Engineering, Construction and Architectural Management

Critical evaluation of road infrastructure in India: a cross-country view

A.K. Sharma, Ekta Vohra,
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Road
Critical evaluation of road infrastructure in
infrastructure in India: India
a cross-country view
73
A.K. Sharma and Ekta Vohra
Department of Management Studies, Indian Institute of Technology Roorkee, Received February 2008
Roorkee, India Revised July 2008
Accepted October 2008
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Abstract
Purpose – This study aims to examine the current status of road infrastructure in India, working out
the gap in the availability of required length and the quality of roads besides the comparison with
other economies. It also seeks to analyse the socio-economic-political environment in India to assess
the country’s attractiveness towards private sector participation in road infrastructure development.
Design/methodology/approach – The targets for the road sector development set by the
Government of India and the current road status of China are taken as benchmarks to enumerate the
existing gap in road development in the country. Growth trends of the road sector and their impact on
the manufacturing sector have been worked out to assess the development of road infrastructure and
its impact on the industry in the country.
Findings – The study advocates that the present pace of road infrastructure development is
inadequate in India vis-à-vis other developing economies. The quality of roads compared with China is
far below expectations and this poor hinterland connectivity is affecting the trade growth in the
country.
Originality/value – The paper significantly contributes in assessing the state of road infrastructure
in India and highlighting the weaknesses while comparing it with other developing and developed
economies. The key issues identified are of immense help to the policy makers in the country for
having detailed insight and correcting the road infrastructure development programmes.
Keywords Roads, Economic growth, Financing, India, China
Paper type Research paper

Introduction
In any modern economy, infrastructure plays a pivotal role often decisive enough in
determining the overall productivity and development of a country’s economy (Mody,
1997). In this context, for developing nations the creation of adequate and state of art
infrastructure becomes imperative. India also being a developing economy needs to
build state of art infrastructure for augmentation of economic growth process.
Economic liberalisation started in the early 1990s in India and since then, the global
trade in terms of imports and exports increased manifold as one of the natural outcome
of the liberalisation process. However, this initial phase lacked in the proportionate
development of additional infrastructure, especially the six core infrastructure sectors Engineering, Construction and
– electricity, coal, steel, crude oil, petroleum refinery products and cement which have Architectural Management
Vol. 16 No. 1, 2009
a direct bearing on overall infrastructure. The repercussion of this neglect was quite pp. 73-91
visible in the late 1990s and early 2000s when the GDP growth rate started declining q Emerald Group Publishing Limited
0969-9988
below the expected. DOI 10.1108/09699980910927903
 ECAM Whatever little growth in GDP and manufacturing sector was witnessed was due to
16,1 the phenomenal rise in service industry and existence of liberal investment
environment in the country but the core infrastructure sector did not complement
this growth (Figure 1(a)). As a result the existing infrastructure deteriorated due to
overloading on previous unplanned process, the facilities which were inadequate in
quantum further declined in quality too.
74
Infrastructure investment: a comparative view of India and China
In order to better understand the significance of above observations it is instructive
here to pursue the study with a comparative approach. China, another growing
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economy in Asia has several regional and economic contexts similar to India. It is clear
from Figure 1(b) that during the years 2000-2002, GDP growth rate in India staggered
down, while for China for the same period and then onwards it has shown a spectacular
rise. However, the Indian economy picked up aggressively in the last few years with
the average GDP growth of 7.6 per cent for the tenth five year plan period but still it
falls short of the targeted 8 per cent growth. This decline in GDP growth rate in early
twenties in India and comparatively lower than China in overall may be attributed to
very low level of investment in infrastructure development in India as indicated by
Figure 2(a, b). Investment in infrastructure development in India as compared to China
as a percentage of GDP depicts a declining trend during 1997-2002 (Figure 2(a)), and
investment in dollar terms conveys a static trend (Figure 2(b)). It is also clear from the
figure that public spending in creating infrastructure facilities in China in early 1920s
is about five times of government spending in India.
India’s infrastructure needs h ave been recognised by international investors, Indian
business organisations and government as one of the main obstacles to the country’s
future economic growth (Ahuliwalia, 2006).

