The Union Budget 2021-22 has brought back into sharp focus the government’s commitment to expenditure on the infrastructure sector. Given the significance of road and highway infrastructure to economic development as well as movement of goods and services within the country, there remains a continued need to expand and strengthen the road network across the country.

The 2021-22 Budget recognises this need with a significant budgetary outlay for the road transport and highways sector of ₹1,18,101 crore, which is nearly a 20 per cent increase over the estimates in 2020-21. This is in addition to the authorisation to raise Internal and Extra Budgetary Resources of ₹65,000 crore.

While national highway projects faced some delays and challenges on account of the Covid-19 pandemic, there was no significant dampening in either the award of new project or, indeed, physical construction between April 2020 and January 2021, with nearly 7,602 km of roads being awarded, and more than 8,745 km of roads actually constructed by January 2021.

New projects

The Ministry of Road Transport and Highways has projected physical construction of another 12,000 km by March 2022, with several projects slated for completion in this calendar year. A slew of new projects have also been announced in this Budget, primarily in Tamil Nadu, Kerala and West Bengal.

Plagued by delays

While road construction in 2020-21 has been better than in 2019-20, the development of the road network continues to be plagued by delays, with one recent parliamentary standing committee report suggesting that over 800 road projects for a cumulative of more than 27,000 km, under the MoRTH, as being delayed.

In addition to the obvious economic costs of these delays, the Bharatmala Pariyojana – Phase I, which is crucial to coastal and port connectivity, and which was targeted to be completed in 2021-22 has been delayed to 2025-26, with both awards and completion under this project being far behind deadlines.

Challenges ahead

While there is clearly a strong policy commitment towards strengthening the road and highway network, the sector faces crucial challenges which need to be overcome. The first, is the MoRTH’s lack of any source of revenue other than budgetary support from the Central government and borrowings.

A second constraint is the very limited private sector participation in development of new roads and highways. This is driven by the financial profile of the developers, a lack of debt products that can be aligned to revenue models of highway projects as well as by delays in land acquisition, and an uncertain regulatory framework.

Given the extent of capital commitment and outlay required to augment and maintain the road network over the next few years, there is a need to diversify sources of funds beyond budgetary allocation and borrowings by NHAI. This need for diversification becomes even more pronounced in the context of the nearly ₹97,000 crore debt service liability of NHAI over the next three financial years.

Bridging the funding gap

The focus for the immediate future, it would appear, should be bridging the funding gap needed to achieve India’s road development targets. Recent reports suggest that NHAI’s Infrastructure Investment Trust (InVIT), which was approved in December 2019 will be launched soon. It also appears that NHAI’s operational toll roads, are likely to form a significant part of the national asset monetisation programme, with the Minister suggesting that NHAI plans to monetise ₹1,00,000 crore under the ToT model in the next 5 years.

The newly announced DFI too will, hopefully, play a major role in making viable debt available for road network development. While monetisation through ToT as well as the InVIT will be great avenues to attract private sector investment in roads, there is also some merit in the government also revisiting its PPP models (including its HAM model) to attract more private sector investment in new asset development.

Eventually, strong transport infrastructure is essential to economic growth. A robust road network will be one important pillar in India’s speedy economic recovery and one would hope that the government’s budgetary commitment to strengthening roadway infrastructure is accompanied by attractive private investment opportunities in the sector.

(The author is Partner, Projects & Project Finance, Shardul Amarchand Mangaldas & Co.)