Despite being one of the worst-hit sectors of the Indian economy in the first half of 2020-21, the road sector witnessed a turnaround in the second half. Government initiatives to infuse liquidity into the sector have helped road contractors and developers maintain their work momentum amid the pandemic. The outlook for the sector seems stable and the sector is likely to flourish on the back of a strong pipeline of projects to be to be awarded under the Bharatmala Pariyojana. Industry experts share their views on the impact of Covid-19, their response to the pandemic, the outlook for the sector and key priority areas for the future…
What has been the progress in the road sector over the past one year?
For financial year 2021, the Ministry of Road Transport and Highways (MoRTH) set the highest ever target to construct at least 11,000 km of national highways. It exceeded the target with 13,327 km of national highway construction as against 10,237 km achieved during 2019-20. The ministry achieved a record per day construction of almost 37 km despite the nationwide Covid-19 lockdown. Further, it constructed 2,927 km of NHs in April-July 2021, as compared to 2,657 km in April-July 2020. The award figure during the period stands at 2,434 km, as against 7,702 km in the previous year. For 2021-22, the NHAI has invited bids for about 1,200 km of projects worth about Rs 400 billion under the hybrid annuity model.
Even though the Covid-19 pandemic has strongly affected India’s progress in various sectors, the road sector has managed to mitigate its impact, largely because major road projects were being carried out in remote areas with limited impact on resources. However, progress has been affected in cities and some projects have been delayed by disturbances in supply chains. The overall progress has been very good in the past one year. The MoRTH has proposed to develop an additional 60,000 km of national highways in the next five years, of which 2,500 km are expressways, 9,000 km are economic corridors, 2,000 km are coastal and port connectivity highways and 2,000 km are border roads/strategic highways.
What has been the impact of the key initiatives taken by the government?
The ministry has been proactively taking various initiatives such as relaxation of the qualification criteria; relief for contractors/developers by relaxation of the project completion schedule; use of new/alternative material and technology in the construction of highways; amendments and modifications in the toll-operate-transfer (TOT) model; securitisation of user fee receipts; issuance of warning letters to consultants and contractors for deterrent actions in case of mishaps occurring on site; and development of an online road asset management system (RAMS) for national highways. The government has relaxed the qualification criteria (technical and financial) for improving competition amongst bidders. In order to counter the economic slowdown and the acute financial crunch faced by contractors, the government has decided to reduce the quantum of security deposits in its contracts. The government has also reduced the performance security from 5-10 per cent to 3 per cent of the value of the contract and additional security deposit/bank guarantee in the case of abnormally low bids. The government has also included a provision for bid security declaration instead of bid security in the bid documents. The relaxation provided in Schedule G has been extended till September 30, 2021. The arrangement of direct payment to approved subcontractors through an escrow account has improved the liquidity condition of contractors and concessionaires.
The ministry has also come out with guidelines regarding the use of cost-effective, new/ alternative materials and technologies in highway construction to reduce the construction cost. The government has also clarified that any new alternative material and technology that has been accredited by IRC will not require further accredition, and will henceforth fall under approved alternative material and technologies. An ad hoc centralised RAMS cell has been established in NHAI as a single road database for managing and maintaining the national highway network. The RAMS cell is currently functional for the collation of data from network survey vehicles.
The Government of India has granted various relaxations during the Covid-19 period. The relaxations significantly improved the construction progress and cash flow situation of construction companies. Some of the key measures are relaxation in Schedule H/G, release of full retention money without any deduction, time extensions to complete projects, bank guarantee relaxations, bid security waiver, and interest relaxations in loans.
“The relaxations provided by the government have increased participation from less experienced bidders,
resulting in intense competition with narrow margins.” – Sudhir Hoshing
What has been the impact of Covid-19 on the sector? What has been your organisation’s response to the pandemic?
The progress in highway construction in the first half of financial year 2021 was impacted by nearly 15 per cent, owing to strict lockdowns in the first quarter, followed by the monsoon in the second quarter. The second half of 2020-21 not only saw recovery, but also increased construction. The progress in highway construction in the first quarter of 2021-22 was again affected by the second wave of Covid-19. However, it is expected to recover in the last three quarters of the fiscal. The award activity in 2021-22 has not been affected and remains similar to that in 2020-21.
