India set ambitious plans to develop roads and highways in its budgets year after year under the National Democratic Alliance government in the past decade. However, even after a significant increase in construction, the targets were missed for six years in this period.
On February 1, 2022, finance minister Nirmala Sitharaman said in her budget speech that the national highway network will be expanded by 25,000 km in FY23. The government later clarified that the target was a cumulative one for FY23 and FY24. India needs to add 8,500 km in a little over three months to meet this target.
Experts said India may miss the goal in FY24, probably by a big margin.
Infrastructure increase and rising toll revenue (Hits)
In the past 10 years, minister of road transport and highways Nitin Gadkari and his teams built 54,860 km of national highways, according to data from the annual reports of the ministry of road transport and highways.
While the length of national highways has increased in the past 10 years, the method of measuring the length of highways has also changed. In 2018, the government shifted to the lane-kilometre concept, whereby the length of each new lane that is built is measured instead of only considering the overall length of the highway.
If a four-lane highway of 100 km was constructed, the old method would account for 100 km of highway added, while the new method would add 400 km (4 lanes x 100 km).
The budgetary allocation for the ministry has increased to Rs 2.70 lakh crore in 2023-24 from Rs 34,345.2 crore in 2014-15.
A combination of improved quality of road construction, higher land costs, and the government funding the National Highways Authority of India for the past two years has led to an almost eight-fold increase in the budgetary allocation to the sector.
According to NHAI estimates, the average cost of road construction increased to about Rs 30 crore per km in 2023 from Rs 6-8 per km crore in 2015.
Toll collection from road users increased to about Rs 40,000 in FY23 from Rs 14,200 crore in FY15, driven by the availability of new routes. NHAI's toll collection increased to Rs 15,605 crore so far in FY24 from Rs 4,136 crore in FY15.
Gadkari expects India's toll collection to touch Rs 1.3 lakh crore by 2030. The minister claimed that the waiting time at toll plazas has been reduced to 47 seconds in 2023 from 734 seconds in 2014.
Asset Monetisation
The government has been unmatched in getting the private sector involved in infrastructure expansion. In the past 10 years, it has monetised assets under three modes – toll-operate-transfer (TOT) model, Infrastructure Investment Trusts (InvITs), and project-based financing – to provide all categories of investors an opportunity to invest in highways and associated infrastructure.
The ministry and NHAI have raised about Rs 84,000 crore through asset monetisation from March 2018 to December 2023. While Rs 42,334 crore has been raised through monetisation of 2,287 km via ToT, Rs 10,200 crore has been raised through InvIT listings of NHAI with a road length of 635 km. The government also raised Rs 31,321 crore via project-based financing of the Delhi-Mumbai Expressway.
The NHAI plans to raise Rs 15,000 crore in FY24 through another two tranches of its InvIT. According to rating company CareEdge, the government plans to generate Rs 2 lakh crore by monetising highways in the coming years.
According to the CareEdge report, NHAI is expected to build 4,000 to 4,500 km of new roads annually in the next three years, and the government can generate revenue from these assets using the InvIT or TOT model.
Missed targets (Misses)
The ministry and NHAI have missed their national highway construction targets in six of the past 10 years and are likely to miss it in FY24 as well.
However, the pace of expansion of national highways under the current government has increased significantly compared to road building during previous governments, although the United Progressive Alliance government was more focussed on the construction of rural roads.
The length of rural roads had increased to 389,578 km from 51,511 km 10 years earlier, former finance minister P Chidambaram told Parliament on February 17, 2014.
NHAI Debt Trap
Given the government's ambitious highway construction targets since 2014, NHAI’s borrowing spree from FY15 to FY22 led to a sharp increase in its repayment burden. NHAI’s debt servicing costs shot up almost 2.5 times to about Rs 36,100 crore in FY23 from Rs 14,443 crore in FY19 even after the government asked it to reduce borrowings after 2021.
Additionally, NHAI's debt has risen to Rs 3.4 lakh crore in March 2023 from Rs 23,800 crore in March 2014. Since 2021, the government has pushed NHAI and the road ministry to raise funds through divestment and asset monetisation.
The push for divestment and asset monetisation could also be seen in the government's move to set NHAI’s internal and extra-budgetary resources as negligible for the past two years.
In FY23, the government asked the highway developer to limit its borrowings. In the FY23 budget, the government projected NHAI’s internal and extra-budgetary resources would fall to Rs 1 lakh, from Rs 65,000 crore in 2021-22.
EXPERT-SPEAK
Kushal Kumar Singh, a partner at Deloitte India, told Moneycontrol that policy interventions covering expeditious land acquisition, solving operational issues, revival of languishing projects and timely resolution of disputes have helped ensure an enabling environment for investment and growth in the past 10 years.
He said the policy changes led to substantial improvement in market sentiment.
"One of the key developments we have observed is the emergence of new investor classes like institutional investors, specialised O&M contractors, specialised tolling agencies, etc. in the roads sector, leading to a diversified investor base. Traditional investors and developers have shifted their focus on their core competencies," Singh said.
Former member-projects at NHAI, RK Pandey told Moneycontrol that the government's decision to award projects only after pre-construction activities are completed has boosted the speed of construction.
"The process for consultation and inter-ministerial clearances has also been streamlined. For land acquisition, a web-based portal has been implemented. This has not only streamlined but quickened the whole process," Pandey said.
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