Figure 1.
A comparative view of
India and China
 Road
infrastructure in
India

75
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Figure 2.
India and China:
infrastructure investment

Literature review
In any nation infrastructure plays transformative role that is revealed by its impact on
the overall productivity in the economy. Numerous studies have been conducted in the
past addressing different issues related to infrastructure development. Some of the
important studies were reviewed to have an idea about infrastructure development in
the developing economies.
A study (Blejer and Khan, 1984), framed the background for inciting the research
community to study the impacts of public stocks (public infrastructure) and
infrastructure spending on the various sectors of the economy. It used the
cross-country data and found that public investment in infrastructure compliments
private investment. However a study conducted in the US (Aschauer, 1989a) is
fundamentally said to have established a link between productivity growth and
infrastructure availability in any economy. It analysed the data for the period
1949-1985 pertaining to the US and envisaged that a decline in productivity during the
period 1971-1985 in US was largely due to a decline in public investment in
infrastructure. Munnell (1990) studied the economic impacts of the non-military public
and non-residential net capital stock from 1970 to 1986 in the US. She found that the US
which made heavy investment in building infrastructure generated greater economic
output and attracted more private investment. Evans and Karras (1994a), analysed
infrastructure and productivity data for 12 OECD countries between 1963 and 1988.
According to it, increase in the stocks of public capital was due to the increased
productivity and economic growth and not vice-versa as found in Aschauer’s study.
Few OECD studies (Demetriades and Mamuneas, 2000; Esfahani and Ramierz,
2002) considered the concept of “time-lag”. In these studies, investments were
compared with the productivity data several years afterwards, providing time gap as a
cushion to accommodate the returns of infrastructure investments on the productivity
figures. Both studies using this technique found that public infrastructure does have a
measurable impact on increasing productivity and economic growth.
Harchaoui and Faouzi (2003) studied the productivity impacts of infrastructure
across various sectors of economy and found that impacts are not uniform across the
 ECAM business sector. A study (Kumar, 2001) concluded that infrastructure availability does
16,1 contribute to the relative attractiveness of a country towards FDI. A study on
analysing the impact of certain determinants of FDI inflows to Brazil, suggested that
investments made on building international class infrastructure serve as major
catalyst towards attracting higher inward FDI (Mollick et al., 2006). Mattoon (2004)
studied the impact of existing state of infrastructure on productivity of a region and
76 argued that poor quality infrastructure drives firms away from a location more often
than good infrastructure will attract them. A study about African countries conducted
to assess the effectiveness with which once build infrastructure capital is used,
advocated that “if capital stocks are not used effectively additional capital formation
may be of little help in stimulating economic growth” (Hulten, 1996). In the Indian
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context a study (Fan et al., 1999), was conducted to find the linkages between public
investment on rural connectivity, agricultural growth and poverty alleviation, over the
time frame ranging between 1970-1993. As a result it was estimated that the 123.8
number of poor people would be raised above the poverty line for each $0.02 million
(1993 constant prices) of additional investment in roads. Rural road development is the
key to growth of agricultural production, several studies have highlighted this earlier
(Hine, 1982). Investment in building rural infrastructure results in raising the income
and consumption level of the rural population (Songco, 2002). Another study (Barro,
1990), conducted on Indian economy revealed the existence of positive relationship
between increased infrastructural provisions and average growth rate of Indian States.
It is also found that some specific types of infrastructural investments – power,
irrigation, roads, bank provisions- produce much more growth than others (Nagaraj,
1998). Finally, if we summarise this review, it broadly suggests that investment in
building public infrastructure bears a positive impact on improving productivity of
any economy. Few studies also advocate that the positive impact of increased spending
on infrastructure development is visible in years after and not in the same year.
Further, the existing literature gives an insight that the benefits of infrastructure
investment differ across industries and sectors, and investment in maintenance and
upkeep of existing facilities bear more fruits over spending on creating newer facilities.
Here it is instructive to study the correlation, if any, between the growth rate and
global infrastructure scoring of few economies to further analyse the relationship
between economic growth and infrastructure availability. For this purpose five
economies, two growing economies of Asia – India and China, two growing economies
of Latin America – Brazil and Mexico and a developed economy – the US were
considered (Figure 3). Global infrastructure ranking here is one as assessed by the
World Economic Forum (WEF) for establishing Global Competitiveness Index.
As the trend reflects, in the case of India (a), China (b) and Mexico (d) the results are
in line with the findings available in the literature. As the score on quality and
availability of infrastructure increases, the GDP growth rate follows more or less the
same direction. While for Brazilian economy (c) the scoring on infrastructure seems to
have direct effect on economy in the following one or two years and not in the current
year, which appears to be in conformance to the OECD studies by Demetriades and
Mamuneas and Esfahani and Ramierz, as discussed earlier. In case of the USA (e) a
developed economy for several decades, the trend for two variables goes against the
observations in the literature. However, the Aschuaer’s study on productivity growth
during the 1970s in the US argued that the decline in productivity growth during this
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India
Road

