India to launch pay-by-instalments plan for road construction

India has adopted a new form of public-private funding to encourage construction firms to invest in the building of roads.  

Under the plan, the government’s National Highways Authority will provide 40% of the construction cost, with the balance coming from the successful bidder. 

According to Pon Radhakrishnan, junior minister for road transport and highways, the consortium building the highway would then get payments from the government every six months for a period of 15 years.  

The government of India sees its transport network as drag on economic development: potholed roads, an inefficient railway network and poor connectivity have increased the time, cost and risk of doing business.  

This is partly the legacy of underinvestment, with previous governments curtailing infrastructure spending when they wanted to narrow the fiscal deficit. Under Prime Minister Narendra Modi’s brisk approach to government, some $11bn will be invested in infrastructure during the next financial year. 

The government’s initial capital investment under this model would be lower than a traditionally tendered state project, and the successful bidder’s debt burden would also be less than with public-private models seen elsewhere. 

The annuity and operations and maintenance payments would be inflation-adjusted and the  highway authority would pay the interest on the reducing balance and offer 2% more than the bank rate.  

The ministry has identified 13 highway projects of 1,093km that will be implemented under this model and expects to call for bids in April. 

Photograph: A logistics highway near Delhi (Source: Ian Brown/Wikimedia Commons)