Role of Road Infrastructure in India’s Economic Development

India’s rise in recent years is a most prominent development in the world economy. India has re-emerged as one of the fastest growing economies in the world. India’s growth, particularly in manufacturing and services, has boosted the sentiments, both within the country and abroad. With an upsurge in investment and robust macroeconomic fundamentals, the future outlook for India is distinctly upbeat. India's transport infrastructure is inadequate to meet current needs, and the needs of the future will be much greater. India could unleash its full potential, provided it improves the infrastructure facilities, which are at present not sufficient to meet the growing demand of the economy. It has a corresponding appetite for investment and services to improve the sector. Failing to improve the country’s infrastructure will slow down India’s growth process. Therefore, Indian government’s first priority is rising to the challenge of maintaining and managing high growth through investment in the infrastructure sector, among others. The provision of quality and efficient infrastructure services is essential to realise the full potential of the growth impulses surging through the economy.

Role in Urban Development

The urbanisation of the world's largest rural population brings enormous opportunities and challenges. Urban development and associated infrastructure investment is a major source of growth for India. Urbanisation drives demand for inputs across sectors (such as metallurgical coal and iron ore for steel production) and shapes India's use of energy. The Indian Government is focusing on improving basic services such as sanitation and housing. Water management is a serious challenge, with most of India's large cities already facing water shortages on a daily basis. Improvements in city planning and growing disposable incomes could enable more user charges – such as toll roads – to increase revenue generation for infrastructure developments. Improving transport infrastructure is critical to the livelihood of India's cities. It is also central to India's productivity and the competitiveness of sectors such as agriculture and manufacturing. Transport is expected to attract the majority of infrastructure investment in India as the need for capital is immense. The Indian Government is actively seeking foreign investment to finance its large-scale road connectivity projects, with the creation of new investment vehicles and financing models. It is also beginning to improve regulatory clarity and reduce execution risk through policy reform.

Cross-Border Road Infrastructure

Provision of quality and efficient infrastructure services is essential to realise the full potential of the emerging Indian economy.The cross-border infrastructure component is an important determinant of regional integration. If countries are not interlinked with each other through an improved transportation network, the regional integration process will not move ahead at a desired pace. In India, development of cross-border infrastructure, especially transportation linkages and energy pipelines with neighbouring countries is underway and expected to contribute to the regional integration in Asia by reducing transportation costs and facilitating intra-regional trade and services. Nevertheless, there are many challenges. It is 130 important for India to enhance its overland connectivity with East Asia in order to effectively facilitate the Asian regional integration.

Problems for the development of Indian Road Infrastructure

The major issues in the infrastructure sector in India include financing of infrastructure, land acquisition and environmental clearances, private sector participation, stable policy framework, institutional set up, tariff policy etc. Constraints faced in the timely completion of NHDP include delays in land acquisition, removal of structures and shifting of utilities, law and order problem in some States, and poor performance of some contractors. This cess is leveraged to borrow additional funds from the domestic market. Besides, the Government of India has also negotiated various loans from the World Bank and Asian Development Bank for financing various projects under NHDP. These loans from the multilateral institutions are passed on to NHAI by the Government partly in the form of grant and partly as loan. Given the limited resources of the government to finance the expected infrastructure investment, the environment for infrastructure development through both public and private investments needs to improve.

This is possible only through providing a more stable and secure policy framework, protection of property rights and appropriate pricing and subsidy policies. Further, the government may give guarantees and other forms of support to ensure confidence and viability for infrastructure projects to attract private investment. To tackle the problem of infrastructure financing, the study proposes different ways to provide financing options to meet the huge infrastructure investment. The laws of Land acquisition need to be revisited to accommodate proper rehabilitation and compensation packages. The decentralised negotiation between the required bodies and land owners is the best option. Proper institutional set up for each transport infrastructure sector is necessary but efforts are needed for a coordinated approach among roads, railways, airports and ports so that interlinking of infrastructure services is effective and efficient. Since most of the infrastructure services are built by private operators through contracts, the design of the projects, estimation of cost and time etc ought to be done in a scientific manner to avoid delays and cost overruns.

Therefore, there are substantial infrastructure needs in the infrastructure sector in India, which, in other words, also offers large investment opportunities. Public-Private–Partnership (PPP) is emerging as the preferred instrument, where the private sector gets its normal financial rates of return while the public sector partner provides concessional funding based on the long-term direct and indirect benefits to the economy. New instruments such as Viability Gap Funding (VGF) through a special purpose vehicle (SPV) set up recently by the Government of India to fund mega infrastructure projects may be relevant for other Asian countries as well. Indian government’s first priority is therefore rising to the challenge of maintaining and managing high growth through investment in the infrastructure sector, among others.

Written by: Gaurav Bisaria

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