infrastructure score
GDP growth rate vs
Figure 3.
77
infrastructure in
 ECAM period was mainly due to a decline in public investment in infrastructure which is not
16,1 supported by the trend shown here for recent years.
Further, to establish the effect of infrastructure availability over the growth of other
sectors, we will examine simultaneously the yearly growth of total exports and the
relative infrastructure scoring of the above five economies over a period of six years
(Figure 4). On observation it is found that linear relationship exists between two
78 variables for countries like India (a), Mexico (d) and to some extent for China (b), as the
trend lines for two variables appear near to parallel in these economies. While Brazil (c)
and the US (d) show a reverse trend as compared to above three economies. In the case
of the US it may be possible due to infrastructure development reaching at a stage
where it has least negative impact on the export and GDP growth but in case of Brazil
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some other factors seem to be contributing towards this peculiar trend.

After examining the growth rate, export growth and infrastructure provisions for
the five economies over a period of six years, it can be said that in case of four
developing economies the trend appears to be nearly in consonance with the
observation in the literature, while in case of the US it is not. This may be the result of
very huge investment made by the US in the past years, the benefits of which are being
accrued in the current times. In this situation increased investment in infrastructure
may not be required to support GDP growth.

Rationale and scope of the study

It is revealed in the preceding part that very few studies have been conducted on
development and growth of Infrastructure in India with its comparison with other
economies and sector specific studies as such are non-existent. It is realised that a wide
gap exists in the available and the required level of infrastructure facilities in India that
is hampering the attainment of desired economic growth. Thus, to have pace with the
present growth pattern of the country, it is important that policy-making for
infrastructure development be supported by fresh research so as to identify the
underlying determinants and deterrents.
The present paper has a special focus on development of road network in India and
its impact on economic development. A fair comparison with other similar economies
has been performed to know the comparative view.

Objectives of the study

The present study attempts:
.
to study the state of infrastructure in India and compare it with other economies
and work out its impact on overall economic development;
.
to identify the gap in existing and required road infrastructure facilities and their
probable impact on productivity, in Indian context;
.
to study the state of private sector participation in road infrastructure
development in India;
.
to review the policy statements pertaining to sector under review and identify the
underlying issues; and
.
finally, to suggest a viable solution to the problem of efficient road network
development in India.
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India
Road

infrastructure score
Export growth rate vs
Figure 4.
79
infrastructure in
 ECAM Data and methodology
16,1 The paper is based upon data collected mainly from secondary sources (as referred in
the paper at various points), in terms of physical status and spending status, pertaining
to the road sector. The data is finally analysed to have trend analysis of growth and
development of this sector in India along with a cross-country comparison showing the
impact of infrastructure development on economic development. In this paper $ refers
80 to US$ and the current exchange rate of US$1 ¼ 43 Indian Rupees (current market
rate) has been used.

