October 2020

The road sector was badly impacted by the pandemic and the associated lockdowns. There will be lingering after-effects even though recovery has now started. On the positive side, NHAI and most state road authorities have revamped their work processes, with NHAI going totally digital. Also, project awards have continued at breakneck pace and efforts are being made to improve access to capital with the launch of NHAI’s infrastructure investment trust.

Road construction is necessarily capital intensive and labour intensive. During the pandemic, construction came to a complete halt as labour disappeared from worksites. Traffic also disappeared, leading to the evaporation of toll revenues, with zero collections for 25 days, and a liquidity crunch. Traffic remains low, which means lower valuations for new TOT bundles on offer, going forward.

In addition, the central bank has made an emergency rate cut, which has pushed the policy rate well below prevailing inflation levels. Since the annuity return from HAM projects is tied to the policy rate, the HAM model is in difficulties at present.

A third factor of production – land, and its acquisition – remains a permanent stumbling block leading to many delays. Quite apart from the pandemic, which is a black swan event, the difficulty of land acquisition has been a prime cause of projects stalling, and of delays leading to cost escalation. Indeed, difficulty in land acquisition is the main reason that the timelines for the Bharatmala have been extended.

Despite all the bad news, and the long-term challenges, there are huge opportunities in the National Infrastructure Pipeline. The road sector could see a total capital investment of Rs 20 trillion between 2020 and 2025. This includes all sorts of projects, including expressways, national highways, road infrastructure across the Northeast and border areas, as well as ring roads around metros and large cities. There would be ancillary infrastructure as well, such as logistics parks and tolling centres.

The enforced movement to digitalised work processes should be a serious efficiency booster for the sector, post pandemic. The construction industry has also been forced to find ways to lower labour dependency and this has speeded up the induction of modern technology in construction. Toll operators have also started looking at more efficient processes with the introduction of gantry-based mechanisms.

The accelerated pace of technology induction should pay off in the future, in terms of lower costs and faster execution. There is also no apparent lack of political will across party lines. Even at the state level, various governments have speeded up project awards, and taken other steps to encourage road-building activity.

The disruptions and losses caused by the pandemic were massive and the effects are not likely to be temporary. For one thing, there is no end in sight to the pandemic itself and the after-effects will linger, but learning from the crisis could help drive sector growth.

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