Spending at $10 Year after year, ambitious goals were failed in the road building sector

 Spending at $10 Year after year, ambitious goals were failed in the road building sector

Spending at $10 Year after year, ambitious goals were failed in the road building sector

Six of the last nine years have seen the development of roads and highways fall short of the projected amount.

During the National Democratic Alliance administration, India laid out lofty plans to build roads and highways in its budget year after year over the previous ten years. Nevertheless, during this time, expectations were missed by six years despite a notable increase in the building industry.

During her budget address on February 1, 2022, Finance Minister Nirmala Sitharaman said that the national highway network would be extended by 25,000 kilometers in the next fiscal year, 2023. Later on, the administration made it clear that the goal applied to both FY23 and FY24 cumulatively. To reach this goal, India would need to add 8,500 kilometers in little over three months.

Experts predicted that India could fall far short of the goal in FY2014.

Infrastructure expansion and toll revenue (HIT) growth

Data from the Ministry of Road Transport and roads' annual report shows that 54,860 km of national roads have been constructed over the last ten years by teams led by Road Transport and Highways Minister Nitin Gadkari.

In the last ten years, there has been an increase in the length of national roads, but there has also been a shift in the methodology for assessing highway length. The government changed to the lane-kilometre concept in 2018, measuring the length of each newly developed lane rather than just the overall length of the roadway.

The previous technique would add 100 km of roadway if a 100 km four-lane highway was constructed, but the new method would add 400 km (4 lanes x 100 km).

The ministry's budgetary allotment grew from Rs 34,345.2 crore in 2014–15 to Rs 2.70 lakh crore in 2023–2024.

The National Highways Authority of India's debt was raised in the previous two years due to a combination of rising land prices, greater road building quality, and government financing, which increased the sector's budgetary allocation by over eight times.

The average cost of building a road is predicted by NHAI forecasts to rise from around Rs 6-8 crore per km in 2015 to over Rs 30 crore per km in 2023.

The amount of toll that road users paid jumped from Rs 14,200 crore in FY2015 to around Rs 40,000 crore in FY2013 as a result of the opening of new routes. From Rs 4,136 crore in FY 2015 to Rs 15,605 crore so far in FY 2024, NHAI has collected more tolls.

By 2030, Gadkari anticipates that India would have collected Rs 1.3 lakh crore in tolls. According to the minister, in 2023, the average wait time at toll plazas would be 47 seconds, down from 734 seconds in 2014.

monetization of assets

When it comes to engaging the private sector in infrastructure growth, the government has led the way. In order to provide various types of investors the chance to engage in roads, it has provided assets under three modalities during the last ten years: the toll-operate-transfer (TOT) model, infrastructure investment trusts (InvITs), and project-based financing. has been made profitable. related infrastructure.

Between March 2018 and December 2023, the ministry and NHAI generated around Rs 84,000 crore via asset sale. While 2,287 km of road have been monetized via ToT, raising Rs 42,334 crore, InvIT listing of NHAI throughout the road length has earned Rs 10,200 crore. Additionally, the Delhi-Mumbai Expressway project-based funding brought in Rs 31,321 crore for the government.

NHAI intends to use the remaining two InvIT tranches to generate Rs 15,000 crore in FY24. The government intends to monetize roads in order to collect Rs 2 lakh crore in the next years, according to rating agency CareEdge.

The government may get money from these assets by employing InvIT or TOT models. Over the next three years, NHAI is scheduled to develop 4,000 to 4,500 km of new roads yearly, according to the CareEdge analysis.

missed the mark

In six of the previous ten years, the ministry and NHAI have failed to meet their national highway building goals, and they will probably fail to do so in FY24 as well.

Even though the United Progressive Alliance government placed more of an emphasis on building rural roads, the current government has still accelerated the development of national highways relative to earlier administrations.

On February 17, 2014, former Finance Minister P. Chidambaram informed Parliament that ten years earlier, rural road length was 51,511 km, but it was now 389,578 km.

The NHAI loan trap

With the government setting lofty goals for highway development from 2014, the repayment burden of NHAI's borrowings from FY15 to FY22 increased significantly. The debt payment cost of NHAI climbed by about 2.5 times to around Rs 36,100 crore in FY2023 from Rs 14,443 crore in FY2019, even after the government requested that it cut borrowings after 2021.

Furthermore, as of March 2023, NHAI owed Rs 3.4 lakh crore, up from Rs 23,800 crore in March 2014. The government has been pressuring the Road Ministry and NHAI to obtain money via disinvestment since 2021. monetization of a second asset.

Put an emphasis on asset monetization and disinvestment. The government's decision to maintain NHAI's internal and extrabudgetary resources at a minimum over the previous two years is another indication of this.

The government requested that the highway developer restrict its borrowing in FY23. The government projected that NHAI's internal and extra-budgetary resources would drop from Rs 65,000 crore to Rs 1 lakh in 2021–22 in the FY23 budget.

expert language

Partner at Deloitte India Kushal Kumar Singh told Moneycontrol that in the last ten years, governmental changes addressing expedited land acquisition, operational problem-solving, revitalizing dormant projects, and prompt dispute settlement have spurred investment and expansion. has contributed to creating a supportive workplace.

He said that policy adjustments had resulted in a notable improvement in market mood.

"One of the most significant changes we have seen is the rise of new investor classes in the transportation industry, which has led to a more varied investor base. These investor classes include institutional investors, specialist O&M contractors, and specialized tolling agencies. According to Singh, traditional investors and developers have refocused on their core skills.

The government's choice to grant projects only after pre-construction operations are finished has accelerated construction, according to RK Pandey, a former member-projects at NHAI, who spoke with Moneycontrol about this.

There has also been a simplification of the interministerial approval and consultation processes. An online system for purchasing land has been put into place. This has expedited the procedure and simplified it altogether, according to Pandey.