For this Independence day I'd planned to write a detailed India Infrastructure Report. But due do my ill health I could complete only one sector - Roads. I'll share the details about other sectors (Airports, Ports, Power, Urban Transport etc) after I finish them later.
Till then, keep writing your comments on this small part.
Till then, keep writing your comments on this small part.
Happy Independence Day!!
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Stats:
Total road network in India = 3.32 million kilometers
NH + State Highways = 1, 95, 000 km
NH = 65, 569 km ( 1.98%) but carries 40% of road traffic
State Highways = 1, 28, 000 km
Major district roads = 4, 70, 000 km
Rural roads = 26, 50, 000 km
Roads carry 65% of freight and 85% of passenger traffic.
Traffic growth = 7-10% per year
Vehicles growth = 12% per year
Important Schemes = Pradhan Mantri Gramin Sadak Yojana (PMGSY) & Pradhan Mantri Bharat Jodo Pariyojana (PMBJY)
Facts:
1. A good development for this sector is the amalgamation of Ministry of Road Transport and Highways and Ministry of Shipping. Today there is only one department – Ministry of Shipping, Road Transport and Highways with the two erstwhile ministries becoming two departments in the new ministry. This a good move as it reduces ambiguity in responsibility in overlapping areas like roads connecting ports.
2. Due to poor road infrastructure the movement of goods is very slow in India and this affects our economy badly. On an average Indian truckers take about 30 hrs to do a 600 km stretch as against 10 hrs in China. Our country suffers 23.9 deaths per 10, 000 registered vehicles as against 1.5 in industrialized countries.
3. Ever wondered what the biggest finance for construction and maintenance of the second largest network of roads could be. It is not the road tax and vehicle registration fee as you might expect.
It is fuel cess. The Central government has created a dedicated fund, called Central Road Fund (CRF) from the collection of cess of Re.1/- per litre on petrol and diesel. The Union Budget for 2003-04 introduced an additional levy of cess of 50 paise per litre on petrol and high speed diesel. Nearly 30% of the CRF goes to States for state roads. About 60% is used for building national highways and the rest for rail over-bridges.
Cess is the biggest finance mechanism for NHAI generating about Rs 5000 – 6000 crores per year. Its other sources are loans from international funding agencies, market borrowings and private sector participation.
Delving more into this subject of road financing, I am sure you’d notice the conspicuous absence of all our direct taxes/payments – road taxes, vehicle registration fees, traffic fines, penalties etc. This sum supposedly goes to the State governments but I don’t know where it goes after that. Anyways, I read a very good presentation on new alternatives for financing Indian highways. You can access the presentation here.
4. Data also suggests that we are NOT really short of funds, especially for State roads. Last fiscal year, 34.16% of CRF, amounting to Rs 1535 crores allotted to States and UTs is still lying unspent.
States have not come forward to with enough proposals on road development. The amount released to the state governments is based on the progress in various projects. The fund is non-lapsable, i.e, a low utilization, despite high accruals, would mean locking up of resources, till the states have found a use for them.
5. “Construction of rural roads brings multifaceted benefits to the hitherto deprived rural areas and is seen as an effective poverty reduction strategy. The economic benefits of rural roads include increase in agricultural production, changes in cropping pattern, better prices for agricultural produce, reduction in transport costs, increase in rural employment, reduction in migration to cities, better access to medical care, more attendance in schools/colleges, lower prices for essential commodities to rural consumers, increase in production of dairy products, penetration of better quality consumer items and durables, thus improving quality of life. All this, in turn, will stimulate not merely the rural sector but the entire economy.”
Therefore for achieving these benefits government in Aug 2001 had announced the Rs 60,000 crore PMGSY scheme. This was an ambitious project promising to provide all-weather connectivity to all unconnected inhabitations by 2007.
Unfortunately the project is terribly lagging in achieving its goals.
6. In the previous point a relation between good roads and cropping pattern was mentioned. I want to explain this interesting relation a bit more in detail.
Basically the cropping pattern Indian farmers adopt is dependent on several factors. A very important factor among these is the crop’s perishable nature. Perishable produce needs to be transported and consumed fast. But for quick transportation you need good roads which is not the reality in most cases. So most of our farmers have no choice but to produce long storage life crops like grains, rice, cereals etc.
The day we have good roads in place, many farmers will get an opportunity to diversify into other profitable options like fruits, vegetables, milk etc.
7. NHDP (National Highways Development Program) – Phase 1 and 2 is the largest highway project ever undertaken in the country covering 14, 379 km of NH and costing 64, 639 crores.
It covers Golden Quadilateral, North South East West(NSEW) corridors and providing proper 4 lane connectectivity to the 12 major ports*.
The NHDP is one of the best projects initiated by the Vajpaee government. It will surely have a terrific impact on the growth of our country. I don’t confirm the veracity of this fact but during our campus placements TSMG (Tata Strategic Management Group) had claimed to be the originators of this idea.
A very good site where you can see the detailed map and track this project's progress is this.
