Road Sector in India: Problems, Reforms and Private Sector

In this article we will discuss about Road Sector in India. After reading this article you will learn about: 1. Problems Faced by Road 2. Reform of the Road Sector 3. Private Sector Participation on BOT Scheme of Road Sector.

Problems Faced by Road:

In the past, construction of roads was generally financed from budgetary sources and constructed by Public Works Departments. The road network system in India is suffering from various deficiencies like inadequate road pavement thickness, inadequate capacity, poor riding quality, weak and distressed bridges and culverts, congested city sections, too many railway level crossings, lack of wayside amenities and weak road safety measures.

About 20 per cent of the National Highways need widening from single to double lanes and about 70 per cent of two lane roads have to be strengthened and selected corridors on national highways need conversion into Expressways. This is clearly an enormous task and entails commitment for massive investment and organizational resources. But the budgetary allocation is not adequate to meet these challenges.

The National Highways Act has been amended to enable levy of a fee on a selected sections of National Highways. The Amendment of the National Highways Act to allow the private sector to construct and charge a fee will permit the private sector to participate in construction, maintenance and operation of roads on Build, Operate and Transfer (BOT) basis.

Reform of the Road Sector:

In the meantime, the Government has undertaken several measures to reform the road sector in order to attract private sector participation which include:

(a) Abolition of Pathkar by all states and Octroi by many to reduce overall transit time and to help free flow of traffic;

(b) Amendment of the Motor Vehicle Act, 1988, effective from November 1994, in order to simplify procedures and to give more powers to the State Government in respect of granting driving licences and permits for motor vehicles;

(c) Declaring the road sector an industry to facilitate borrowing on easy terms and to permit floating of bonds;

(d) Relaxation of MRTP provisions to enable large firms to enter the highway sector;

(e) Amendment of National Highways Act to enable levy of a fee on national highways, bridges and tunnels;

(f) Reduction of custom duties on construction equipment and streamlining of its procedures.

Reforms Contemplated:

Following are some of important reform measures contemplated by the Government for private sector participation of the road sector:

(a) Private sector participation including foreign investors is sought in the development of stretches of national highways and construct expressways on BOT basis for a period of 30 years.

(b) The traffic will be normally regulated by entrepreneur but to ensure free and uninterrupted flow of traffic, sales tax and octroi barriers will not be established on the express ways and the normal checks by the authorities will be conducted at the entry and exit points only.

(c) Development of the basic facilities for the traffic enroute, provision for developing and operating highway related facilities such as restaurants, motels, fuel stations, parking areas and other related commercial complexes would be allowed to be developed to enhance the viability of the project.

(d) The land acquisition and removal of utilities are to be done by the Government.

(e) The Government does not intend to offer any guarantee and the entrepreneur is expected to examine the viability of the project.

At the end of 1996-97, several reform measures are already taken by the Government to attract private sector participation in Highway Development. These measures are quite comprehensive and encompass land acquisition, environmental clearance, simplification of procedures, tolling of 4-lanes, bypasses and bridges, equity participation in highway sector and sharing of force major risks.

Provisions relating to foreign investment in the road sector have been considerably liberalised. Automatic approval will be accorded for equity participation up to 74 per cent in the construction of roads and bridges. In addition to this, automatic approval would be given for majority foreign equity up to 51 per cent in support services to land transport like operation of highway bridges, toll roads and vehicles.

External assistance is being obtained for the improvement of National Highways through international agencies such as World Bank, Asian Development Bank and Overseas Economic co-operation of Japan. The Government of India has activated the National Highways Authority, which is an autonomous body created through an Act of Parliament and has been entrusted with the Asian Development Bank Project costing about Rs 800 crore in 5 states viz., Haryana, Rajasthan, Bihar, West Bengal and Andhra Pradesh.

Private Sector Participation on BOT Scheme of Road Sector:

Consequent to the amendment of National Highway Act in 1995 to allow private sector participation, steps have been and are being taken to identify and take up the national highway projects through private sector financing. Two projects of Thane-Bhiwandi Bypass (Maharashtra) and Udaipur (Rajasthan) bypass and one more project of Road over Bridge (at Chattan in Gujarat) involving an investment of Rs 42 crore was awarded on BOT basis.

Global tenders were invited for five more national highway projects pertaining to bypasses and bridges on BOT basis. The National Highway Authority of India on behalf of the Government has invited global tenders from parties interested in conducting feasibility studies for the proposed super national highways which would connect major metropolitan areas and manufacturing towns with major ports in India.

These are going to be expressways on new alignments and are proposed to be built with the help of the private sector to Build, Operate and Transfer (BOT) basis. As many as 22 parties sent their bids for conducting these feasibility studies.

