India Plans Biggest Highway Expansion With $12 Billion Projects

India will award 550 billion rupees ($12 billion) of highway construction projects this year, its biggest expansion, as the nation aims to remove infrastructure bottlenecks that hinder economic growth.

The 7,300 kilometer (4,536 miles)-project includes new expressways as well as widening of existing roads through the year ending March 31, J.N. Singh, finance chief of National Highways Authority of India, said in an interview in New Delhi. The state-run NHAI will pay for the acquisition of land required for the road construction, he said on June 2.

The agency plans to raise 120 billion rupees this year by selling bonds, Singh said, to partly fund the project that stretches a distance almost equivalent of London to Mumbai. NHAI is accelerating road construction as India aims to spend $1 trillion in the five years to 2017 to improve an infrastructure ranked worse than that in Sri Lanka and Botswana by the World Economic Forum’s Global Competitiveness Index.

The nation hasn’t met its target of building roads at a daily average of 20 kilometers, completing just 12 kilometers a day since April 2007, according to NHAI website. Acquisition of land for factories and highways have sparked rioting and stalled more than $100 billion of projects across India, according to the Associated Chambers of Commerce & Industry.

“The works we award now will get us to the target of 20 kilometers a day in three years,” Singh said. Building one kilometer of a six-lane highway needs an investment of 130 million rupees, he said.

Caterpillar, Terex

NHAI, responsible for implementing the highway development program, gets part of its money from a levy on the sale of gasoline and diesel, toll collection and sale of bonds. It awarded 12,034 kilometers of road projects in the five years to March 2011.

Companies that win the contract will build roads and collect tolls for up to 30 years before transferring them to the state, Singh said. The nation’s push to upgrade its infrastructure has prompted heavy equipment makers such as Caterpillar Inc. (CAT) and Terex Corp. (TEX) to expand in India, where the economy expanded at an average pace of more than 8 percent in the last five years.

“Focus on road sector will directly boost gross domestic product and indirectly help manufacturing sector," said Kumar Ramesh, an analyst with Frost & Sullivan. "The involvement of private sector has significantly reduced delays in execution” of projects, he said.

India’s infrastructure is ranked 91 out of 139 nations by the World Economic Forum’s Global Competitiveness Index. Poor transport and other inadequate infrastructure could cost 1.1 percentage points of economic growth, or $200 billion in 2017, McKinsey & Co. said in a report in 2009.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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