India’s highways have been expanding since 1995, when the government opened up to the idea of the private sector building vital infrastructure, but in fits and starts.
The 5,846-km Golden Quadrilateral project stands testimony to an accomplishment under the National Highways Authority of India (NHAI), but private companies have been hurt by the complex nature of the engagement in which profitability, risks and costs have to be juggled. It is heartening to see the government climb out of a deadlock to speed up highway building, which can create jobs and ease transport bottlenecks.
The Cabinet’s approval last week of a hybrid annuity model envisages that 40% of the project cost of a highway under the build-operate-transfer (BOT) model will be provided by the government as construction support, while the remaining will be borne by the private builder. The builder will also get annuity payments over a specified period. In addition, the government will cushion risks arising out of inflation and uncertain traffic and the NHAI will help in land acquisition.
With 21 projects in Rs 28,000-crore-worth of highways planned under this model, it can be a mini-stimulus for the growth-hungry economy. In the earlier regime, the viability gap funding was limited to 20% of project costs to offset revenue shortfalls.
In a separate initiative, Union finance minister Arun Jaitley led a meeting with road builders and bankers last week to push 19 stalled projects worth Rs 40,000 crore. Banks, stuck as they are with bad loans, are not keen to lend for highways. Private builders have slipped up in construction and face problems in land acquisition and contract disputes. In essence, the public-private partnership model is a difficult marriage and needs vigilance and frequent intervention. Reports suggest the government may persuade the RBI to declare roads as a priority sector to boost lending for highway building.
Overall, the regime is sweeter for bank lending. The golden mean lies in profitability for private companies without undue burden on the taxpayer — or contracts that reek of unfair gains to private parties.