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Road, highways development: A ticket for India’s speedy recovery

Apart from completing additional 60,000 km of National Highways, there is a focus on a more integrated approach for entire logistics and infrastructure ecosystem development

The union road transport and highways minister has announced achieving the target of constructing 11,000 km of National Highways, one month ahead of its schedule – a significant feat considering the first few months were lost due to nation-wide lock down. The rate of highways construction has reached 34 km per day this year, almost three times the rate of 12 km per day during FY 2014-15. This has been possible owing to certain initiatives in specific response to COVID-19 scenario to ensure that construction works continue at the desired pace.

A host of measures were taken to provide relief to contractors/ developers/ concessionaires specifically due to issues arising out of the pandemic and lockdowns, such as relaxation in Schedule H in EPC contracts to provide monthly payments; direct payments to approved subcontractors through Escrow Account; extension of time of three to six months depending on site conditions.

During the year, National Highways Authority of India also deliberated and accepted some key suggestions provided by different industry bodies in order to improve ease of doing business and facilitate better working relationships within the road sector ecosystem. All these measures have helped the construction work to continue at an unprecedented pace, despite numerous hurdles and challenges.

It is important to emphasize that an efficient road network connectivity allowing for lower transit time and cost, is one of the crucial elements in improving the logistics performance of the region and thus promoting trade.

As per Logistics Ease Across Different States (LEADS, 2018) report, 15 states/UTs accounting for 90 percent of total exports by value, actually had substantial share of infrastructure facilities - around 85 percent of the total road network and 83 percent of the railway route-kilometres in the country, to support such trade volumes. In addition to enhanced trade, an efficient road network provides access to new markets, promotes new industries and even leads to better productivity and competitiveness of the industries in the region due to lower transport costs and better access to input materials and distribution markets.

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Further, improved networks may also lead to paradigm and structural shifts in local economies (for instance, in rural areas, access to markets may induce farmers to shift from subsistence to commercial farming). Increased trade, productivity and industrialization enhances direct and indirect employment opportunities and thus higher incomes. The savings in costs and higher incomes both go back to the economy in the form of investments or consumer spending. Well planned investments in infrastructure (roads or otherwise), thus, have a positive multiplier effect on the country’s GDP and economy.

Hence, in response to the pandemic led economic crisis, many governments across the globe have prioritised and supplemented their public expenditure to spur demand and generate employment, to support economic recovery. India too, in its Budget 2021-22, has substantially increased its capital expenditure for infrastructure development by approximately 34.5% over BE 2020-21.

Apart from completing additional 60,000 km of National Highways, there is a focus on a more integrated approach for entire logistics and infrastructure ecosystem development, evident from national infrastructure development programmes such as Bharatmala, Sagarmala, Dedicated Freight Corridors (DFCs), etc. Initiatives such as development of 35 Multi Modal Logistics Parks (MMLPs) under Bharatmala Pariyojana along with the corridor networks provide fillip to the economies of such regions.

Some initiatives such as raising finances through Toll-Operate-Transfer (TOT) model of asset monetization, securitization of Toll Revenues and setting up of Infra Investment Trust (InvIT), as also setting up of a professionally managed Development Financial Institution (DFI) to act as a provider, enabler and catalyst for infrastructure financing, are positive steps in this direction.

An integrated approach for infrastructure development, innovative solutions for financing large initiatives, and understanding and resolving issues of contractors/ developers, seems to bode well for the roads and highways development in India in the coming years. With the pace of road construction touching new heights, it is safe to assume that this trend is going to continue with more kilometres of road to be added every year. With such growth prospects and multiplier benefits to the economy, road and highways development seems to be one of the sectors to lead the economic recovery of India.
Pranavant is Partner, Deloitte India.
first published: Apr 5, 2021 08:51 am

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