Last week the Prime Ministers' Office (PMO) shot off a letter to the Ministry of Road Transport and Highways and the National Highways Authority of India (NHAI) about the lack of financial viability of the road infrastructure and road projects being sanctioned.

Brijeshwar Singh, former chairman of NHAI, spoke to CNBC-TV18 about the impact of the letter on road projects in the country.

“Infrastructure has long lead times. It’s not something which goes up and down like the market. It goes through much longer cycles and one of the basic driver of traffic is private sector investment to the GDP ,” said Singh.

“Ten years ago the private sector investment was 4.5 percent of the GDP. It has fallen to 1.5 percent today. So consequently the growth in traffic is confined to these few high density traffic corridors. It’s not necessary for NHAI or the government to concentrate only on the market viable roads,” he added.

"NHAI had a financial model where it was cess driven; if you remained only cess driven you would be able to do very few roads. So the government is trying to expand. It is now in a contraction mode, as the letter says — maybe you can take a break from road construction for few years, maybe you can pick up only those which have still got unfulfilled traffic demands. It has taken 10 years for private sector investment to come down. It may take 10 years for it to ramp up again.

“Therefore, you will have to watch how the economy is performing, how traffic is moving and it’s very difficult to predict which corridors are going to be high traffic density. So sometimes to you got to get ahead of the curve, sometimes if you are too conservative, you just fall behind the curve and you create a logjam. So it’s a mixture of social and economic imperatives; government takes a political call on this,” added Singh.

About the cost of land acquisition, he said: “The overhang caused by land acquisition cost going through the roof has caused the aggregate to go up but it hasn’t caused the construction component to go up disproportionately.

“The land acquisition act is a political decision. It will be very difficult for the government to withdraw it. So construction cost cannot be brought down and yes, you would have to slowdown if you have run out of the money, but contingent liabilities are a substantial sum and the contingent liabilities in the next few years are going to be more than double that. So yes, you should be worried about the financial health of the organization. If you have to trim your sales because it’s a low wind situation; you will have to do it and as the economy picks up you have to start again,” added the former chairman.

Talking about Bharatmala, the centrally-sponsored road construction scheme, Singh said: “It’s a very ambitious programme. It may take up to 20 years to fulfil based on my projections of the rate of growth of traffic going forward, but you have to take up those bids which are very high traffic density bids and where there is a logjam.

“The biggest logjams are within metropolitan cities and NHAI cannot work within metropolitan cities; it’s a role of the state governments and the municipal governments. So you have big logjams in the system, they affect entire logistics supply but NHAI cannot tackle those but NHAI should take up according to the rate of return on capital, they need better estimation of traffic,” he added.

First Published:Aug 27, 2019 3:40 PM IST