Opportunities for the sector include upgradation of highways and expressways in India, allowing 100% foreign direct investment
While the central government has set an aim to build 41 kilometre of national highways per day and initiated several reforms to meet that goal, the road infrastructure sector continues to be plagued by unpredictable regulations, bureaucratic delays, struggle to get land rights, lack of transparency, among others, say industry players.
Mumbai-based MEP Infrastructure Developers, a road construction company, is of the opinion that the problems haven't ended in the highway sector.
In its latest annual report, the company said unpredictable regulations, bureaucratic delays in approving projects, endless struggles to secure land rights, lack of transparency, inadequate funding and high capital expenditure are threats for the sector.
The company has highlighted these issues quoting PricewaterhouseCoopers (PwC), a consulting firm.
Echoing the views, Sandeep Upadhyay, managing director and CEO, Centrum Infrastructure Advisory Ltd, told DNA Money, "Land acquisition and pre-construction related approvals are still a hassle. Funding constraints also continue to pose a challenge. Banks too are still on 'go slow' mode on any project with greenfield risk."
Appreciating the government's initiatives, in the same report, MEP spoke about opportunities that has opened for the sector in the last few years, including upgradation of highways and expressways in India, allowing 100% foreign direct investment, 100% tax exemption for five years, duty-free import of modern high capacity construction equipment, foreign participation in road construction, etc.
"On the positive side, the current government has been quick to adapt to new and relevant project rollout models. As long as National Highways Authority of India (NHAI) can consistently raise funds through cheap and efficient sources the pace of execution should continue to pick up momentum," said Upadhyay.
On the land acquisition hurdle front, in Rajasthan, for the construction of National Highways around 330 hectare of land is still needed. As a result, the highway works continue to remain incomplete.
During one of the review meetings of NHAI, Union highways minister Nitin Gadkari acknowledged land acquisition hurdles during the implementation stage. Briefing the officials, he also called for expeditious resolution of issues such as forest clearances, the appointment of independent engineers and change of scope.
According to analysts, lenders weren't upbeat to finance Hybrid Annuity Model (HAM) highway projects due to certain risks that still exist with such projects, thereby, affecting overall highway construction pace. Among the causes of concerns are about termination clause, a cap on payment on termination, aggressive bidding by companies, non-availability of 80% of Right of Way to commence the project, etc. Now, banks have begun looking for HAM projects.
ON THE POSITIVE SIDE
- Opportunities for the sector include upgradation of highways and expressways in India, allowing 100% foreign direct investment
- 100% tax exemption for five years, duty-free import of modern high capacity construction equipment are big boosters
- The current government has been quick to adapt to new and relevant project rollout models
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