Discussion, observations and suggestions

Road economics
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Importance of road network and its impact on economic development is a considered

subject matter of road economics. The GDP share of transport sector in India was
estimated to be 5.5 per cent in the year 2006, where road transport contributed 3.69 per
cent. The road sector handles 65 per cent of the overall freight and about 87 per cent of
the passenger traffic. A recent study highlighted that the share of road sector in total
freight movement in India has been increasing over the past three decades which is
estimated to have increased from 34.5 percent in 1970-1971 to around 63 percent in
2001-2002 (Deloitte Consulting, 2003). This conveys that financial economy from this
sector is on a rapid rise and sector contains a lot of potential to be the most preferred
mode of transportation for both freight and passenger movement, over the present
cheapest mode of transportation – railways. However on comparison to China it is
observed that India is still a backbencher in terms of obtaining excellent gains from
this sector (Figure 5).
The road sector has great employment potential too, especially in rural areas and
can act as a poverty reduction measure. Rural road construction is a labour intensive
industry and provides immediate relief to the rural poor. For an instance the National
Highways Development Programme (NHDP) is alone expected to provide employment
opportunities to around 2,50,000 construction workers in India (CMIE, 2007). A study
conducted over the period 1970-1993 concluded that investment in rural roads in India
contributed effectively towards productivity growth as an additional $2.3 billion

Figure 5.
Modal road traffic share as
percentage of total traffic:
India and China (2004)
 invested in roads increased productivity by more than 3 percent (Fan et al., 1999). At Road
present India spends around $3.7 billion annually on road development programmes infrastructure in
(Investment Commission, India).
India
Impact on industry
It has been realised time and again that greatest impediment to rapid growth of
manufacturing sector and exports in India is inability to quickly and efficiently 81
transport products from inland facilities to its ports. China’s $2.2 trillion economy is
three times larger than that of India (at 2006 exchange prices) (Lardy, 2006). One major
contributor to huge Chinese economy is its manufacturing sector which has 40 per cent
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share in GDP against only 25 per cent in India (IMF, 2006). In a survey of top 15
manufacturing nations (Figure 6(a)), China stands at third position while India holds
12th position. In the exports sector too China is a better performer than India. Although
India’s exports almost doubled in the decade, 1995-2004, but its share in the world
exports rose from 0.6 to 0.8 per cent only (Winters and Yusuf, 2007). China’s present
share in total world export is almost nine times greater than that of India (Figure 6(b)).
India’s infrastructure-deficient environment has been one important cause of
hampering the growth of exports especially the poor network of National Highways.
National Highways creation in India has lagged severally as compared to that in China
in the last decade (Figure 6(c)). The logistics cost in India is 13 per cent of GDP due to
under developed trade and logistics infrastructure, while it is less than 10 per cent of
GDP in almost entire West Europe and North America (Datamonitor, 2007). The costs
associated with moving cargo in India are some of the highest in the world at 11
percent of landed cost, compared with a global average of 6 percent (Inboundlogistics).
It is estimated that the inadequate physical road connectivity, possibly constraints
growth of GDP up to 2 percentage points a year (Department of Road Transport and
Highways, India). This trend is a clear indicator of India’s initial ignorance about the
importance of creating road assets to boost up economy as a whole and manufacturing
sector in particular.

Figure 6.
Impact on industry
 ECAM Current status of road network in India
16,1 India has second largest road network of the world but the standard of its road
network is far below the expectations (Table I). China, which does not have a very long
history of building highways and expressways, scores much better than India
(Table II).
While considering the road network in any economy, it is not only the length which
82 matters but the quality of the road infrastructure also becomes an important
determinant to evaluate the overall road infrastructure availability. Here we assess the
road quality of five world economies (Figure 7(a)). India scores 3.2 while the world
average for this period is 3.7, even economies like Guatemala, Pakistan, Botswana fair
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better than India.

