Govt mulls road index to study inflation effect

Oct 07 2013, 02:47 IST
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SummaryIn a bid to assess the cost escalation faced by developers of road projects, the government will soon come out with a road sector index.

In a bid to assess the cost escalation faced by developers of road projects, the government will soon come out with a road sector index. The index would have items like steel, cement, tar, bitumen and mud in the basket with their weights linked to importance and usage in road construction, said official sources.

The ministry of road transport and highways reckon the headline inflation measured through the wholesale price index (WPI) consisting of a huge basket of items with different weights cannot assess the cost escalation in the road sector accurately. The need to assess the impact of inflation on road construction becomes important given the fact that while bidding for a tender, a developer has to factor in the estimated cost of construction. Once this new road index comes into being, the allegation of a lower estimation of total project cost by the ministry and NHAI against the private players’ estimates would also become redundant.

The road ministry entrusted NHAI to come up with a formulation of the index and the weights of each item in the basket so that the WPI linkage (to estimate cost of road construction) can be removed,” an official said. According to experts, the move will not only help in correct estimation of costs and inflationary impact, but enable in judging the claims of the developers and contractors who often cite cost inflation while settling their bills.

A lot of cases between NHAI and developers are in arbitration as of today only because of huge claims of cost by developers, the primary reason for which is the increase in prices of key raw metarials. “With the absence of such estimation, private players do get an advantage and more money from the NHAI while settling the cases,” said a developer. Once, the index is finalised the road ministry will take it for CCEA clearance to have it officially adopted by the government.

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