Rs 40k-cr highway projects could shift economy into higher gear

Nov 20 2008, 00:56 IST
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SummaryHighway projects will be integral to the government initiative to give a fiscal stimulus to the economy. The National Highways Authority of India...

Highway projects will be integral to the government initiative to give a fiscal stimulus to the economy. The National Highways Authority of India (NHAI), which is to award 105 new road projects worth Rs 1 lakh crore by 2009-10, will begin a fresh round of bidding in April 2009.

Of the 105 projects, spanning phase-III and V of the National Highways Development Programme (NHDP), 40 projects worth Rs 40,000 crore are slotted for bidding in April. Already, 60 projects worth Rs 60,000 crore are in various stages of tendering.

The investment could help construction companies like L&T, Simplex and Gammon India to fill up their order books. One of the first beneficiaries could be the steel, cement and bitumen companies. All steel producers face severe pressure on their bottom lines as investment in most sectors have dwindled.

Road projects were used in a big way to pull the economy out of the recession of 1999-2001. The government feels that the pace of road projects has slackened and it needs a fresh impetus.

“This is a part of the plan spanning seven phases to construct 40,000 km by 2015. As and when the detailed project reports are prepared, we will offer the projects,” said a top NHAI official.

The projects will build on the complementary effect of the rural roads programme. Under the Prime Minister’s Gram Sadak Yojana, the country is developing an average of 100 kilometers of rural roads each day. The roads have given villagers access to urban markets, helping them earn and spend more. Rural India accounts for a fourth of the total consumption demand in the economy.

NHAI’s four-laning and six laning-projects will come up on a build-operate-and-transfer (BoT) basis. In a BoT project, the company that builds the road earns its revenues from the project over a concession period, normally 30 years. After that, it hands over the project to the government.

The road transport ministry will also take up some projects in NHDP-IV. “These are predominantly two-lane projects. The ministry will bid out the projects to any capable organisation—be it the state’s public works department or a private player,” the official said, explaining the departure from the norm for NHDP projects.

However, NHAI projects are not immune to the current global liquidity squeeze; financial biddings for some projects have already been put off as bidders are unable to tie up funds. NHAI is still hopeful, though.

“The global recession is certainly having an impact. The main issue is the cost of finance. But interest rates are now coming down and funding should pick up,” said the NHAI official.

Gross bank credit to the roads & ports sector has grown 32% to Rs 32,990 crore in FY08, from Rs 24,941crore in FY07. Amrit Pandurangi of PriceWaterhouse Coopers said, “The banking sector has the money, but it may not have the appetite for 105 road projects. They might fund some road projects and subsequently impose sectoral caps.”

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