ICRA: Maharashtra And UP To Drive State Led Capex In Road Sector Over Next Three Years
The state-led road sector capex is expected to witness robust growth over the next three years supported by several expressway projects launched/announced by the states of Maharashtra and Uttar Pradesh. In Maharashtra, the estimated spend in case of Nagpur-Mumbai expressway alone is Rs. 35,000 crore over the next three years in addition to proposed road improvement programme through hybrid annuity mode. Similarly, in UP, for Purvanchal and Ganga expressways together the estimated spend over the next three years is around Rs. 20,000 crores . ICRA estimates the state level spend on roads to increase at a CAGR of 22% from current levels of Rs. 96,000 crore in FY2019 to Rs. 1.43 lakh crore by FY2021.
Elaborating on capex outlay by states and centre, Mr Shubham Jain, VP & Group Head, Corporate Ratings, ICRA said, “Historically, the cumulative spend by the state governments on roads was much higher than the central government spend on national highways. Most of it went unnoticed because of low proportion of public-private partnership projects, wide dispersion across various geographies/ authorities and most of these contracts were smaller in terms of value which were lapped up by the local EPC contractors.”
This had witnessed a trend reversal in FY2018 when GoI approved the new highway development programme (including Bharatmala Pariyojana Phase-I) in October 2017 which involves national highway development of around 83,000 km by FY2022. After the National Highways Development Project (NHDP), Bharatmala Pariyojana is the largest road development programme to be undertaken by GoI. The estimated fund requirement for the development of NHs under the new programme is about Rs. 6,92,324 crore, up to FY2022. Consequently, this led to increased outlay by the centre from FY2018 onwards.
In terms of capital allocation for the road sector by the states, the top five states are Uttar Pradesh, Tamil Nadu, Maharashtra, Karnataka and Odisha which together accounted for 53% of the aggregate spend in the sector, across all the states. On average, these states have deployed around 27% of the development capital outlay towards roads and bridges. Among non-special category states, Chhattisgarh and Jharkhand are the two top states in terms of the proportion of development outlay (around 35%) deployed towards road asset creation while Telangana and Andhra Pradesh are the laggards with less than 10% of development capital allocation.
State highways (SH), along with the major district roads (MDR), constitute the secondary system of road transportation in the country and are developed and financed by state governments. SHs provide links with NHs, district headquarters of states and important towns, tourist centres and minor ports. The total length of SHs at present is about 166,000 km accounting for about 4% of the total road network and carry 25% to 30% of the total road traffic.
However, states have a lot of catch up to do. “About 65% of these have less than the minimum desired two-lane carriageways which indicate the egregious status of this network. SHs and MDRs were majorly neglected in the past. A transport network is only as strong as its weakest link. Consequently, these roads that connect with newly expanded NHs create bottlenecks with congestion repercussions across the wider network. Many states have realised this and started taking development/ improvement of SHs and MDRs on priority. Road construction activity has deep linkages with the rest of the economy of the state with a strong multiplier effect and significant positive externalities underscoring the significance of the sector”, Mr Jain added.