The idea of giving an outright grant of up to 40 per cent of the project cost will, if implemented, properly with a set of pre-defined objectives that clearly sets out the criteria for such grants, help make road projects more attractive to financiers at the outset. This is because whereas sops like real estate development are long-term as it takes a long time to realise land values, project grants are available up-front and make road building commercially attractive.
The governments move to cap toll rates on existing roads which are being widened to four lanes while keeping toll rates on new expressways out of this cap is also a sensible move. As is extending the tax holiday benefits from 12 to 20 years as road project revenues through tolls only pick-up after a period of time when users are convinced that they are getting a tangible benefit from using toll roads. Giving 99-year leases for real estate development will also help make projects more marketable as returns on land will only accrue over time.
But incentives are only one part of the equation. Without a concurrent effort to focus on specific projects, these significant policy changes may not amount to very much. Not a single new highway project has reached financial closure yet.
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What the government has to do now is streamline procedures in this sector. In this new environment, specific government agencies have to be given distinct responsibilities as regulators, promoters and operators. The ministry of surface transport has to redefine its role to set the policy and regulatory framework which allocates responsibilities for the parties involved, and within which the private sector can operate. This not only includes defining clear procedures for competitive bidding of projects but also to guide projects and their promoters through the maze of clearances needed, which, in turn, need to be simplified and brought under one window. Environmental clearances, which have been responsible for holding up many bridge and road projects, is one area where a lot needs to be done urgently to ensure that projects do not get stuck for years on end. The National Highways Authority of India which was given Rs 500 crore as capital in the last budget should also be stirred into action. There is an
urgent need for these bodies, in consultation with the state government, to ensure that the focus is on specific projects henceforth. For instance, projects which have been identified by the Cabinet Commitee for Infrastructure chaired by the prime minister have yet to get to the bidding state.Unless that is done, it is unlikely that the impressive incentive package announced last week will actually result in more roads being built in the country. And while the incentives will help, the government must push ahead and get rid of the rest of the road blocks.