The NHAI proposes to award projects for two/four/six-laning of national highways (10,000 km) over a period of one year.

 


 

"Mahesh Koirala" is the present CFO of Mumbai-based infrastructure company, Atlanta Limited. Since January 2011, he has been a part of the growth and success of Rs 2,840 million company that is engaged in the construction and development of various infrastructure projects, such as toll-based public private partnership development; engineering, procurement, and construction projects such as roads, highways, bridges, runways, docks, ports, canals, water courses, irrigation, embankment, and reservoirs.
 
 

Meeting the high demand would only be possible if many large construction companies diversify into the road sector and foreign construction companies also participate in a substantial manner. This increase in demand would offer an opportunity for innovative arrangements like hiving off independent public sector construction companies from the state road administration organizations (public works departments). Further, as more and more large BOT projects are being mooted in the road sector, in the near future, the country will also need to seriously promote participation of very large conglomerates/joint ventures to deliver contracts of huge sizes.

 

Recent change in Land Acquisition Policy may be an obstacle in road and highway development in the country.

 

 
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