Poor performance of India in developing a quality road network is also evident from
the performance as recorded under the tenth five year plan (FYP). Figure 7(b) exhibits
that under any of the three broad categories of national highways it has not been
possible to achieve the target.
Another important indicator communicating the weak progress in the sector
happens to be in terms of the widening status of the highways. As given in Figure 8(a)
comparing India’s performance with that of China, it may be remarked that the gap
between two economies is alarming. This poor performance of India makes it difficult
to achieve the targets set for 2011, as far as the road progress is concerned. Vision2021
document for road network development in India says that by 2011 the length of
four-laned and bigger highways would be 16,000 kms and the length of two-laned
highways would come down to 15,000 kms and expressways will be as long as

Particulars Length in kilometres

1 Total road length 3.3 million kms (second largest in world)

2 National highways 65,570 kms (2 per cent of total road network and
carries about 40 per cent of traffic)
3 Expressways 200 kms
4 State highways 0.128 million kms
5 Major district roads 0.470 million kms
6 Village and other roads 2.65 million kms
7 Surfaced road lengths 1.604 million kms (48.6 per cent of total road length)
Table I. 8 Rural access to all-season roads 60 per cent of villages
Road network in India up
to 2006 Source: Department of Roads and Highways India; World Bank

Particulars India China

1 Total road length 3.85 million kms 1.87 million kms

2 Highways length 0.194 million kms 1.83 million kms
3 Expressways length 200 kms 0.045 million kms
4 Percentage of paved roads (%) 62.6 82
Table II.
Status of road network – Source: World Development Indicators 2006, 2007; National Bureau of Statistics, China; Department
India and China of Road Transport and Highways, India
 Road
infrastructure in
India

83
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Figure 7.
Road quality and highway
performance

Figure 8.
Widening status of
national highways and
population of vehicles

3,000 kms. However, the country’s performance in road sector under the tenth plan
period (Figure 8(b)) raises doubts about the success of targeted plan.
Also, if we relate the growth in motor vehicles population to the increase in road
network, it will again present a very dismal situation. The increase in motor vehicle
population is almost 100-fold (0.3 million to 30 million units) while that in road network
is just eight-fold (0.4 to 3.32 million kms) over the period 1951 to 2004 (Figure 9(b)).
This poor structure in terms of suitable road-width and length, keeping in view
increasing passenger and freight traffic on national highways, is one of the causes of
 ECAM
16,1

84
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Figure 9.
Percentage of habitations
and population category

below average productivity of trucks used for logistics purposes in India. On an

average a truck travels a distance of 200 kms a day in India, as against 350-400 kms
that would be possible through reduction of congestion. According to the data
presented by the planning commission the freight traffic is estimated to increase
fivefold and passenger traffic by fourfold by 2020 compared with the current level with
annual growth rate of 18 and 15 per cent, respectively. This further highlights the
overstressing condition of the Indian roads.

Road network: the ambitious plans

With the advent of the twenty-first century India ventured into two ambitious road
sector projects – National Highways Development Programme (NHDP) and Pradhan
Mantri Gramin Sadak Yojana (PMGSY/Prime Minister’s Rural Road Project).

National Highways Development Programme (NHDP)

NHDP was launched in 1999 and it has three main components –
North-South-East-West corridor (NS-EW), Golden Quadrilateral (GQ), and four-lane
highways. However, the performance of these grand projects is unpleasant at most of
the fronts. GQ project was slated to be completed by the year 2003 and NS-EW by 2007
(Planning Commisssion, n.d.). As given in Table III and according to estimates, both
these projects are unlikely to be completed before 2011 and 2008, respectively (CRISIL,

