October 2019

Both positive and negative trends are visible in the road sector. Project awards dropped sharply in 2018-19 as the economic slowdown impacted the sector. However, actual construction continued to see a rising trend. In the underdeveloped north-eastern region, there has been a great deal of headway in terms of both awards and construction. The sector continues to struggle with the old issues of land acquisition and financing although there has been some improvement on these fronts. Indeed, projects have stalled or been surrendered due to land acquisition problems.

On the financial front, the hybrid annuity model seems to work for lenders since it considerably lowers the developer risk. But this model has also led to a saturation of order books to the point where developers lack the capacity to complete projects on time.

The new toll-operate-transfer model had a successful launch with takers for the first package. But the second package failed to evoke the desired response. Bharatmala also seems to have made a promising beginning but there are already project overruns and considerable cost escalations.

Financial models have undergone some changes. For one, InvITs are becoming a more popular option even though conventional lenders such as banks are still cautious about sector exposure. There have also been successful attempts to monetise working assets, allowing stressed developers to deleverage their balance sheets. In certain cases, assets under construction have also been monetised. NHAI has improved its position in terms of funding resources through a combination of raising loans and better budgetary support.

As in every other sector, there is a need to encourage and sustain private sector interest in the road sector too. This is particularly true for road building, where the state lacks both the technical and financial wherewithal to implement the ambitious targets that have been set. Policymakers have to find ways to ensure that private sector interest is sustained through the next five years as the Bharatmala programme is implemented.


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