World Bank Grants Loan for Highway Improvement Project in India

July 7, 2014 Posted by India Briefing Reading Time: 2 minutes

DELHI – India has signed a US$500 million loan agreement with the World Bank (WB) to fund its National Highway Inter-connectivity Improvement Project (NHIIP).

Announced on July 1 in an official government statement, the objective of the loan is to support India’s NHIIP initiative and ultimately improve connectivity in the country’s National Highway Network. According to the statement, the Ministry of Road Transport and Highways will be the implementing agency for the project.

When completed, the US$1,146.05 billion NHIIP will feature an upgrade of 1,120 kilometers of India’s existing National Highways in three low income states (Bihar, Orissa and Rajasthan) and in less developed regions of two middle income states (Karnataka and West Bengal). The NHIIP will entail upgrading existing highway infrastructure to two lanes with pave shoulders along with single and intermediate lane strengthening.

Despite India’s recent rise to prominence as a manufacturing and sourcing jurisdiction, underdeveloped infrastructure and transportation networks continue to hinder the manufacturing sector’s competitiveness on the world stage.

Relative to other popular manufacturing and sourcing locations such as China, Thailand, Vietnam and Malaysia, India’s transportation and power supply networks lag behind regional standards and often result in higher supply chain and logistics costs. While many developed countries feature logistics costs at around seven to eight percent of national GDP, Indian logistics costs currently hover around 13-14 percent.

Improving India’s highway infrastructure through development programs such as the NHIIP and National Manufacturing Policy (NMP) is expected to increase India’s manufacturing competitiveness in the long-term

Aiming to increase the manufacturing sector’s GDP share from around 15 percent today to 25 percent by 2020, India’s NMP outlines a roadmap for streamlining regulations while improving core infrastructure such as railways, roads and ports.

Manufacturing competitiveness isn’t the only thing India’s inadequate infrastructure has harmed in recent years, however. With the country’s e-commerce market often cited among the most promising in Asia, issues with the transportation and delivery of goods continues to hinder the growth and efficiency of online retailers operating in the country.

Dominated by a handful of domestic retailers, skyrocketing consumer spending in India has thus far outpaced improvement to product delivery systems and methods.

Earlier this year, e-commerce giant Amazon.in invested in efforts to bypass India’s underdeveloped road infrastructure by launching a new delivery scheme featuring kiranas, or small neighborhood convenience stores.

With this delivery scheme, customers will soon be able to pick up orders from local kiranas in the case of failed delivery, or if a customer opts for the delivery of goods to a kirana collection point rather than a home address.

As India continues to invest in improvements to its infrastructure, the nation’s economy will inevitably reap the dividends.

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