Wednesday, 20 May 2015

Highway construction yet to gain momentum

Finance Minister Arun Jaitley, in his maiden Budget speech in July last year, stressed on the need for infrastructure development. The second time around, it was an explicit pronouncement of intent from him, an indication of the new government's focus on overall infrastructure.

According to the latest available data, however, the pace of road construction in the first year of the National Democratic Alliance government was comparable to the last year of the United Progressive Alliance government. The length of 4,410 km of highways constructed in 2014-15 reflected a marginal increase from the 4,260 km constructed in 2013-14. The pace of construction has also increased from 11.6 km/day to 12 km/day.

In line with the purposeful exhortation of focusing on infrastructure development, the budgetary support for 2015-16 jumped by almost 50 per cent, from Rs 28,881 crore in 2014-15 to Rs 42,912 crore in 2015-16. Of the overall amount allocated, capital expenditure saw a 109 per cent jump.

Union Minister for Road Transport and Highways Nitin Gadkari has announced in the Rajya Sabha, "We are targeting 30 km of road construction per day in the next two years". While at the current rate the target seems difficult to achieve, the rate at which projects are being awarded is stunning. The total number of km awarded during 2013-14 was 3,621 but it has more than doubled to 7,972 during 2014-15, out of which only 700 km is being built under the build-operate-transfer (BOT) model.

The government has targeted awarding 8,500 km per year over the next two years, with 10,000 km of roads set to be awarded in the current financial year.

"In the past year, we have seen some things move at a faster clip, clearances and permits among them. The bigger challenges will need some time to sort out," said Manish Agarwal, partner and leader of capital projects and infrastructure at PwC India.

Adding, "Easing bank lending to concessionaires, facilitating plug and play readiness, and quickening dispute resolution mechanisms need to be sorted out. I do not see private investment reviving in the next six months."

The subdued sentiment has necessitated increased public spending from the government, something experts argue will have a multiplier effect and effectively revive the former.

"We are looking at multiple things to revive investment in the sector. Mutual termination of awarded projects and re-bidding, overhauling the dispute resolution mechanism, and frequent reviews are some of the things we are exploring. I think the effort made in easing roadblocks will show changes on the ground the coming year," a ministry official said.

The government has also introduced a hybrid annuity model that seeks to reallocate risk-sharing between public and private parties. During the past three years, 1,427 road projects were sanctioned. Of them, 437 projects are running behind schedule, 101 are in dispute, 1,022 have been completed and 57 terminated.

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