Slowdown hits the road sector — toll revenues set to fall, Bharatmala costs could shoot up

Rating agency India Ratings and Research has painted a bleak picture of India’s road sector, revising the outlook from ‘stable’ to ‘stable-to-negative’.

Representational image of an Indian national highway | Commons

New Delhi: The slowdown in the economy will not only hit toll revenue, but also result in a 55 per cent cost overrun in Bharatmala, the Narendra Modi government’s ambitious programme to develop 34,800 km of highways, according to rating agency India Ratings and Research.

The agency also revised its outlook for the sector to ‘stable-to-negative’ from the earlier ‘stable’. This, it says, is “due to subdued funding climate, economic growth-led deceleration in traffic volumes and uncertainty on the bidding model”.

India Ratings and Research has said in its mid-year outlook for the road sector that overall toll revenue could be impacted significantly if the slowdown continues.

“Broadly, growth in toll revenue will be in the range of four to five per cent for the remainder of the financial year 2019-20, as against eight to nine per cent in FY 2018-19,” said Vishal Kotecha, associate director, India Ratings and Research (Fitch Group).

Graph: Arindam Mukherjee | ThePrint

Kotecha said the slowdown has reduced traffic. “Because of decline in traffic growth, toll collection has been impacted,” he said.

The weakening of financing sentiments and a sharp rise in land acquisition costs exert stress on the central budget, and could compel the government to rethink the bidding model. The Ministry of Road Transport and Highways’ effort to offer opportunities through new models such as ‘toll-operate-transfer’ and the rejuvenated ‘build-operate-transfer’ would garner participation, contingent on addressing issues in the earlier concession arrangement.

Bharatmala to miss 2022 target 

The ambitious Bharatmala Pariyojana is expected to see a 55 per cent cost overrun, with awarding activity not to be completed before FY 2023-24. It’s likely to cost Rs 8.3 lakh crore as against the budget of Rs 5.35 lakh crore, which the Modi cabinet had approved in 2017.

The delay, according to India Ratings and Research, is predominantly because of increase in cost of land acquisition and the economic slowdown in the last 18 months.

Under Bharatmala Phase-I, the government aims to develop 34,800 km of highways running through economic corridors around manufacturing hubs as well as borders, while also boosting coastal and port connectivity.

Silver lining

The only silver lining for road users is that they might not have to cough up hefty toll fees as compared to the last fiscal because the Wholesale Price Index (WPI) — which toll rates in India are indexed to — is around 1.9 per cent in 2019 as against 4% in previous years.

“This effectively means that the toll charges will be lower as compared to previous years,” Kotecha added.

Although road construction has increased 2.5 times over five years, it is expected to plateau due to dismal project award in FY 2019-20.