Two things are happening in the roads sector that engender, as it were, concrete hope. First, as has been deservedly well reported, Kamal Nath, the roads minister, is wooing and, by some accounts, impressing potential investors in East Asia and Europe. He?s slated to visit the US, too. The dynamics of capital supply changed October last year, and although things have improved since then, for long-term, greenfield and government-involved projects like highway construction, investors need to be given a substantive pep talk. The second good thing is under reported, but perhaps more significant: there used to be a committee on infrastructure in UPA-1 that had the relevant ministers and that was served by the Planning Commission. In UPA-2, that has been renamed as Cabinet committee on infrastructure. Big deal? Yes. The committee will now be served by the Cabinet secretariat, which means certain grand norms for awarding projects that were holding up everything in UPA-1, norms that found encouragement at the bosom of the Planning Commission, will now not be a roadblock. Between foreign investors becoming interested and contracts getting easier to implement, things may actually get moving.
Kamal Nath?s plan is to build 20 km of roads every day. That will represent a big jump from recent performance. The National Highways Authority of India?s awful year was 2006-07, when only a shocking 635 km were built. That has improved: 1,682 km in 2007-08 and 2,205 in 2008-09. But that?s still playing catch-up with the 2,351 km built in 2004-05. Right now, 12,997 km of roads are under construction with finances from the central road fund. This sounds impressive. But five states, Karnataka, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh and Maharashtra, account for almost 60% of the roads being laid. There?s a clear skew in state-wise performance. Plus, around 150 ongoing projects are running behind schedule for various reasons; delay in land acquisition, obtaining environment clearances and poor performance of some contractors. There are three models of delivery: BoT (annuity), BoT (toll) and engineering procurement construction (EPC). Government funding is limited to the latter two. But the process of prequalification and the model concession agreements (MCA) have been huge disincentives to quick implementation. This is what the Cabinet committee on infrastructure should address; one hopes it does so quickly. As is well known, private investors are wary of some of the terms of the MCA, especially clauses dealing with premature termination of the contract and variability of concession period. Kamal Nath and the committee also need to smarten up dispute resolution mechanisms. If long-term funding is not an issue, better procedures can dramatically change the road sector. UPA-1 didn?t attach any political prestige to highways. UPA-2 has started smarter. It should stay smart.