Recently a study conducted jointly by the Central Road Research Institute and the Asian Development Bank pointed out that there is an urgent need to open the surface transport sector for private investment to meet the future needs of additional highways in the country and remove the deficiencies in the existing national highway system.

The study further pointed out that the existing national highway network is heavily strained and is unable to cope with growing demand of traffic. The national highway network totaling about 34,058 km, which constitutes about two per cent of the total road net work, carries about 40 per cent of the total passenger and freight traffic.

The study observed that a length of about 10,000 kms expressways is required to be built by the year 2015 to meet the demand adequately. This would cost about Rs 80,000 crore to Rs 100,000 crore. Another Rs 52,000 crore would be required to remove deficiencies in the existing network.

It recommends that under the circumstances, the participation of private sector in development of road network is inevitable on BuiltOperate and Transfer (BOT) basis, as the Government does not have the kind of funds to build such a network.

The Central Road Research Institute in its report pointed out that the present day needs advocate rapid modernisation of roads by building more national highways, expressways, bypasses and “four-laning” of congested corridors.

The road transport is a dominant mode of transport in India, carrying close to 85 per cent passenger and 60 per cent freight traffic and consumes more than 90 per cent of the total energy used by the transport sector. Despite the fact that the surface transport is an important sector, most of the roads are poorly managed and badly maintained. Thus, under the present scenario, the surface road transport sector should be opened for private investment.

Up to January 2004, twenty six projects valued at around Rs 42,006 crore were taken on Build, Operate and Transfer (BOT) basis. In addition, eight projects valued at Rs 2400 crore were awarded on annuity basis. Several other projects have also been identified for being taken up under BOT.

Pradhan Mantri Bharat Jodo Yojana (PM-BJY):

Buoyed by encouraging results of the Rs 58,000 crore NHDP project, the Centre has launched another ambitious Rs 40,000 crore project under the name of Pradhan Mantri Bharat Jodo Yojana (PM-BJP). The project involves connecting all major cities, not covered by NNDP, by four lane highways. The project involves four-laning of 10,000 km of road stretches.

The project will be implemented on BOT principle under which the contractor will build, operate and maintain the road and recover his cost by way of toll. To ensure a reasonable return to the BOT operators, the government will provide 20 to 25 per cent grant for meeting the shortfall in the revenue on case to case basis.

In recent years, additional budgetary support is being obtained for the improvement of National Highways through loan assistance from international agencies like World Bank, Asian Development Bank and Overseas Economic Co-operation of Japan.

However, the tardy implementation of the first National Highway Project through State Governments has already forced the World Bank to reduce the quantum of foreign assistance by $96 million.

The Government of India has, therefore, decided to activate the National Highways Authority which will have an independent and autonomous status and will be entrusted with externally aided projects with a view to accelerate their pace of implementation.

Pradhan Mantri Gram Sadak Yojana (PMGSY) and Rural Roads:

Pradhan Mantri Gram Sadak Yojana (PMGSY) launched in December 2000, has been considered as one of unique programme undertaken by the government for improving the road connectivity in rural areas.

The PMGSY was launched to provide single all-weather road connectivity to eligible unconnected habitations or villages having population of 500 persons and above in plain areas and 250 persons and above in hill states, tribal (schedule V) areas, desert (as identified in the Desert Development Programme) areas and LWE-affected districts as identified by the Ministry of Home Affaires.

It also permits upgradation of existing rural roads. In 2001-02, an amount of Rs 2,500 crore was allocated for this scheme. Since inception, projects for providing new connectivity to 1,44,717 habitations with a road length of 5,44,462 km have been cleared at an estimated cost of Rs 1,82,560 crore including upgradation cost.

A total of 3,99,979 km road length has been completed and new connectivity has been provided to over 97,838 habitations up to March 2014. During 2013-14, about 25,316 km of all weather road including new connectivity to 6,560 habitations has been completed at an expenditure of Rs 13,095 crore. Upgradation on selected existing roads has also been taken up.

Rural roads have also been identified as one of the six important components of Bharat Nirman which has the goal of providing all weather road connectivity to all villages with a population of 1000 (500 in the case of hilly or tribal areas).

Bharat Nirman proposes to provide new connectivity to a total of 54,648 habitations involving construction of 1,46,184 km of rural roads. In addition to new connectivity, Bharat Nirman also envisages upgradation/renewal of 1,94,130 km of existing rural roads of the country.

Under the rural roads component of Bharat Nirman, 42,531 habitations have been provided all-weather road connectivity up to January, 2012 and projects for connecting 15,856 habitations are at different stages of construction. During 2011-12, (Apr.-Jan.), over 15,566 km all-weather road has been completed under the programme.

This part of the work provided connectivity to 2,579 habitations at an expenditure of Rs 8,380 crore.