No More Private Capital, India Pays for its Highways image

India will have to pay for its highways as the 14-year private capital funding contract for the construction of major roads will end.

The Indian government will offer state-funded highway contracts worth $2.3 billion by the end of March after builders have been left in the impossibility to find bank loans. Until now India has been relying on construction companies to offer loans for the new roads, which were to be repaid from income including toll fees.

But the end of private bids has left India traffic worse than ever, with trucks taking 65 hours to travel the distance of 1, 374 kilometers (854 miles) between Mumbai and New Delhi, leaving fruits and vegetable rot until they are brought to the market. This year about 3.5 million cars and trucks will be sold in India.

“There is no way we can achieve the target for road building unless the government figures out some way of funding it,” said Manish Saigal, a partner for transport and logistics at KPMG in Mumbai. “Liquidity has been a serious problem.”

Since April 1st only 600 kilometer-lanes of projects have been accessed, compared with 8,800 kilometers the full-year target. Until this year construction companies were paying the government to get approval to build and operate roads, confident that that they would make a profit on the contracts. In the year ended March 31st India won payments for more than 32 projects.