India has the second largest road network across the world at 4.7 million km. This road network transports more than 60 per cent of all goods in the country and 85 per cent of India’s total passenger traffic. Road transportation has gradually increased over the years with the improvement in connectivity between cities, towns and villages in the country.
The Indian roads carry almost 90 per cent of the country’s passenger traffic and around 65 per cent of its freight.In India sales of automobiles and movement of freight by roads is growing at a rapid rate. Cognizant of the need to create an adequate road network to cater to the increased traffic and movement of goods, Government of India has set earmarked 20 per cent of the investment of US$ 1 trillion reserved for infrastructure during the 12th Five-Year Plan (2012–17) to develop the country's roads.
The value of roads and bridges infrastructure in India is projected to grow at a Compound Annual Growth Rate (CAGR) of 17.4 per cent over FY12–17. The country's roads and bridges infrastructure, which was valued at US$ 6.9 billion in 2009 is expected to touch US$ 19.2 billion by 2017.
The construction of highways had reached an all-time high of 6,029 km during FY 2015-16, and the increased pace of construction is expected to continue for the coming years.
The financial outlay for road transport and highways grew at a CAGR of 12.5 per cent in the period FY10-16.The budget outlay for 2016-17 stepped up budgetary support for Road Transport and Highways to Rs 97,000 crore (US$ 14.45 billion).
Some of the key investments and developments in the Indian roads sector are as follows:
- The Cabinet Committee on Economic Affairs (CCEA) has approved four-laning of three national highways, namely Phagwara-Rupnagar section of the national highway in Punjab, Angul-Sambalpur section of the national highway in Odisha and Aurangabad-Telwadi section of the national highway in Maharashtra, with an investment of nearly Rs 6,000 crore (US$ 887.4 million).
- Goldman Sachs' Private Equity (PE) fund plans to invest US$ 200-250 million in Essel Highways, the road infrastructure arm of Essel Group, which could make it one of the biggest PE transactions in the sector.
- Silver Spring Capital Management, a Hong Kong-based equity hedge fund, plans to invest over INR 2,000 crore (US$ 296.5 million) in Hyderabad-based infrastructure developer Transstroy India Ltd, for construction of highways in the country.
- Mr Nitin Gadkari, Minister of Road Transport and Highways, and Shipping, has announced the government’s target of Rs 25 trillion (US$ 370.6 billion) investment in infrastructure over a period of three years, which will include Rs 8 trillion (US$ 118.6billion) for developing 27 industrial clusters and an additional Rs 5 trillion (US$ 74.11 billion) for road, railway and port connectivity projects.
- National Highways Authority of India (NHAI) plans to invest around US$ 250 billion in 240 road projects spanning 50,000 kms over the next five to six years, as per Mr Raghav Chandra, Chairman of NHAI.
- The National Highways Authority of India (NHAI) has signed a Memorandum of Understanding (MoU) with the National Remote Sensing Centre (NRSC) under Indian Space Research Organisation (ISRO) and North East Centre for Technology Application and Research (NECTAR) to use spatial technology such as satellite data to monitor and manage national highways.
- The National Highways Authority of India (NHAI) is planning to acquire 10,000 hectares of land in FY 2015-16, up from 6,733 hectares in FY2014-15, to speed up road laying in the country.
- The Government of India plans to award 100 highway projects under the Public-Private Partnership (PPP) mode in 2016, with expectations that recent amendments in regulations would revive investor sentiments in PPP projects in the infrastructure sector.
- The Ministry of Road Transport and Highways has undertaken development of about 7,000 km of national highways under Bharatmala Pariyojana at an estimated cost of Rs 80,000 crore (US$ 11.86 billion) in consultation with state governments. National Highways Authority of India (NHAI) has invited bids for preparing Detailed Project Reports (DPRs) for road development along the borders and coast lines under the Bharat Mala project.
- The Cabinet Committee on Economic Affairs (CCEA) has permitted 100 per cent equity divestment by private developers after two years of construction completion for all Build–Operate–Transfer (BOT) projects, irrespective of the year of award of the project.
- The Union government approved the construction of around 1,000 km of expressways at acost of Rs 16.68 crore (US$ 2.47 million) on a design-build-finance-operate-transfer (DBFOT) mode. The approved corridors are Delhi-Chandigarh (249 km), Bengaluru-Chennai (334 km), Delhi-Jaipur (261 km) and Vadodara-Mumbai (400 km). The government will also take up the development of 135 km long Eastern Peripheral Expressway at an estimated cost of Rs 5,763 crore (US$ 854.3 million).
- The Ministry of Road Transports and Highways plans to award 273 road projects covering a length of around 12,900 km at an estimated cost of Rs 1,26,700 crore (US$ 18.78 billion) in FY 2015-16.
- Chhattisgarh is planning to invest Rs 9,500 crore (US$ 1.41 billion) to upgrade 44 roads in the state.
The Government has unveiled investments plans totalling Rs 10 trillion (US$ 148.24 billion) in highways and shipping sector by 2019.