Particulars GQ NS-EW

Total length 5,846 km 7,300 km

Already four-lanes 5,597 km 1,390 km
Table III. Under implementation 249 km 4,931 km
NS-EW corridor and GQ Balance length – 821 km
project status (as of
31 March 2007) Source: Planning Commission, India; NHAI
 2007). NHDP project is divided into five phases (I-V) but by the end of the tenth Road
five-year plan, only phase IIIA has been reached and phase I and II are also yet infrastructure in
incomplete.
India
Pradhan Mantri Gramin Sadak Yojana (PMGSY/Prime Minister Rural Road Project)
One of the most high profile rural connectivity projects in rural development history of
India, PMGSY started in 2000 to provide road connectivity to about 172,772 85
habitations, with an anticipated investment of $1,824 billion. It is wholly sponsored by
the central government and 50 per cent of the cess[1] on high speed diesel (HSD) is
earmarked for this programme. Like the other two great highways projects, PMGSY is
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also lagging behind the schedule. Against the target originally set to connect 56,638
rural habitations with roads, only 27,303 habitations (48.21 per cent) have been allowed
access till October 2006. The figure shows that only 15.8 per cent of habitations have
been actually connected so far and the project is already behind the target, which was
set for the end of tenth FYP (Planning Commission, 2006). Figure 9(a, b) presents a
clear picture of percentage of rural habitation in states not connected by roads and
population category-wise connectivity of villages at the All India level respectively.
The graph conveys a very high state of imbalance in the regional road development in
the country.

Road maintenance
Maintenance of roads is an important activity for several reasons:
(1) New roads are constructed based on assumptions that necessary maintenance is
carried out at regular interval of time to handle the damage caused due to the
climatic effects and traffic loading.
(2) Maintenance of roads is vital to have a sustainable road network in terms of
serving the amount and type of traffic using the road network (ADB, 2003).
(3) Well-maintained roads support the safe and efficient movement of the
passengers and freight.

Many studies have highlighted that cutting back on road maintenance results in
raising the cost of vehicle operation and in loss of the assets (World Bank, 1998; ADB,
2003). It is estimated that due to insufficient maintenance huge extra cost is borne by
the governments world over:
More than $ 30 billion are being wasted annually in Latin America and Caribbean region due
to the absence of adequate road maintenance process. Individual countries in this region are
losing between 1 and 3 per cent of their annual GNP due to an unnecessary increase in vehicle
operating costs and loss of road asset value alone (Zietlow, 2004).
A World Bank (1998) study on “Commercial management and financing of roads” has
pointed that poor road maintenance also raises the long term cost of maintaining the
existing road asset. A paved road maintained at regular intervals for 15 years will cost
about $60,000 per km while if, it is allowed to deteriorate, over the same period it will
cost about $200,000 per km to recover it. This ignorance towards routine and regular
maintenance of road infrastructure in developing economies is a growing concern
among the multi-lateral funding agencies and world transport community, as huge
 ECAM amount of funds spent on the creation of road assets in the past two decades has
16,1 already eroded.
This is also an important issue for India as significant length of roads being lost
annually for want of maintenance. Maintenance of roads is a non-plan activity in India
and there is a tendency to make fund-cuts considering the requirements of other
priority sectors. The funds allocated for maintenance usually do not exceed 60 per cent
86 of normal requirements and there has been an increasing gap between requirement of
funds as per norms and the allocation (Figure 10).
A study (World Bank, 2004) highlighted that the yearly investment requirement to
maintain the existing road asset in India is $1.6 billion while actual maintenance
spending is just one-third of the requirement. The Expert Group on Commercialisation
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of Infrastructure (1996) in India estimated that the commercial loss due to poor
economic condition of roads and congestion is around $4.7 billion per annum.
According to a World Bank study about India’s highways network, every $0.023/1
rupee spent on road maintenance generates a benefit of $0.163/7 rupees while, the poor
road infrastructure increases the road users’ cost by almost 50 per cent (Raghavan,
2008). Prime Minister of India, Dr Manmohan Singh, while addressing a national
conference on rural roads has himself admitted that India is losing road assets worth
billions of rupees annually due to poor maintenance. Also, it is estimated by the Rakesh
Mohan Committee on Infrastructure that the economic cost of bad roads in India
ranges between $4,651 million to $6,976 million annually.
In the light of above facts and figures maintenance of roads should be a priority area
for the government and required amount of funds be allocated for road maintenance in
the country every year. For this purpose a central road maintenance fund may also be
created where Central and State Governments contribute funds in the desired
proportion. At the same time road maintenance be shifted from non-plan activity to
plan activity and more funds should be allocated for the purpose of the maintenance of
roads in the country. Besides these measures and looking at the success of private
participation in few projects in the highways sector (Jaipur to Kishangarh section of
NH-8, it is a BOT project and was completed five months ahead of schedule), it will be
most appropriate to advocate for an increased participation of private sector in road
development in the country.