The pandemic has seriously affected the human resource morale. Workers left for their hometowns during the lockdown, which led to issues with labour availability. Besides, a shortage of supplies was witnessed, accompanied by an increase in the price of various key construction materials. The disturbance in transportation strongly affected the sector during Covid-19.
What has been your organisation’s response to the pandemic?
At IRB Infra, human assets are the most precious as they are demonstrating their whole-hearted commitment to performing their entrusted duties and responsibilities in the ongoing pandemic. Hence, they are required to maintain sound health and high morale. IRB Infra is committed to taking utmost care of its human assets across all locations and expresses sincere concern about their safety and health. In addition to the strict safety protocols, thermal checks and ambulance facilities, training is being provided to employees at plant locations to administer oxygen for needy employees and travellers. The company has also created an employees’ Covid relief fund for providing relief to employees from excessive medical and hospitalisation expenses over and above their insurance coverage.
We have handled the Covid-19 pandemic considerably well. During the pandemic, we have been able to manage our resources quite effectively. Our company witnessed a 70 per cent growth in its turnover compared to the past year. We have ensured timely payment to our employees and cleared our suppliers’ dues in order to minimise the impact on our progress. Our tunnel projects progressed considerably well during the pandemic period.
“The pandemic has seriously affected the human resource morale.Workers left for their home towns during the lockdown, which led to issues with labour availability.” – Anik K. Singh
What are the sector’s key challenges that remain unaddressed?
The relaxations provided by the government have increased participation from less experienced bidders, resulting in intense competition with narrow margins. The number of bidders has increased significantly after the government withdrew additional bid security on abnormally low bids. Many projects are being quoted at 20-30 per cent less than the estimated price of the government. The issue of abnormally low bids has been a cause for concern for NHAI and has also been flagged by a parliamentary standing committee. NHAI has now come out with a circular as per which abnormally low bids will be put under a separate list for critical monitoring by the authority. Besides, the concerned officers will visit sites every fortnight to see actual progress to ensure that the contractors have deployed adequate resources. Monthly reports will also be produced for regular monitoring and perusal.
The issue of escalation in the prices of key construction materials still needs to be addressed. New companies are entering the construction market and quoting very low prices. This is seriously impacting renowned construction players since their profit margins have been narrowed down considerably. The industry is also facing a shortage of quality manpower. Apart from this, the financial losses incurred by the companies during the pandemic have not been adequately compensated by the central government. Losses in toll collection during the lockdown are yet to be compensated by the government. Besides, the GST issue is still not settled. Another key challenge facing the road sector is the non-availability of quality minerals for road construction. The government should prioritise the availability of key minerals for road construction.
What is the outlook for the sector for the next one to two years?
At present, road projects exceeding 55,000 km in length and costing more than Rs 6.26 trillion are in progress. National highways spanning 7,767 km had been completed in the first nine months of 2020-21, as against 6,940 km for the corresponding period in the previous financial year. The MoRTH has scaled new heights by expanding the highway infrastructure throughout the country, despite the nationwide lockdown imposed due to the pandemic.
The government is also decongesting GQ, NS-EW and other high density economic corridors through the development of grade separators, city bypass and ring roads as well as lane widening. Multimodal logistics parks (MMLPs) have been identified at 35 locations to reduce congestion on proposed corridors, enhance logistics efficiency and reduce the logistics cost of freight movement. A separate company under NHAI, National Highways Logistics Management Limited (NHLML), has been incorporated to carry out the development of the MMLPs and works related to national highway connectivity for ports. The MoRTH is also working hand in hand with the Ministry of Ports, Shipping and Waterways to develop dedicated first-mile connectivity for certain identified ports and IWT terminals to enhance the ports logistics ecosystem. Of the 2,026 km of road development projects identified by the Ministry of Ports, Shipping and Waterways, work on 652 km has been assigned to NHLML, for developing dedicated four-lane highway connectivity for selected major ports of the country.
Going forward, the outlook for the road sector seems optimistic. The central government is planning to come up with several new road and tunnel projects. With new players already in the market, there will be immense competition among contractors.