Highway from whose plate?

From 2014, the India’s populist right wing government has clearly prioritised infrastructure creation as a tool for poverty alleviation and electoral pursuits. A keystone of this development binge is highway construction that has zoomed from around 5,000 kilometres (kms) (around 3100 miles) a year in 2013-14 to nearly 13,000 kms per annum in 2020-21.

In the subsequent years, the pace climbed down to 10,000 kms annually, closer to the rate at which highways were built in the United States from the 80s to early 2000s. The push is widely evident in the messaging from ruling Bhartiya Janta Party (BJP) ideologues who incessantly propagate Prime Minister, Narendra Modi’s development agenda. On social media, such communication is routinely laced with photographs and videos of multi-lane highways, loaded container ships, and semi high-speed trains.

This vibrant imagery is an indicator of ‘New India,’ an idea that reflects on pains from the subcontinent’s colonial and Islamic invader ruled history while projecting a resurgent present and future. These highways have favoured Modi electorally and in 2019, Indian voters gave him a second term. Surveys are currently underway to assess the efficacy of these roads for the local population. If trends are to be believed, come 2024, a third term at the helm is in the offing for him.

This breakneck pace of highway development comes at a cost which the country’s exchequer now seems unwilling to bear. Behind closed doors, Finance Ministry mandarins regularly talked about the burgeoning debt of National Highways Authority of India (NHAI), the principal agency responsible for handling these projects. Sovereign backed debt of the national highway developer has increased 14 times from Rs 24,188 crore in 2014-15 to about Rs 3.48 trillion at the end of fiscal 2021-22. The current debt is closer to Rs 3.4 lakh crore.

The debt ballooned to a point that the government, for the first time in decades, stopped NHAI from borrowing altogether. Instead of NHAI raising money from the bond markets and then funding highway creation, the government allocated Rs 2.17 lakh crore to the Ministry of Road Transport and Highways (MoRTH), for fiscal 2022-23. This approach was repeated with slightly higher allocations in two subsequent budgets since.

With toll collection improving through access-controlled highways, NHAI hopes to payback its debt in a few years.

This is a view propagated by Nitin Gadkari, India’s Road Transport and Highways Minister since 2014. In December 2021, he augured that NHAI’s annual toll collection would rise more than threefold to Rs 1.40 lakh crore by 2024-25. With a year to go for this target, his prophesy will be a pipe dream. This is because India is unable to build highways at the pace it plans and most, 407 out of 717, big projects (worth more than Rs 150 crore) are fraught with hurdles related to land acquisition and red tape.

The uncertainty associated with highway projects has spooked the private sector that wants a slew of reforms, even a new public-private partnership law, before once again taking risks to build infrastructure. Private sector investment for the road sector has remaining flat at around Rs 25,000 to 30,000 crore annually from 2015-16 onwards, is an indication of this tepid sentiment.

Till 2017-18, non-performing assets in the road sector, largely due to incomplete projects, were responsible for Rs 40,000 crore of bad loans on the books of Indian banks. While the bad debt situation seems to be improving, the private sector is still shy of dipping its toes in the dicey proposition. Most highway developers fear that they would be raising debt and entering projects without knowing whether they will be able to complete and successfully recover toll from them.

This led to NHAI issuing contracts exclusively for building the projects and then recovered the construction cost through tolling agents, insulating developers from jeopardy. It also allowed multiple smaller companies, including some dubious ones, to enter the highway making business. While this mechanism works relatively better, it also parks the burden on to NHAI and the Indian exchequer, instead of private players.

This is a situation which the spooks Finance Ministry which is battling inflation and slowed growth of the country’s economy. To address these concerns, multiple failed attempts have been made for encouraging private participation in road building. The latest of these endeavours are plans to offer potentially lucrative roads, with high traffic projections, exclusively under contracts where the construction and tolling risk is borne by the developer. It is expected that large private players would lap up the opportunity and the exchequer would not be further disturbed.

But completely weaning away from the budgetary support will slow the pace of highway construction.

Gadkari, whose team has successfully projected him as India’s highway man, would be unhappy at this possibility. His opinion matters to the Rashtriya Swayamsevak Sangh (RSS) – a fount of many top BJP brass – that has earlier forced the Modi government to rework policies it found unacceptable. To further complicate the situation, Gadkari has oft been projected as an alternative (not successor) to Modi in the unlikely event of the BJP and allies not securing enough seats to form a government. This perception has done more harm than good to Gadkari who has more than once been ‘misquoted’ as being unhappy with the treatment bailed out to him. Government officials too lament about the tightrope they tread while dealing with these political juggernauts.

In the midst of uncertainty driven by wars, Modi plans to ramp up expenditure and tide over the global economic slowdown. While the exchequer can absorb the burden for a year or two, subsequent ones will need a more calibrated approach to prevent Indian government’s finances from veering off track.