Road & Highways-Key to Revival

The revival of Roads & Highways is the base and the sure key to the revival of the economy. Despite many a pain & pressure points, there has been focused intent from the central and state governments / NHAI to trigger the momentum that can well compact the cracks on the base, and make it sound and stable. CONSTRUCTION TIMES peeks into the huge opportunities that can script a sustained growth story.

Most of the stakeholders are on the same page - that increased activities in the road sector can trigger the growth momentum, and take the sagging economy to an upward curve. According to KPMG, total construction projects worth more than Rs 59 lakh crore are under development, most of which would have been impacted severely by Covid-19. The Indian construction sector employs over 49 million people, close to 12 percent of the nation's working population. Further, it has a multiplier effect on nearly 250 allied industries.

India has the one of largest road network across the world, spanning over a total of 5.89 million km. As of March 01, 2019, the total length of National Highways in India stood at 132,500 km. Highway construction in India increased at 20.57 per cent CAGR between FY14-19. In FY19, 10,855 km of highways were constructed. During April-September 2019 a total of length of 4,622 km of National Highways were constructed. The Government of India has set a target for construction of 12,000 km National Highway in FY20. This will connect and accelerate economic momentum between large hubs of economic activity and the centres that lie in between.

The total infrastructure investment in India between FY2013-FY2019 stood at Rs. 57 lakh crore. Of this, about 18%, i.e. Rs. 10.3 lakh crore was invested in road infrastructure. Further, the Government of India (GoI) has set a target of increasing the investment in infrastructure to over Rs. 111 lakh crore over the FY2020-FY2025 as per the National Infrastructure Pipeline (NIP). Majority of the targeted Rs. 111 lakh crore infrastructure investments are planned towards transportation infra. The investment in road sector over FY2020-FY2025 is estimated at Rs. 20.3 lakh crore (18% of total outlay for NIP) which signifies the importance of the road sector. Road sector has a multiplier effect on the economy and provides large employment opportunities. It is estimated that a total number of 4,076 man-days are required for construction of one km of highway.

India is aspiring to become a $5 trillion economy and adequate infrastructure spending is critical. The National Infrastructure Pipeline released by the government has laid out a spend of Rs 102 trillion on projects over 2020-25. Of these, projects worth Rs 42.7 trillion (42%) are under implementation and worth Rs 32.7 trillion (32%) are in the conceptualisation stage, while the rest are under development. During the fiscals 2020 to 2025, sectors such as energy (24%), roads (19 %), urban (16%), and railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India.

A series of measures were taken by GoI to address the problems faced by construction contractors. All projects were given extension in construction period for a period of three to six months under force majeure event. Partial release of bank guarantees (to the extent contracts are complete) is a positive step and can help release some liquidity for contractors which is blocked in the margin money against these bank guarantees.

The Ministry of Road Transportation and Highways (MORTH) has also decided to release the retention money in proportion to the work already executed; with no fresh deductions of retention money for next three to six months. All these measures provide liquidity relief to road contractors. Further, both BOT developers and EPC contractors in road sector are contractually well protected from time and cost overruns arising due to Covid pandemic.

Recently, the Finance Minister also reiterated that the National Infrastructure Pipeline would be given a big push to create demand with a multiplier effect, and large projects would be frontloaded. This has certainly brought in positive sentiments in the Corona-inflicted market. To revive the economy and related activities, the government is also drawing plans to ensure the steady flow of investment of Rs. 111 lakh crore into the National Infrastructure Pipeline. Roads & Highways would hence, continue to be key growth drivers for the revival of the sagging economy.

Rebooting the activities in the Infra sector and more so in the road sector is critical for the economy as they provide immediate jobs for all the immigrant workers who have gone back but will be back after some months. This industry can provide lot of employment specially in the road sector. We expect the road construction activity to pickup pace from end of August or early September onwards, once the monsoon tapers off and the immigrant workers are back at the jobsites. There are enough projects which are already awarded and contracts available with the contractors. Only the work needs to get going on these projects which will automatically revive the economy. Definitely the plan of the government of India to award enough jobs under the infrastructure pipeline would help this sector and the economy.

The following pages delve deep into the major developments in the road sector with specific focus on many of the pain points the road sector is facing and suggestion from industry experts.

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