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Growth of Indian Road Networks

(Dr. Sunil Ashra)

Road transport and road transportation is essential ingredient for rapid growth of an economy and a vital input to economic development, trade and social integration, which rely on the conveyance of both people and goods. Reduction in transport costs promote specialization, extend markets and thereby enable exploitation of the economies of scale. Global competition has made the existence of efficient transport and logistic systems in delivery chain an absolute imperative. Easy accessibility, flexibility of operations, door-to-door service and reliability have earned road transport an increasingly higher share of both passenger and freight traffic vis-à-vis other transport modes. Road transport has emerged as the dominant segment in India’s transportation sector with a share of 4.5 per cent in India’s GDP in recent years (NRTP, 2008).

However, the road infrastructure industry has become grossly inadequate and is increasingly unable to meet emerging requirements on Indian industry and people. This is mainly due to the inadequacies of the road network in terms of mileage as well as quality, which if expanded and upgraded could go a long way in promoting efficiency of vehicles’ operations. Part of the problem also lies in the inability of service organizations, especially in the public sector driven mechanism, to deliver services efficiently. With the industry having suffered from very little technological and managerial improvements in the design and construction of roads, there is urgent need to effect these changes immediately.

The road infrastructure network contributes and complements significantly to economic activity through its backward and forward linkages with other sectors of the economy, especially in rapidly developing countries such as India. It creates employment for semi-skilled labour, besides cement, steel, construction equipment, tar and many other related products. Even after the road network is completed its maintenance requires output of many industries.

Many research studies provide evidence of beneficial impact of infrastructure development on economic growth and income distribution (see for example Calderon & Serven, 2004. This study of over 100 countries shows the positive impact of infrastructure on growth and income distribution.

Just like most of the infrastructure sector industries in India, road infrastructure is also grossly underprovided for. Whereas the vehicles on the roads have increased at the rate of 10.9 percent per annum since 1950 the road length in terms of National Highways has increased by only 2.2 percent per annum. Though from 1991-2004 the National Highways have grown at more than twice this rate of 5.3% per annum. But since then the growth has slowed down to 4.5% per annum. The overall road length has grown at even slower rate of 3.7 percent from 1951 to 2004 for which the data is available.

An overwhelming proportion of the total length of National Highways is two or single laned (56% and 32 % of the total length of national highways are double/intermediate lane and single lane respectively) and only 12 per cent of the length of the National Highways are four lane and more (NRTP, 2008).

Surprisingly there is close to zero percent growth in the National Highways length in the last 5 years indicating something has been going wrong in the policy circles. If one looks at the latest yearbook of Road Transport 2006-07 this becomes amply clear.

Length of National Highways in the country during the year 2003 was 58112 kms, 2004 was 65569 kms, 2005 was 65569 kms, 2006 was 65569 kms, 2007 was 65569 kms and in 2008 it was 66754 kms.(Source: Road Transport Yearbook 2006-07, Ministry of Road Transport and Highways, 2009).

The National highway account for only 2-3% of the total roads but they carry more than 40% of traffic of the country according to various estimates (NRTP, 2008).

The quality of roads is also not up to the required level besides the road discipline and enforcement of traffic rules has made India lead in terms of road accidents and road causalities in the world. The poor quality of roads is one of the most important causes of high level of wear and tear of the vehicles in India.

Over the last few years there has been many initiatives but most of them have been half hearted which have helped very little in improving the supply bottlenecks in the road sector. A lot needs to be done to expand the national highway network as also in terms of quality to carry higher level of traffic. To quote Greenspan (Mint September 8, 2009),”Due to the lack of developing world infrastructure to support spending, (people are) induced extraordinary savings.” In simple words due to the lack of infrastructure the economy especially the industrial sector is growing at much slower pace in India. Also opportunities to invest correspondingly are also fewer. The market integration impact of the roads network is not as strong as it should be and could be.

