Infrastructure growth is extremely important for the development of our country. In order to generate industrial investment, we need good infrastructure across the water, power, transportation and communication segments. Creating employment is the biggest challenge for the country and development of industry will play a crucial role in it. In a recent videoconference organised by India Infrastructure, Nitin Jairam Gadkari delivered the keynote address, sharing his perspective on the current state of the road sector, key priorities, achievements so far, the impact of Covid-19 and the future outlook for the sector. Excerpts…
The development of a strong infrastructure set-up is crucial for the country’s progress. Presently, the country is facing the issue of the Covid-19 pandemic. The most important requirement for the Indian economy is liquidity. This is crucial to accelerate the wheels of the economy. The government is trying to infuse liquidity in the country through foreign direct investment (FDI) in the infrastructure sectors.
The road sector offers a number of opportunities. It is one of the most economically viable sectors in the economy as the internal rate of return on the basis of toll collection is extremely high. Some of the issues faced by the sector pertain to land acquisition, utility shifting and environmental clearances. However, seeking to resolve these, the government has taken initiatives such as awarding projects only after completing 90 per cent of the land acquisition. The government is also obtaining all kinds of clearances, appraisals and no-objection certificates before declaration of the appointed date. As a result of these initiatives, the sector has become an attractive investment opportunity for investors. The road construction rate has improved from an average of 7-8 km per day in 2014 to an average of 30-32 km per day at present.
We have also envisaged the construction of 22 green express highways in the country. Work on seven of these has already started. The Delhi-Meerut Expressway, one of the upcoming express highways, is progressing at a fast pace. The express highway is set to reduce the travel time between the two cities from 4.5 hours to 45-50 minutes within six months. Besides, the Delhi-Mumbai Expressway is also one of the key upcoming green express highways. The government has approved the revised alignment of the expressway, leading to the savings of about 220 km of road construction and land acquisition cost of Rs 160 billion. We are also planning to develop logistics parks, industrial clusters, smart cities and smart villages along the expressway, while the responsibility to ensure their connectivity to ports, airports and railway stations lies with the National Highways Authority of India (NHAI). Currently, one of the key issues faced by the domestic infrastructure sector is the high logistics cost, compared to developed countries such as the US and China. The upcoming Delhi-Mumbai Expressway aims to reduce this significantly by curtailing the travel time between the two cities from three days to 20-28 hours.
The Ministry of Road Transport and Highways (MoRTH) has also planned to reduce the dependence of long-haul modes of transportation such as trucks and buses on conventional fuels and switch to a greener option – liquefied natural gas (LNG) – which is at least 60 per cent cheaper as compared to diesel. Although the conversion to LNG is a bit costly, the costs will surely be realised within two years. Meanwhile, an electric pilot project on the Delhi-Mumbai corridor is under way wherein trucks and buses will run on electricity. Such initiatives are the need of the hour and will play a key role in reducing the cost of public transportation. With regard to construction techniques, contractors are being encouraged to use precast technology and soil stabilisation is also being promoted. Besides, the ministry will soon come up with guidelines for green road construction and soil stabilisation.
The government has envisaged making India a $5 trillion economy within five years with infrastructure investment worth Rs 100 trillion. The MoRTH is optimistic about achieving the targets, despite the challenges posed by the pandemic, since the developed countries are looking forward to investing in the country. The infrastructure sector is set to provide huge opportunities to the private sector in construction, investment and public-private partnerships (PPPs). The ministry maintains that appropriate guidelines have been issued for providing the necessary relief measures to road developers and contractors during Covid-19 times.
Going forward, the ministry has set the target of completing 22 upcoming green express highway projects, along with 480 road projects with a high internal rate of return. Apart from these, it is focusing on the creation of roadside amenities, logistics parks, bus ports, industrial clusters, gas stations, etc. in a time-bound manner with appropriate innovations and result-oriented, corruption-free policies. The government is also eyeing higher FDI, given that 100 per cent FDI is allowed in the infrastructure sector. The government is also seeking funds from global insurance and pension funds and multilateral agencies to fund upcoming road projects. The MoRTH has been taking proactive steps to resolve the issues pertaining to land acquisition, project clearances, utility shifting and dispute resolution. The ministry has been able to kick-start numerous stalled road projects and has also terminated stuck projects whenever necessary. This saved the Indian banking sector from non-performing assets of about Rs 3 trillion. As far as the toll-operate-transfer (TOT) mode of asset financing is concerned, I am not very positive about the model. Thus, the ministry is looking at other innovative funding models with higher returns. Meanwhile, all approvals for NHAI’s upcoming infrastructure investment trust are in place and the product is expected to be launched soon.
Meanwhile, the build-operate-transfer (BOT) mode of contracting is not very favourable in the current scenario as most of the Indian road developers are not comfortable bidding for such projects. However, the ministry is planning to come up with 15-20 BOT projects to gauge the developer response to them. The ministry believes that more projects should be implemented on an engineering, procurement and construction (EPC) basis to provide the necessary financial support to developers/investors. Once the developers and investors have been able to achieve healthy balance sheets and cash flows with government support, they may themselves opt for BOT. The ministry is also facing issues with the hybrid annuity model (HAM) due to lengthy and time-consuming procedures for getting the required funding support for such projects from banks and financial institutions. The liquidity constraints and financial limitations faced by private road developers have exacerbated the reluctance of banks to lend to HAM projects. However, the ministry is in talks with various financial institutions to ease the situation and make borrowing more feasible for highway developers.
Besides, due to the ongoing geopolitical issues with China and in a bid to promote self-reliance, the ministry has decided to ban Chinese companies from bidding for upcoming EPC road projects. The ministry is also working towards ensuring timely payments to micro, small and medium enterprises, as this has become a crucial issue to be addressed. Besides, while Covid-19 has impacted the pace of construction in the current fiscal year, the ministry aims to reach a 30 km per day construction rate by March 2022. The MoRTH is also working on new policies to encourage innovative green road construction technologies for soil stabilisation, tree transplantation, etc. Soon, a new clause will be added to project tenders to mandate the disclosure of defect liability guarantee regarding any new technologies that are proposed to be deployed for a road project. The ministry believes that with the much-needed optimism, the road industry will be able to tide over the Covid-19 crisis and march ahead to create a $5 trillion economy, as envisaged by the government.
InfEneTy is a knowledge platform which showcases critical news, insights and features on contemporary and topical issues related to Infrastructure, Energy and Technology affecting the economy, industry sectors, business environment. The intent is to enable an association with the evolving scenario and be a catalyst for change. Help make InfEneTy better. Share your comments or connect with us at firstname.lastname@example.org