A total of 599 highways projects covering around 12,903 km of national highways have been sanctioned#, incurring an expenditure of Rs 108,000 crore (US$ 16 billion).
Some of the recent developments are as follows
- The National Highways Authority of India (NHAI) has prepared a plan of connecting 27 vertical and horizontal highways in the form of an interconnected grid, which is one of the basic practices of highway planning, and which is expected to enable smooth and uninterrupted access across various regions of India.
- The Government of India plans to introduce a new framework on renegotiation of Public Private Partnership (PPP) contracts, which will allow renegotiations based on sector-specific issues, especially for national highways and ports, and provide greater flexibility to the parties involved.
- The National Highways Authority of India (NHAI) seeks to improve execution of highway projects by delegating powers to its Regional Officers (RO) for hiring of equipment and labourers to demolish structures falling within the project, which will enable NHAI to make encumbrance free land available more speedily to the concessionaire/contractors.
- The Ministry of Road Transport and Highways plans to set up Land Acquisition (LA) cells across the country, which will work towards resolving issues related to land acquisition and ensure speedy compensation disbursal by the state governments.
- The Ministry of Road Transport and Highways plans to build five more greenfield expressways across the country, which are expected to reduce travel time and propel economic growth.
- In General Budget 2016-17, the Government of India has planned an total outlay of Rs 55,000 crore (US$ 8.15 billion) for road transport and highways.
- Mr Nitin Gadkari, Minister of Road Transport and Highways, and Shipping has said that the government has accelerated the construction of highways and expects the revival of investments in infrastructure sector to contribute more than 2 percentage points to the country’s Gross Domestic Product (GDP) in the next two years and to create five million jobs.
- The Cabinet Committee on Economic Affairs (CCEA) has approved a hybrid annuity model for implementing highway projects, which adopts a more rational approach to allocation of risks between the government and the private developer, and is hence expected to revive highway projects construction in India.
- Minister of Road Transport and Highways Mr Nitin Gadkari has announced that the target for laying out new roads in India will be increased to 150,000 kilometers per year from 2016compared to existing 96,000 kilometers.
- The Government of India signed the agreement for third and last tranche of US$ 273 million loan, out of total US$ 800 million loan agreement with The Asian Development Bank (ADB), for constructing 6,000 kms of all-weather rural roads in Assam, Chhattisgarh, Madhya Pradesh, Odisha and West Bengal, by December 2017.
- In the month of November 2015, among various areas of infrastructure spending by the government, the roads segment led in terms of tenders issued (59 per cent of total tenders) and contracts awarded, with an increasing shift to Engineering, Procurement and Construction (EPC) type of contracts for road projects##.
- India and Japan are planning to enter into a partnership and launch an infrastructure finance company which will provide soft loans for Indian road projects with a credit target of Rs 2 lakh crore (US$ 29.65 billion).
- The Cabinet Committee on Economic Affairs (CCEA) has approved a one-time fund infusion in road projects which are at least 50 per cent complete till November 2014, but have not progressed further because of shortage of funds.
- Minister for Roads, Transport and Highways Mr Nitin Gadkari announced that the government is planning a compensation policy for road sector developers, which will seek to compensate companies for any delays related to clearance for road projects.
- With the objective of reviving private investment in the roads sector, the Ministry of Roads and Highways is now working on two more models for attracting capital. One model proposes allowing bidding of a road project on the basis of the least present value, and the other envisages selling off road projects that have been built using government funds.
- The Minister of State for Road Transport and Highways, Mr Pon Radhakrishnan has informed that the Government has launched major initiatives to upgrade and strengthen 54,478 kms of National Highways (NH) in the country.
- The Ministry for Road Transport and Highways showcased revival of 34 projects worth more than Rs 26,000 crore (US$ 3.85 billion) in its latest presentation on infrastructure targets to Prime Minister Mr Narendra Modi, saying the projects spanning over 4,084 km are being restructured or converted from public-private partnership to engineering, procurement and construction (EPC) mode to get them going. Of these, five projects have been handed over to the state governments concerned while another 18 will be awarded in EPC mode.
- The Indian government plans to set up a finance corporation with an amount of Rs 1 trillion (US$ 14.82 billion), in collaboration with Japanese investors, to fund projects in the roads segment.
The government, through a series of initiatives, is working on policies to attract significant investor interest. The Indian government plans to develop a total of 66,117 km of roads under different programmes such as National Highways Development Project (NHDP), Special Accelerated Road Development Programme in North East (SARDP-NE) and Left Wing Extremism (LWE), and has set an objective of building 30 km of road a day from 2016.
Exchange Rate Used: INR 1 = US$ 0.0148 as on July 11, 2016
References: Media Reports, Press Releases, Ministry of Road Transport and Highways, NHAI website, Press Information Bureau (PIB), Budget 2016-17
Note: # – since May 2014; ## - As per a report by Emkay Global Financial Services
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.