Centre okays highway projects worth ₹7 trillion

In a fillip to India’s highway development programme, the Union Cabinet chaired by Prime Minister Narendra Modi on Tuesday approved a plan to build thousands of kilometres of roads and highways over the next five years at a cost of about ₹ 7 trillion, a spending push that could help generate jobs and lift the economy.

Announcing the Cabinet decision, Union finance minister Arun Jaitley called this public expenditure on infrastructure projects as “unprecedented” and “something which has not happened in the country till date.”

The plan involves constructing 83,677 km of roads, highways, green-field expressways and bridges in phases.

Under the first phase to be completed by 2022, 34,800 km of highways will be built. This will include 24,800 km of the ambitious Bharat Mala programme, at a cost ₹5.35 trillion, announced two years ago, to build highways through economic corridors centred around manufacturing hubs, inter-corridors and feeder routes, border, coastal and port connectivity roads. 1,837 km of greenfield expressways will also be developed under the programme.

Of the 34,800 km stretch, 10,000 km are part of the ongoing National Highway Development Project (NHDP), which was started in 1998 when Atal Bihari Vajpayee was the PM.

The Modi government, like the previous NDA government, has given top priority to the sector that has hit a rough patch since 2007. The government has set an ambitious target of building almost 40 km of roads per day – up from 9km/day just three years ago – this fiscal. Between 2014-15 and 2016-17, the overall allocation to the highways sector has increased by 73 % — from ₹1.3 lakh crore to ₹2.25 trillion.

Infrastructure experts are happy that the momentum to the sector has continued.

“It’s the best stimulus that the government can come up with. It is heartening that the government is treating the highways as the single biggest stimulus related activity. The sector is highly construction dependent and the biggest multiplier to the economy. It will provide a robust road network resulting in economic spin-off,” said Vinayak Chatterjee, chairman of infrastructure consulting firm Feedback Ventures.

Finance secretary Ashok Lavasa said the government is looking to raise almost half the money from the market and private investments while the rest would come from the Central Road Fund, highway toll and monetising completed highway stretches.

The Centre’s move might be aimed at increasing government spending on creating infrastructure but economists are wary of the state’s capacity to spend.

“My first concern is the government’s ability to give out contracts and build the highway. If the past is an indicator, the state capacity to spend on public investment is limited,” said Ila Patnaik, professor, National Institute of Public Finance and Policy.

But ramping up government spending, at a time when subdued tax collections and sluggish economic growth have strained federal revenues, could widen the fiscal deficit beyond the targeted 3.2% of GDP.

There were signs that the government had little option but to spend its way out of trouble that was exacerbated, in part, by last year’s shock withdrawal of highvalue banknotes as well as disruptions following the rollout of the new Goods and Services Tax.

In the last three-and-a-half years, the government has taken a slew of policy initiatives to raise revenue and lure back the private sector to invest in highways sector. With the appetite for public private partnership projects going down, the highways ministry decided to first move to the EPC (engineering procurement contract) model where the government funds the entire project.

According to credit rating firm Crisil, the construction sector was the most labour-dependent among all non-agricultural sectors.