July 17, 2015 / 2:20 AM / 2 years ago

Modi takes the wheel as India's road building stimulus bogged down

Indian Prime Minister Narendra Modi attends a meeting at the BRICS and the Shanghai Cooperation Organization (SCO) summits in Ufa, Russia, July 8, 2015. REUTERS/Ivan Sekretarev/Pool

NEW DELHI (Reuters) - Indian Prime Minister Narendra Modi’s top civil servant hauled road builder KMC Constructions into his office last week, along with a state bank and officials, and set an October deadline to finish the Pink City Expressway linking Delhi and Jaipur.

It looks a tough ask. The 225 km (140 mile) highway is still missing seven bridges, several stretches need to be widened to the projected six lanes, and miles of land have not yet been acquired. The road should have opened three years ago.

The journey from the capital to the rose-hued sandstone tourist town can take six bumpy hours and is a symbol of the challenges Modi faces to kick-start Asia’s third-largest economy.

Frustrated by hold-ups in way-behind-schedule projects the government thought it had fixed, Modi’s office is now itself leaning on contractors and banks whose estimated $49 billion in bad loans - much of it to infrastructure projects - are blamed for suppressing the investment cycle.

Modi placed a $12.6 billion bet in this year’s budget on road building, with $16 billion more to be spent on railways, looking to create jobs and boost economic capacity. To help pay for the modernization of decrepit roads and rail, Modi is reining in spending on health and welfare programs for the poor - so the stakes are high.

But a handful of troubled mega-projects like the Pink City Expressway are proving to be stubborn roadblocks.

“The investment cycle has not picked up since the government came in,” said Mahesh Vyas, managing director at research group Center for Monitoring Indian Economy (CMIE). “Making a premium in the budget is one thing. You have to go and spend it.”

The transport ministry has already burned through $2 billion since April as it races to invest the $6.8 billion of government spending it has been allocated this year. Yet this has not fed through to a marked increase in new road building, with much of the money earmarked for cash-crunched developers.

At last week’s meeting, Principal Secretary Nripendra Misra demanded results for five road projects that cars were supposed to be driving down years ago, two people with knowledge of the meetings told Reuters.

The Prime Minister’s Office did not respond to a request for comment.

LAND DEALS

A drive last week along the newly-laid Delhi-Jaipur road that runs through some of India’s most important industrial zones quickly ground to a halt as cars were forced down rutted service lanes that bypassed half-built bridges.

Work on the highway restarted late last year after a government threat to cancel the contract prompted the lenders, led by state-run IDBI Bank, and the developer to agree a loan restructuring, but there is still a shortage of land to finish the job.

“If land is given, we will finish the project. Today, six-laning is completed on the land we have,” said Shashank Shekhar, a senior executive at KMC.

There are some signs of progress. Two hours before the meeting at the prime minister’s office, the state government approved building on a roughly 16 hectare (39.5 acre) chunk of land - five years after KMC first requested permission.

But close to 20 large projects remain mired in huge debts, land shortages and red tape, and the government needs private funding to bolster its public investment in infrastructure if it is to meet ambitious road building targets this year.

In the past year the government has terminated the contracts for at least five roads and withdrawn rights for the developers to continue construction on a further 30, according to data from the highways agency seen by Reuters.

“We have canceled many projects. Every second day we cancel a project,” said V. Chhibber, the top official in the transport ministry. “Somebody will have to carry the can, but the government’s not going to carry the can.”

Chhibber said he was confident the ministry, already the biggest spending department since April, could spend the money allocated to it and construct at least 6,000 km of roads by the year-end.

He said the number of stalled projects had come down from 100 when Modi’s government came to power in May last year, but he acknowledged more needed to be done to speed up building, with land acquisition a “major hurdle”.

In India’s south, for example, a 43 km road connecting manufacturing hub Chennai to a nearby state is still missing 40 percent of the required land - almost four years after it was due for completion, a person with knowledge of the project said.

Later this month, Modi will again try to get a controversial bill through parliament to ease land acquisition rules.

Between April and June, 496 kms of new roads were completed by the national highways agency, up from 359 kms last year, but the third lowest rate since 2008, official data shows.

The government, which builds some roads without the help of the highways agency, has awarded 1,600 kms of roads out of a planned 10,000 kms this year.

“If every project requires to go through the PMO (Prime Minister’s Office), then there’s something wrong with the way we have set up our system,” said Vyas at the CMIE.

Additional reporting by Devidutta Tripathy in MUMBAI; Editing by Frank Jack Daniel and Ian Geoghegan

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