India is building highways at a pace never seen before. And the speed is only accelerating.
One of the biggest achievements of the Narendra Modi government in the last 7 years is its sheer success in building roads and highways overcoming seemingly insurmountable odds. In the just-concluded fiscal 2021, a record 13,505 kilometers of national highway was constructed in the country at a breakneck speed of 37 kms per day. This was more than government’s own target of 11,000 kms that was set before the start of the fiscal in March 2020 and is perilously close to road transport and highway minister Nitin Gadkari’s outlandish mission of building 40 kms of highways every day.
In 2014 when Gadkari first assumed office in Transport Bhawan situated at a stone’s throw distance from India’s parliament, the pace of construction of highways had trickled down to just 11.67 km per day. In 2013-14, UPA government’s last year in office, only 4,260 kms of highways was constructed in the country. Worse, between 2010 and 2012, the desperate government had also gone on an overdrive awarding more than 20,000 km of highway projects without really looking into their business viability.
As a result, many of the projects had to be shelved due to poor planning. A few other projects inherited by Gadkari’s ministry were delayed by more than three years. The prevalent public private partnership (PPP) model of build, operate and transfer, or BoT, had failed, investor confidence was low, and bankers were averse to funding highway projects. The sector needed an overhaul.
To kickstart the revival story, the government first decided to go big on investment from its own pocket while initiating tough reforms that were the need of the hour. As the appetite for investment by private investors was low, majority of the projects awarded in fiscals 2015 and 2016 were under the Engineering, Procurement, and Construction (EPC) route where financial liability of the project rests solely with the government. Thereafter, a new hybrid annuity model (HAM) was devised which was a departure from other PPP models. Under HAM, a private investor bore 60 per cent of the project cost, to be paid by the government through annuity payments from the date of commissioning of the project. The balance would also be provided by the government during the construction period. In fiscal 2016, only 10 per cent of the projects awarded by NHAI were under HAM but as the focus shifted it rose to 50 per cent by fiscal 2018--an order book value growth from Rs 7,000 crore to Rs 76,500 crore.
"He (Gadkari) has cleaned up a large amount of historical mess," says Vinayak Chatterjee, Co-founder and Chairman, Feedback Infrastructure. "He saw that the private sector confidence was low, and the Build, Operate, and Transfer (BoT) programme was caught in a quagmire of obstacles. So, he quickly, and in a very timely fashion, shifted focus to EPC driven by public spending. As a result he has very deftly steered clear of the twin balance sheet problem of private sector and bank NPAs.”
The results speak for themselves. In the last seven years, the length of national highways has gone up by 50 percent from 91,287 km (as of April 2014) to 137,625 km (as on 20 March 2021). It is on the back of robust investment from the government. Total budgetary outlay increased by 5.5 times, from Rs33,414 crore in financial year 2015 to Rs1,83,101 crore in financial year 2022. The average annual project award during this period went up by 85% compared with FY2010-FY2014 while average annual construction went up by a similar 83%.
What makes the achievement in fiscal 2021 even more remarkable is that the lockdown robbed the sector of the first few highly productive months of the year. Typically, construction of roads and highways peaks in the summer months before the onset of monsoons slows it down. By the time the country came out of the lockdown in June, summer was on its way out.
“Covid was a shock but the lockdown was required. We took it up as a challenge,” Gadkari said. “I told my people that we have to increase our pace by two-three times to not only compensate for the time we have lost but exceed it.”
The reforms undertaken in the last few years helped. One of the biggest problems that has historically stymied construction activity in the country is land acquisition. To streamline the process, guidelines for setting up special cells in the ministry, regional offices, NHAI, National Highways and Infrastructure Development Corporation and their project implementation units were issued. Instructions were also given for appointment of additional CALA (competent authority for land acquisition) or arbitrators to ease their workload. Additionally, a decision was taken for bulk purchase of land. Further, decision was made to not award projects where at least 80% of the land had not been acquired. This led to a significant reduction in project delays.
The story isn’t done yet. To ring in self-sufficiency and unlock value, the government is pushing NHAI towards a massive monetization exercise of its assets which will see it raise Rs 85,000 crore and pare down its debt by 2025. The first round of toll operate transfer package yielded a massive Rs 9,681 crore for 680 km of highways against the target of Rs 6,258 crore indicating a thumbs up from investors.
With the original target of 41 km per day within reach, a fresh target of 60 km per day has now been set. Unlike the last time, the odds are now heavily stacked in favour of it being achieved.