Govt Plans ₹1 Lakh Crore Highway Push To Revive Private Investment

India is preparing new regulations to lure back the private capital in highway building, almost ten years after the developers withdrew as a result of worries about traffic forecasts, the delays in approvals and uncertainties on revenue. The framework suggested will be completed within this month.

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The government wants to bring the share of highway development to 25% the following year, unlike the single-digit levels at present. The relocation is meant to decrease the dependency on government funds and speed up the development of the expressways.

Budget Allocation And Risk Support

In the recent Union Budget, Finance Minister Nirmala Sitharaman has increased the total infrastructure expenditure to ₹12.2 lakh crore in the next financial year, which was 9% higher than the last financial year. Roads and bridge allocation increased 6.9% to ₹3.1 lakh crore.

The government will also establish an Infrastructure Risk Guarantee Fund to provide a safety valve against the risks related to a project to boost the bankability of highway projects and increase investor confidence.

Shift From BOT To Hybrid Models

The highway industry of India had previously been appealing to high levels of private investments in the form of the Build-Operate-Transfer (BOT-Toll) model, which involved the developers being compensated by recouping costs in the form of tolls throughout the tenure of the concession. However, the level of interest in the BOT projects has declined at a steep rate in recent years.

In 2009 (April-November), there was only 1% award of highway projects under BOT-Toll. Rather, 99% of the 26,425 kilometres awarded was performed under the Hybrid Annuity Model (HAM) and under the Engineering, Procurement and Construction (EPC) contract, both of which have more government support.

The new structure aims at resolving the industry complaints, such as delays in statutory authorisations and competition by parallel roads, which influenced the toll incomes. It could also enable the global investment funds to award projects directly and subsequently engage in technical partnering, which will bring India on par with the international practice of infrastructure investment.

Broader Infrastructure Strategy

This push to recover the lost privatisation of highways is a broader initiative by the Ministry of Road Transport and Highways to increase corporate involvement in other infrastructure sectors.

The revised focus on private capital is supposed to modernise the transport infrastructure in order to lower the cost of logistics and enhance the competitiveness of India in comparison with China. The government is planning to increase the high-speed network of roads five times in the next ten years, with a proposed investment pipeline of 11 lakh crore.

The ministry has not yet made any formal comment on the proposed framework. The discussions are still internalised.