8. Corridor Management: After the completion of NHDP the focus will shift to Corridor Management. CM is the technique of managing the highways to deliver maximum throughput in terms of speed and traffic volume, while minimizing operational cost and enhancing road safety. It will be implemented through Operation & Maintenance(O&M) contracts.
The scope of CM includes:
i) Deployment of round the clock patrol vehicles, ambulances and tow-away cranes for rapid clearance of highways.
ii) Usage of road safety furniture like crash barrier, delineators, median railing, road signages etc
iii) Development of wayside amenities
iv) Conduct of road safety audits
9. Government is very keen to encourage private sector partnership in road development. It has already announced several incentives such as 100% FDI, tax exemptions and duty free import of road building equipments and machinery.
Already, 35 BOT(Build-Operate-Transfer) projects (where the investor recovers his money through toll collection) worth Rs 11, 700 crores and 8 annuity projects (where the government pays the contractor who maintains the road for 15 years) worth Rs 2, 353 crores have been awarded to private companies.
The major deterrent to private sector participation is the huge upfront capital investment and high risks of revenue collection. Therefore the NHAI has formed SPVs(Special Purpose Vehicles) to fund road projects. SPVs are separate legal entities formed under the Companies Act, 1956. It involves some cash support from the NHAI in the form of equity/debt; while the rest of funds come from ports/financial institutions/beneficiary organisations in the form of equity/debt. The amount spent on development of roads/highways is to be recovered through tolls within a prescribed concession period.
10. NHDP has led to another revolution in BOT projects, with some bids opting for ‘negative grants’ that is, private infrastructure companies bidding for contracts to build roads are offering to pay the government a lump sum amount arrived at through the bidding process if the contract is awarded to them. Half a dozen projects are already underway and the number is rising.
The highest negative grant the Govt has received till date is Rs 502 crores paid upfront by a private company (IDAA Infra) for getting the 65 km Bharuch-Surat section (NH 8).
11. A new Model Concession Agreement(MCA) has been finalized. The new agreement includes design, build, finance, operate and transport activities instead of build, operate and transfer (BOT). Replacing ‘transfer’ by ‘transport’ is crucial as it implies that government, instead of owning the asset after the concession period, would continue to buy ‘road services’ from the concessionaire.
12. Roads and Urban Transportation are overlapping to a certain degree. Therefore I’m addressing this point here. One of the best Urban Transportation systems in the world I know is in Curitiba, Brazil. This city has an excellent bus transit system which is used by 85% of its population. Also the roads are so designed that they cover all the prominent places in an arterial fashion. Since so many people prefer public transportation they are saved of unbearable traffic congestion, pollution, noise and end up utilizing energy efficiently.
In our country, some cities are trying to mature to these levels. The last time I was in Chandigarh they had introduced an innovative system which was something to do with increasing the frequency of the buses keeping the fares constant irrespective of the distance traveled. Now that is a good way to encourage the utilization of public transport.
I’ve heard a lot of praises about the ring roads in Delhi. Going forward cities like Bangalore and Hyderabad are also building their own ring roads.
For guys from Hyderabad, you can see a video and map of the upcoming Outer and Inner Ring roads here. This is truly world class.
2. Due to poor road infrastructure the movement of goods is very slow in India and this affects our economy badly. On an average Indian truckers take about 30 hrs to do a 600 km stretch as against 10 hrs in China. Our country suffers 23.9 deaths per 10, 000 registered vehicles as against 1.5 in industrialized countries.
3. Ever wondered what the biggest finance for construction and maintenance of the second largest network of roads could be. It is not the road tax and vehicle registration fee as you might expect.
It is fuel cess. The Central government has created a dedicated fund, called Central Road Fund (CRF) from the collection of cess of Re.1/- per litre on petrol and diesel. The Union Budget for 2003-04 introduced an additional levy of cess of 50 paise per litre on petrol and high speed diesel. Nearly 30% of the CRF goes to States for state roads. About 60% is used for building national highways and the rest for rail over-bridges.
Cess is the biggest finance mechanism for NHAI generating about Rs 5000 – 6000 crores per year. Its other sources are loans from international funding agencies, market borrowings and private sector participation.
Delving more into this subject of road financing, I am sure you’d notice the conspicuous absence of all our direct taxes/payments – road taxes, vehicle registration fees, traffic fines, penalties etc. This sum supposedly goes to the State governments but I don’t know where it goes after that. Anyways, I read a very good presentation on new alternatives for financing Indian highways. You can access the presentation here.
4. Data also suggests that we are NOT really short of funds, especially for State roads. Last fiscal year, 34.16% of CRF, amounting to Rs 1535 crores allotted to States and UTs is still lying unspent.
States have not come forward to with enough proposals on road development. The amount released to the state governments is based on the progress in various projects. The fund is non-lapsable, i.e, a low utilization, despite high accruals, would mean locking up of resources, till the states have found a use for them.
