National highways lay growth roadmap

October 7, 2013


  Efforts on to plug gaps in public-private partnership projects


A smooth drive along the country-wide 80,000-km national highway network may be a given for Indians today. But, less than 20 years ago, the highway was just 34,000 km (1995).

Creation of a dedicated, non-lapsable funding mechanism in 1998-99 for building roads across the country by imposing a cess on petrol and diesel sales was one of the fundamental changes that helped chart a sharper growth path for roads in the two decades.

During this period, the national highway network has increased by over 40,000 km, which is more than 2.5 times the 14,000 km of national highways added in the preceding 40-year period of 1951-91.


“The thrust on the road sector in India improved significantly when the Government headed by then Prime Minister Atal Bihari Vajpayee (in 1998) decided to adopt a network development approach for highway development and conceptualised the national highway development programme (NHDP),” said Deepak Dasgupta, former Chairman, National Highways Authority of India (NHAI). Dasgupta was the NHAI Chairman between 1998-2001/2, when the financing mechanism was finalised.

The NHDP focused on developing and strengthening roads connecting four metros – called the Golden Quadrilateral – and their diagonals – called the North South East West corridor. These trunks routes account for less than two per cent of India’s road network but carry almost 40 per cent of the total road traffic.


The Government also created a dedicated financing model for the road infrastructure. “The Government examined the road sector and created the backbone financing framework for highway development through non-lapsable cess on petrol and diesel, which was earmarked for building road infrastructure in country,” said Dasgupta. This mechanism helped NHAI to leverage the cess accruals to borrow money from multilateral agencies and the market.


NHAI was also strengthened as a body. “We had asked the Government to approve a programme and leave it to NHAI to award and implement it. This prevented NHAI from having to go to Cabinet for every project and wasting time in the process. The National Democratic Alliance (NDA) Government did that,” said Dasgupta.

This power was undone by the UPA Government that assumed office in 2004. “Instead of allowing NHAI the freedom that was given earlier by the (NDA) Government and for which reason the NHAI Board was strengthened, the (UPA) Government took back most of the powers, including approving of cost estimates of individual projects, deciding their design, the mode of development for each project,” he said.


One of the mandates of NHAI was to promote private investment in the road sector. The UPA Government significantly pushed the role of private sector in building roads.

It did so by spending a large part of 2004-09, when its ally the DMK was holding Road Ministry portfolio, in deciding a common contract framework. It also devised a toll policy in 2008, which allowed for automatic increase in annual toll for private road developers along with inflation, a move which increased the confidence of investors subsequently. It also decided that all highway stretches will be bid out on BOT-toll basis first.

In the UPA-2 regime, which kicked off from 2009, a committee headed by Planning Commission Member B.K. Chaturvedi looked at the highway sector and sorted out policy-related issues for private investors.

All this did help the UPA-2 award a large number of highway contracts on BOT-toll basis till 2011-12, when almost 8,000 km of road contracts were awarded.

Another trend was private firms started making so much money from such projects that they offered money to NHAI to bag long-term rights to build a road stretch and collect tolls from them. But this push to increase private sector participation, through what is called public private partnership(PPP) model, is now seeing some cracks.


Private sector companies are sitting on road projects whose financials have turned awry on the back of soaring financing and material costs, while revenues have turned out to be lower as traffic growth slowed down. Efforts are on to plug such gaps as the UPA Government looks to turnkey mode to build highways.

Toll roads have gained wide acceptance as, people, by and large, have accepted the idea of paying user fees for using good, wide roads.

Prior to 1995, private firms could not retain toll revenues. In 1995, the NHAI Act was amended to permit them to develop, maintain, collect and retain toll charges from users of a road stretch for pre-decided time period.

Today, toll collection from users of national highways is over Rs 9,300 crore a year. Of this, 74 per cent goes to private road developers such as Larsen & Toubro, IL&FS Transportation Network Ltd, Reliance Infrastructure, IRB Infrastructure and Ashoka Buildcon. In June 2013, almost 14,000 km of national highways were being tolled.

But, road users are now becoming more demanding. Increasingly, people are questioning the idea of paying higher tolls every year without commensurate improvements in user experience.

Such concerns are forcing the UPA Government to relook toll rules, which appear tilted in favour of road developers.


While the Government has created a longer, wider network of highways, road safety is a parameter where the country has failed.

India has one of the largest road networks globally. It also has the highest number of road accident deaths.

Moreover, 35 per cent of total road accident deaths and 30 per cent of injuries happen on national highways, which account for only two per cent of the total road network. While road safety is not a function of road design alone, there are questions now on whether the Government attempts to cut costs – by reducing service lanes and underpasses on highways – are compromising road safety. “Private sector would want maximum returns on their investments. This compromises project design leading to sub-optimal road designs. In that context, BOT-Toll mode of building roads promotes under-designing of roads for saving money,” said Dasgupta.

Central Road Fund, 2000

The Government , under the Central Road Fund Act 2000, created a non-lapsable dedicated fund for National Highways Development Project by levying a cess on diesel and petrol sales.

Initially, the cess was at the rate of Re 1 per litre.

Subsequently, this was increased by Re 0.50 (that is, to Rs 1.5 per litre on petrol and diesel).

In 2012-13, over Rs 19,000 crore was allotted to CRF, more than three times the Rs 5,752 crore allotted in 2003-04.

From the cess of Rs 1.50 per litre: 50 per cent collected from diesel is for rural roads; the remaining 50 per cent from diesel and the entire cess on petrol are earmarked for: 57.5 per cent for National Highways; 12.5 per cent for road under or over bridges and safety works at unmanned railway crossings; and 30 per cent for development and maintenance of State roads.

An additional cess of Re 0.5 a litre levied on diesel and petrol from April 1, 2005 will be exclusively earmarked for National Highways.




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