Jul. 9 – The paramount indicator of a country’s economic status is measured by its GDP. India, the second-most populated country in the world with more than 1.1 billion people, has emerged as one of the fastest growing economies in recent years. It is a republic with a federal structure and well-developed self-governing judiciary with political consensus in reforms and stable democratic environment. With the projected average yearly compounded growth rate of 8.5 percent, India’s GDP is likely to be US$1.4 trillion by 2017 and US$2.8 trillion by 2027. The service sector contributes to 50 percent of India‘s GDP while the industry and agriculture sector account for 25 percent each.
However, the healthy current growth in GDP has uncovered serious inadequacies in the country’s infrastructure sector. The strong population growth in India and its booming economy are generating enormous pressure to modernize and expand India’s infrastructure. The creation of world-class infrastructure will require large investments to address the country’s deficit in quality and quantity.
The road sector in India will call for investments in the range of US$75-90 billion over the next five years and India’s construction sector is anticipated to grow at about 35 percent between the 2008–09 FY and the 2012–13 FY. The private sector is likely to contribute 44 percent of the country’s total projected spending of US$100 billion on roads and highways during the 12th Five-Year Plan period.
The Indian government has initiated the National Highway Development Programme (NHDP) involving a total investment of US$50 billion on concessions/contracts to be awarded by 2012. Under this program, a length of about 15,000 kilometers has been completed and about 10,000 kilometers is under construction. In the next three years, it is planned to take up new sections of about 25,000 kilometers through a combination of public private partnerships (PPPs) and engineering procurement and construction (EPC).
To speed up the pace of the NHDP, the Union Government has entered into MOUs with some state governments who will undertake PPP projects on behalf of the Union Government. A number of projects are in different stages of bidding and award. Based on competitive bidding, up to 40 percent of the project cost is being provided as practicality gap funding for National Highway Projects.
The work on five major NH projects in Orissa, Bhubaneswar-Puri, Bhubaneswar-Sambalpur, Bhubaneswar-Chandikhole, Sambalpur-Bargarh and Remudi-Rajamunda (NH-215) began in February 2011. The work is being taken up on the PPP mode and the cost assessment will be made by NHAI. The government has also started the Bharat Nirman Program that plans to map every village having a population of over 1,000, or over 500 in hilly and tribal areas.
Investment policy updates
As per the newer policy updates from DIPP, 100 percent FDI under the automatic route is allowed for:
- Support services to land transport, such as operation of highway bridges, toll roads, and vehicular tunnels
- Services incidental to transport, such as cargo handling incidental to land transport
- Construction and maintenance of roads and bridges
- Construction and maintenance of roads and highways offered on build-on-transfer (BOT) basis, including collection of toll
Highway widening projects will now be eligible for the 10-year tax break under Section 80 IA of the Income Tax Act. The Central Board of Direct Taxes (CBDT) has clarified that widening of existing roads by constructing additional lanes as a part of a highway project, by an undertaking, will be regarded as a new infrastructure facility. This clarification will help highway developers receive tax deductions for a 10-year period under Section 80IA of the Income Tax Act
- 100 percent FDI under the automatic route in all road development projects.
- 100 percent income tax exemption for a period of 10 years.
- Cabinet Committee on Economic Affairs (CCEA) has agreed upon the National Highways Fee (Determination of Rates and Collection) Rules, 2008 to establish uniformity in fee rates for public-funded and private investment projects.
- An increment in the overseas borrowing amount of infrastructure sectors to US$500 million from US$100 million.
- Offering cheaper loans for highway projects that will speed up the projects worth more than US$12.70 billion under separate phases of the NHDP.
- The Ministry of Shipping and Road Transport is considering a green corridor highway project solely for farmers with no toll charges that would link rural roads with national highways. This is likely to be developed along with the six-lane project under the NHDP.
- A Rs. 41,200 crores (US$5 billion) project plans to lay six lane roads over 6,500 kilometers of National Highways on the Design Build Finance and Operate (DBFO) basis in Golden Quadrilateral and other high traffic stretches.
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