5. “Construction of rural roads brings multifaceted benefits to the hitherto deprived rural areas and is seen as an effective poverty reduction strategy. The economic benefits of rural roads include increase in agricultural production, changes in cropping pattern, better prices for agricultural produce, reduction in transport costs, increase in rural employment, reduction in migration to cities, better access to medical care, more attendance in schools/colleges, lower prices for essential commodities to rural consumers, increase in production of dairy products, penetration of better quality consumer items and durables, thus improving quality of life. All this, in turn, will stimulate not merely the rural sector but the entire economy.”
Therefore for achieving these benefits government in Aug 2001 had announced the Rs 60,000 crore PMGSY scheme. This was an ambitious project promising to provide all-weather connectivity to all unconnected inhabitations by 2007.
Unfortunately the project is terribly lagging in achieving its goals.
6. In the previous point a relation between good roads and cropping pattern was mentioned. I want to explain this interesting relation a bit more in detail.
Basically the cropping pattern Indian farmers adopt is dependent on several factors. A very important factor among these is the crop’s perishable nature. Perishable produce needs to be transported and consumed fast. But for quick transportation you need good roads which is not the reality in most cases. So most of our farmers have no choice but to produce long storage life crops like grains, rice, cereals etc.
The day we have good roads in place, many farmers will get an opportunity to diversify into other profitable options like fruits, vegetables, milk etc.
7. NHDP (National Highways Development Program) – Phase 1 and 2 is the largest highway project ever undertaken in the country covering 14, 379 km of NH and costing 64, 639 crores.
It covers Golden Quadilateral, North South East West(NSEW) corridors and providing proper 4 lane connectectivity to the 12 major ports*.
The NHDP is one of the best projects initiated by the Vajpaee government. It will surely have a terrific impact on the growth of our country. I don’t confirm the veracity of this fact but during our campus placements TSMG (Tata Strategic Management Group) had claimed to be the originators of this idea.
A very good site where you can see the detailed map and track this project's progress is this.
8. Corridor Management: After the completion of NHDP the focus will shift to Corridor Management. CM is the technique of managing the highways to deliver maximum throughput in terms of speed and traffic volume, while minimizing operational cost and enhancing road safety. It will be implemented through Operation & Maintenance(O&M) contracts.
The scope of CM includes:
i) Deployment of round the clock patrol vehicles, ambulances and tow-away cranes for rapid clearance of highways.
ii) Usage of road safety furniture like crash barrier, delineators, median railing, road signages etc
iii) Development of wayside amenities
iv) Conduct of road safety audits
9. Government is very keen to encourage private sector partnership in road development. It has already announced several incentives such as 100% FDI, tax exemptions and duty free import of road building equipments and machinery.
Already, 35 BOT(Build-Operate-Transfer) projects (where the investor recovers his money through toll collection) worth Rs 11, 700 crores and 8 annuity projects (where the government pays the contractor who maintains the road for 15 years) worth Rs 2, 353 crores have been awarded to private companies.
The major deterrent to private sector participation is the huge upfront capital investment and high risks of revenue collection. Therefore the NHAI has formed SPVs(Special Purpose Vehicles) to fund road projects. SPVs are separate legal entities formed under the Companies Act, 1956. It involves some cash support from the NHAI in the form of equity/debt; while the rest of funds come from ports/financial institutions/beneficiary organisations in the form of equity/debt. The amount spent on development of roads/highways is to be recovered through tolls within a prescribed concession period.
10. NHDP has led to another revolution in BOT projects, with some bids opting for ‘negative grants’ that is, private infrastructure companies bidding for contracts to build roads are offering to pay the government a lump sum amount arrived at through the bidding process if the contract is awarded to them. Half a dozen projects are already underway and the number is rising.
The highest negative grant the Govt has received till date is Rs 502 crores paid upfront by a private company (IDAA Infra) for getting the 65 km Bharuch-Surat section (NH 8).
11. A new Model Concession Agreement(MCA) has been finalized. The new agreement includes design, build, finance, operate and transport activities instead of build, operate and transfer (BOT). Replacing ‘transfer’ by ‘transport’ is crucial as it implies that government, instead of owning the asset after the concession period, would continue to buy ‘road services’ from the concessionaire.
12. Roads and Urban Transportation are overlapping to a certain degree. Therefore I’m addressing this point here. One of the best Urban Transportation systems in the world I know is in Curitiba, Brazil. This city has an excellent bus transit system which is used by 85% of its population. Also the roads are so designed that they cover all the prominent places in an arterial fashion. Since so many people prefer public transportation they are saved of unbearable traffic congestion, pollution, noise and end up utilizing energy efficiently.
In our country, some cities are trying to mature to these levels. The last time I was in Chandigarh they had introduced an innovative system which was something to do with increasing the frequency of the buses keeping the fares constant irrespective of the distance traveled. Now that is a good way to encourage the utilization of public transport.
I’ve heard a lot of praises about the ring roads in Delhi. Going forward cities like Bangalore and Hyderabad are also building their own ring roads.
For guys from Hyderabad, you can see a video and map of the upcoming Outer and Inner Ring roads here. This is truly world class.
