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October, 2011


Connectivity is a key component of development, it is the pillar on which economy grows and development is witnessed. Roads formulate the path to the holistic development of the nation. Roads in India are the most preferred mode of transportation. Easy availability, adaptability to individual needs and cost savings are some of the factors working in favour of road transport. It is for this reason the rural economy is so dependent on the infrastructure component. Through Bharat Nirman, the Government has made an important commitment towards investment in rural connectivity. Rural road connectivity is a critical component of our overall strategy for rural development. It promotes access to economic and social services and facilitates the growth processes in our rural economy, according to Hon’ble Prime Minister Dr Manmohan Singh’s address note at the National Conference on Rural Roads.

Sector Structure/ Market Size

India has the world's second largest road network, aggregating over 3.34 million kilometres (km) and carry about 65 per cent of freight and 80 per cent of passenger traffic, according to the National Highway Authority of India (NHAI). Roads have advantages over other modes of transport because they provide access to the last point of destination, as it also acts as a feeder service to railway, shipping and air traffic.

National Highways (NH) constitute only about 2 per cent of the road network but carry about 40 per cent of the total road traffic. Furthermore, the number of vehicles has been estimated to be growing at an average pace of 10.16 per cent per annum over the last five years, as per NHAI.

Growth Potential

In order to build world class highways in the country, the Ministry of Road Transport and Highways has initiated a time-bound action plan to build NHs at a pace of 20 km per day i.e. 7,300 km per year; bringing all the single/ intermediate lane NHs to the minimum two lane level; and-take up a programme of 1,000 km expressways.

Foreign direct investment (FDI) received for construction activities (including roads and highways) sector from April 2011 to July 2012 stood at US$ 616 million. The cumulative inflows during April 2000 to July 2011 amounted to US$ 9,250 million, accounting for 6 per cent of the total FDI equity inflows, according to data released by Department of Industrial Policy and Promotion (DIPP).

To boost investments in the infrastructure sector the Public Private Partnership Approval Committee (PPPAC), headed by Mr R Gopalan, Secretary, Economic Affairs has approved 10 road projects at a total cost of Rs 5,000 crore (US$ 1.02 billion).

Six proposals, spread across five states, of the Ministry of Road Transport and Highways have been approved by the Mr R Gopalan, Chairman, PPPAC. The project is estimated to cost Rs 9,773.85 crore (US$ 2 billion) under public-private partnership (PPP). The projects include roads in NH, ports, airports, housing, tourism infrastructure, railways and sports stadia.

The Ministry of Home Affairs (MHA) has also taken up the construction of 27 roads on the Indo-China border for a length of 804 kms.

The Hon’ble Prime Minister of India, Dr Manmohan Singh said that India has been successful in attracting large volumes of private investment in this sector. Contract awards exceeded about 4,800 kms in the last financial year and the Ministry of Road Transport & Highways is well poised to award 7,300 kms this year. The NHAI, which deals with the roads that can attract private capital, has made PPP the preferred mode for most of its projects.

The authority further seek bids for 3,000-4,000 kms of highways for operations, maintenance and tolling (OMT) contracts in the next fiscal year, as per Mr J N Singh, Member (finance), NHAI. In addition to the 2,900 kms the authority has already put on the block since August 2011.

The share of private sector investment in infrastructure, estimated at about 20 per cent of the total investment of Rs 963,451 crore (US$ 197.02 billion) during the Tenth Five Year Plan, increased to about 30 per cent of the total estimated investment of Rs 2,271,623 crore (US$ 464.54 billion) during the Eleventh Five Year Plan (2007-2012)

According to the Ministry of Finance statistics, road projects accounted for 60 per cent of the 450 PPP infrastructure projects and 45 per cent of Rs 224,000 crore (US$ 45.81 billion) project costs of all the infrastructure projects

The Government is looking at an investment of over Rs 264,000 crore (US$ 53.99 billion) in the road sector in the next five years, over 65 per cent of which will come from the private sector

The NHAI has planned to construct 1,000 km of expressways on the build-operate-transfer (BOT) model. NHAI estimates a km of expressway would cost around Rs 55 crore (US$ 11.25 million) to build

Mr C P Joshi, the Road Transport and Highways Minister, announced that the NHAI would award contracts for construction of 7,300 km of highways envisaging private investments of about Rs 50,000 crore (US$ 10.22 billion) by the end of 2011-12. The Government plans to invest US$ 1 trillion in infrastructure projects during the Twelfth Five Year Plan (2012-17)

The World Bank has approved a US$ 975 million loan for developing the first phase of the eastern arm of the US$ 17.21 billion worth Dedicated Freight Corridor (DFC) Project in India. Dedicated Freight Corridor Corporation of India Ltd (DFCCIL) has tied up with the Japanese Bank of Industrial Cooperation (JBIC) for Rs 4,500 crore (US$ 920.25 million) funding as loan for the first phase, likely to be commissioned in March 2016.