Figure 10.
Maintenance fund:
highways required vs
available
 Private sector participation: initiatives by the government Road
There has been firm commitment at the government level to support private sector infrastructure in
participation in the road sector in India. In a bid to tap both domestic and foreign
equity and debt-market, the government of India underwent number of reforms. It India
relaxed the regulatory policies, reduced foreign investment restrictions, and introduced
number of tax, customs and other incentives for companies engaged in infrastructure
related activities. It declared the road sector as an industry, allowed duty-free imports 87
of certain identified high quality construction plants and equipments, allowed foreign
direct investment up to 100 per cent in road sector, higher concession period up to 30
years and made provisions for the right to collect and retain toll.
Further, to identify the issues related to the participation of the private sector in
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road development programmes in the country, it is imperative first to understand the

nature of the road projects. Unlike electricity and telecommunication sectors, road is an
intangible asset. By intangibility we mean that the investment made in the road
construction cannot be directly recovered from users as it is possible in other
infrastructure sectors like-power and telecommunications. This particular aspect
restricts its trading as a commodity in the market. There are apprehensions regarding
the optimum returns also, as development of roads has been traditionally viewed as
public service. The other restraining factors in road projects are the involvement of
huge sunk cost and long gestation period. This involvement of massive capital
investment and untradable nature of the roads result in high risks of revenue
collection. So roping in the private sector into the venture may be possible provided
some key issues negatively affecting the process are resolved on priority.

Key issues
As already highlighted, road projects are characterised by large sunk cost and long
payback period. Further, the absence of long-term capital market and banking sectors
reluctance to lend money has made it difficult for the private sector to get involved in
road development. To compound this problem, experiences have shown that the benefits
an investor presumes from financing road projects may not always be recoverable
through users’ charges mechanisms. Other issues involve toll fixation problems and
traffic projections for toll roads. Due to poor management of traffic and road conditions
in India, the future predictions are not even close to the actual flows that result in
restructuring of the targets. It is also revealed that there is no uniform tolling policy and
there exists disparity in tolling rates between private funded projects and public funded
which cause users’ resistance (Mackenzie). Even the annuity and shadow-tolling model
does not work to be amenable. According to the Planning Commission, these projects are
more expensive since private sector raises loans at a higher rate of interest than if the
government were to raise the same amount. This in turn raises the project cost and
hence, the annuity payments made by the Government to the concessionaire.
In the case of National Highways, there is no exclusive development criterion for
two-lane, four-lane and six-lane roads. Similarly, widening of roads and rural road
building also lack any clear and unambiguous policy as far as the funds provisions are
concerned. In the extant provisions it is suggested that resources needed for
development of national highways can be raised by private developers which in turn
will be sustained by annuity payment arrangements in case of low traffic volume and
this annuity payment will be funded by a cess on diesel and petrol. On the other side
 ECAM some highways are proposed to be funded through user-paid tolls, while the cess
16,1 recovered from the same user is used to develop same class road in some other region
where no toll may be charged (ICFAI, 2006).
Next, the sector is governed by number of legislations – Indian Tolls Act 1851, The
land Acquisition Act of 1894, Dispute Settlements Act of 1940, National Highways Act
1965, Motor Vehicles Act of 1988, National Highways Authority of India Act 1988, and
88 the Central Road Fund Act of 2000. This multiplicity of laws leads to complexities in
project executions. Then there are multiple institutions involved in the development
and maintenance of roads both at the Central and State level. The Central Agencies
that are important here happen to be like Ministry of Road Transport and Highways,
Central Roads Congress (standards), NHAI (highways), Ministry of Rural Development
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(rural road), Rural Infrastructure Development Fund etc. Similarly, State agencies are
Public Works Departments, Panchayati Raj (Local Government) Institutions etc.
The involvement of so many institutions in the overall process of project approval
and implementation leads to duplicities and overlapping of laws which consequently
results in time overruns apart from introducing more complexities in the project
developments due to lack of co-ordination. For instance the Delhi-Noida highway took
nearly nine years before signing of MOU and commencements of operations (Puri, 2002).
The major constraints for this sector, however, are problems in acquiring land and
obtaining environment and forest clearances, each of which requires the assistance of
state/local governments. The risks associated with land acquisition have the potential
to derail a project timetable and indirectly result in cost escalation for the investor.
Also, location specific issues are affecting private sector willingness to invest.