Last 5 years have seen unprecedented growth in the Indian economy and many experts have pointed out that if there is adequate infrastructure in place then the growth of 10 percent is not very difficult for a country like India.

The mostly 4 lane national highways programme did well when it was initiated in 1998. Contracts were awarded which led to some 6,000kms being completed by the end of 2005 at a cost of about $7bn, mostly on the Golden Quadrilateral that links India’s four biggest cities. There were of course massive delays in certain sectors because of slow land acquisition, corruption, bureaucratic lethargy, and extortion by gangsters and Naxalite (Maoist) rebels – but it was a success.

By the end of April, 2009 however, the total completed had only gone up to just over 11,000 kms, and awards of new contracts had slowed to such an extent that work was only started on 9,700 kms compared with a five-year target of 16,000 kms. The programme seems to have lost the momentum and drive of the 1998-2004 years, and urgently needs to be revived by the present government.

There has been regular interference in the detailed functioning of the National Highways Authority of India (NHAI), whose financially-sensitive responsibilities include drawing up initial lists of tenderers, and issuing partial and final completion certificates, as well as placing contracts. The NHAI chairman has been changed five times in last 5 years showing whims and fancies of the people in charge of the affairs in the Ministry.

Much of the 1998-2004 success had been due to heavy government funding. This was needed to get the construction programme moving quickly on highways that would not yield profits, as well as on those that could be operated as private sector toll roads. The Planning Commission, however, did not like this approach and switched the emphasis to private sector financing, stopping primary government funding and allowing only built-operate-and transfer (BOT) contracts. That virtually halted new contracts from the end of 2005.

A Government Committee on Infrastructure was formed, serviced by the Planning Commission for enforcing the BOT system has increased bureaucratic wrangling, and the committee took about two years to agree on a new model concession agreement (MCA) and prepare associated forms of contract and procedural documents. In economic policy context, the Planning Commission had argued to take highway construction out of the government’s “inclusive” approach to economic growth, where money is spent on uneconomic but socially desirable projects, and had put it into the “exclusive” growth area where the private sector is expected to invest and reap profits. With rising interest costs this led to fewer contractors coming forward to bid. When tenders were invited in 2008 on 60 projects, no bids were received on 38 and, of the 22 that were tendered, only 12 led on to fully-financed contracts. The NHAI been active and responded with amended designs to reduce construction costs and has put these 38 left out projects for fresh tenders along with 22 more.

Here it is important to note that emerging bottlenecks are in form of the road quality as well as quantity. As this sector, just like most of the other infrastructure sector, is increasingly moving away from being a pure ‘public good’ to ‘congestible public good’ and in many places has become like any ‘private good’. In addition there are strong economies of scale attached to it which gives monopoly advantage to the operators of these roads. As of now most of these have been in Government hand and therefore they are offered at zero price. This leads to excessive demand for these as is to be expected considering there is no direct user charge for these. It makes it very difficult to maintain these roads later. However, people pay indirectly in terms of their time, fuel cost, and damage to their vehicles due to these poor roads. As the roads are priced at zero price so effectively there is no responsibility on any institution/person at least directly. According to a study by World Bank (1989) it costs almost 50 percent more to people/goods to travel on these roads in terms of these other costs of congestion, fuel cost, accidents and vehicle wear and tear.

It is time to consider the SPV based models to provide for the road infrastructure and also let government and private run companies to come to manage these projects to ensure cost efficiency. There is evidence from the history of railway construction in India which suggest that for rapid growth we need to involve reputed players in the market. Credibility is crucial for sustenance of the growth momentum in the road sector without which there could be many misses between cup and the lip and many of the initiatives can die slow death by getting entangled in the overburdened judicial system which will benefit only short term players as has happened in Electricity, Oil and Airport sector. If these issues are resolved in an imaginative and radical manner then there is no reason that for Indian growth story to not to become part of most successful examples of development in the world.

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