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Why we need the highways

It has been estimated that highway projects generate demand for products and services from more than 200 sectors, reports Arnab Hazra.

india Updated: Jan 04, 2009 03:12 IST
Arnab Hazra

Biswajit Mohanty, 50-something, runs a trading business in Cuttack. In 2004, he won a sub-contract to supply stone chips for the Cuttack-Bhubaneswar Expressway, part of the ambitious Golden Quadrilateral project of the then NDA government*.

It's been four years since and his business has expanded steadily. From seven employees in 2004, he now has a team of more than 30. A couple of years ago, he traded his old Maruti Zen for a Ford Fusion, and moved into a new high rise in Bhubaneswar.

So the National Highway Development Programme (NHDP), of which the Golden Quadrilateral is a part, has not just resulted in more prosperity for Mohanty, but it has also generated employment and benefited a car company and a real estate developer, among others. "This [NHDP] has changed my life forever," says Mohanty.

Mohanty isn't alone - there are thousands like him who have benefited from the NHDP. These include large and medium companies executing the project, their employees and the vendors who supply goods and services to them.

And like Mohanty, many of them have spent their increased income on real estate, cars, consumer durables and other items, leading to increased prosperity for companies and people connected with these sectors.

This is an example of the "multiplier effect"- wherein increased economic activity in one sector leads to a manifold increase in business and prosperity in both related and unrelated sectors. It has been estimated that highway projects generate demand for products and services from more than 200 sectors.

"Every one rupee invested in NHDP leads to economic activity of Rs 3.70 across the economy. And every new job created by companies executing the project, creates three new jobs across the country," says Hopes Adam, fellow, India Development Foundation.

Many experts, therefore, identify the NHDP as one of the major, and early, drivers of the five-year economic boom in India that lasted till early 2008. "There is no doubt that NHDP played a major role in sustaining growth especially through sectors like steel and cement ", said MR Saluja, former professor at the Indian Statistical Institute, who has done pioneering work in the area. The other beneficiaries are the manufacturing, capital goods and mining sectors. Cable companies, manufacturers of construction equipment like cranes, road rollers and bitumen dispensers, and iron ore and limestone miners have also prospered from highway projects.

These indirect effects, the enhanced economic activity as a result of improved connectivity, "are much bigger than the direct effects", feels Saluja, "but they are difficult to capture".

Vinayak Chatterjee, chairman, Feedback Ventures, one of India's leading infrastructure consultant firms, feels that the government should get back something as well. "The enhanced value of the land (as a result of its proximity to highways) needs to be captured by the state and not just by land sharks. One strategic way is to levy a one-time 'betterment charge', over and above the stamp duty."

Now that the GDP growth rates have begun to sputter, the government will do well to shake off its political and administrative apathy and revive this critical sector once again.