Development of efficient road network in India – a viable solution

Efficient road network we mean to create all weather good conditioned roads to
connect each and every habitat with rest of the world. Similarly, all business centres,
ports, airports and other important places to be connected with efficient road network.
Creating such an efficient road network is an uphill task mainly due to the
non-availability of desired amount of investment. Here, we propose a three-tier strategy
that may prove to be a viable solution to the problem. At the first instance the
government must identify those stretches where private sector firms are ready to take
the responsibility and willing to develop a good road network independently. At the
second stage those stretches be identified where private sector firms may come
forward provided government helps them (in land procurements etc.) to develop the
roads and recover the investment by way of toll tax and similar other means. In case
users are not willing to pay the toll to the developer, government may introduce the
system of annuity tolling or BOLT etc. In India presently road development takes place
mainly under three modes: BOT (toll), BOT (annuity) and engineering-procurement
(EPC) contracts. BOT (toll) is useful for the first stage projects where users are ready to
pay the toll. BOT (annuity) will be useful for second stage projects where government
(central, state or local) will collect the toll from users and pay under annuity system to
the developer. Only a third of roads be developed by the government itself and that too
under engineering-procurement (EPC) contracts. This way sizeable part of road
development network may be passed on to the private sector and investment problem
resolved easily. Required investment becomes the major hurdle for the efficient road
development that will be over if, private sector is effectively involved in the process.
 Conclusion Road
It is now a well-established fact that road infrastructure in the country is quite deficient infrastructure in
and large investment is needed to build the required level of road facilities. It is also
true that needed investment cannot alone be generated through public financing and India
therefore private funding needs to be geared up. Private sector financing in road
development holds a very brilliant future. But, simply evolving strategies to deploy
private funds cannot be considered enough to have assured infrastructure 89
development. It is clear from the issues discussed earlier that success of
privatisation programme depends on the interaction of many factors that include
economic and legislative framework. Secondly, delivering basic services at an
affordable price is key to the success of any infrastructure project and should be taken
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into account at an early stage of planning. The other important consideration for
government is to achieve social equality in road development to avoid regional
disparity, especially the south versus north development. Finally, as suggested by
some studies (Matton and World Bank, 2004), the government needs to shift focus from
road construction to road service and concentrate more on asset maintenance than
creation.

Note
1. The cess is sort of surcharge that is levied on the tax. For example, one litre of diesel which
costs Rs 25 [$0.58 (per $ rate taken here is 43 rupees)] in India and sales tax on that works out
to be Rs 5 [$0.12 (@ 20 per cent)]. Then over and above this tax amount of Rs 5, a cess
(suppose @ 3 per cent of the tax amount) will be further added. So the final price of one litre
of diesel will be Rs:25 þ 5 þ 0:15 ¼ Rs:30:15 or ($0.70). Generally the rate of cess remains
very less as compared to the rate of tax and it is levied on the amount of tax and not on the
basic price of the product.

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Corresponding author
Anil K. Sharma can be contacted at: anilfdm@iitr.ernet.in

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