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Govt policies to fuel highway sector revival: India Ratings

An India Ratings report reveal that despite stalled projects and low funding, the highway sector will pick up speed with implementation of government policies and initiatives.

August 10, 2015 / 08:30 PM IST
Unfinished projects that have resulted in a slowdown in the highway sector are all set to see a revival, thanks to the recent policy initiatives of the central government, says an India Ratings report.

The Ind-Ra report reveals that the highway sector will get a push when the government initiatives are put into gear, with steps such as premium rescheduling and refinancing schemes expected to provide relief to special purpose vehicles (SPVs).

The report mentions that in the last two to three years, the only earning source have been toll rate hikes on back of inflation. Higher income from tolls prompted nearly 80 percent average rise in the earnings before income, tax, depreciation and amortization (EBITDA) margins. This disguised the declining road traffic over the years.

The growth, so far, has been slow despite the improvements in projects.

The total national highway length grew 3.9 percent at compounded annual growth rate (CAGR) between FY2005 to FY2015. Freight and passenger traffic grew at 8.8 percent and 7.8 percent respectively, outperforming the highway sector.

Furthermore, the execution rate has fallen from 7.4 km per day in FY13 to 4.1 km per day in FY15. As per the findings of the report, it would take government a decade to complete projects under the National Highways Development Project (NHDP).

The report also points out at the volatility of project award rate. This rate certainly needs to move forward to ensure completion of projects in the next five years. So far, four projects have been awarded in the June quarter of FY16 on engineering, procurement and construction (EPC) model.

Coming to the finance aspect, the Ind-Ra report says that an outlay of Rs 2.21 trillion for completion of pending projects.

The report mentions that stalled projects can face issues like increase in cost and additional loss due to reduced traffic.

In the FY16 Union Budget, allocation for road sector was increased by a phenomenal 126 percent. However, the important aspect is channelising funds. Though recovery is on cards, it is the effectiveness of policies that will impact the speed of revival.

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