2. ROAD AND HIGHWAYS
Sector Overview
India’s road network of 3.34 million km is the second-largest in the world. Out of this,
national highways account for 65,569 km, state highways for 130,000 km, and major district
roads, rural and urban roads collectively account for 3.14 million km, as per statistics with the
Ministry of Road Transport and Highways.
According to the ministry, roads remain the most important means of transport, accounting
for 85% and 65% of passenger and freight traffic, respectively, in India. Broadly, the road
network in India is divided into the primary system comprising national highways and the
secondary system made up of state highways and major district roads. In addition, the
network comprises expressways as well as rural and other roads.
National highways account for a mere 2% of the total road length, but carry 40% of the total
road traffic. Between 2006 and 2009, the national highway network increased by 4,000 km
and the state highway network increased by 170,000 km. Of the total length of the national
highway network, about 27% is single-laned or intermediate-laned, 54% is two-laned and
19% is four-laned. The Ministry of Road Transport and Highways is planning to seek credit
worth USD 2.96 billion from the World Bank for the conversion of single-laned,
intermediate-laned and two-laned roads covering a total length of about 3,770 km. The
project is scheduled for completion in 2014. The state highways and major district roads
carry 40% of total road traffic and constitute 13% of India’s total road length.
The 11th Five-Year Plan (2007–2012) has projected an investment requirement of USD
8,613.95 million for the development of rural roads under the PradhanMantri Gram
SadakYojana.
Policy and Promotion
The government provides various incentives for private and foreign sector investment in the
roads sector. 100% foreign direct investment (FDI) under the automatic route is allowed for
support services to land transport such as operation of highway bridges, toll roads, and
vehicular tunnels; services incidental to transport such as cargo handling is incidental to land
transport; construction and maintenance of roads, bridges; and construction and maintenance
of roads and highways offered on build-operate-transfer (BOT) basis, including collection of
toll.
Highway-widening projects qualify for the 10-year tax break under Section 80 IA of the
Income Tax (IT) Act. Other policy initiatives for attracting private investment are
3. government to provide capital grant up to 40% of project cost to enhance viability on a case-to-
case basis, 100% tax exemption for five years and 30% relief for next five years, which
may be availed of in 20 years and concession period allowed up to 30 years.
FDI in construction activities (including roads and highways) sector from April 2000 to July
2011 in India was USD 9.3 billion. This amounted to 6.4% of the total FDI inflows,
according to data released by Department of Industrial Policy and Promotion (DIPP), which
formulates the FDI policy and is part of the Ministry of Commerce & Industry.
With the government permitting 100% FDI in the roads sector, most foreign investors in the
Indian roads sector have formed consortiums with Indian companies to participate in the
development of road projects in the country. As a result, construction companies are now
being rewarded with large order books and portfolios of BOT projects.
In addition to the policy benefits, the government has announced several incentives to attract
private sector participation. These include government to bear the cost of the project
feasibility study, land for the right of way and way side amenities, shifting of utilities,
environment clearance, cutting of trees, etc; duty free import of high capacity and modern
road construction equipments; declaration of the road sector as an industry; easier external
commercial borrowing norms; right to retain toll; increase in the overseas borrowing amount
of infrastructure sectors to USD 500 million from USD 100 million; and full exemption from
basic customs duty to bio-asphalt and specified machinery for application in the construction
of national highways.
The ministry has also framed a ‘Special Accelerated Road Development Programme in North
Eastern Region’ for improving road connectivity to remote places in this region. The
estimated cost of the proposal is USD 2.53 billion. The Union Budget 2012–13 proposed an
increase of allocation of the Ministry of Road Transport and Highways by 14% to Rs. 25,360
crore.
Further, the World Bank has approved a USD 975 million loan for developing the first phase
of the eastern arm of the USD 17.21 billion Dedicated Freight Corridor Project in India. The
Dedicated Freight Corridor Corporation of India Ltd. has tied up with the Japanese Bank of
Industrial Cooperation for USD 14.56 billion funding as loan for the first phase and it is
likely to be commissioned in 2016.
The World Bank and the Government of India have also signed a USD 350 million loan to
accelerate the development of road network through the Second Karnataka State Highway
Improvement Project. The Government of Karnataka has demarcated about 25,000 km of the
most important traffic corridors and designated them as the state’s core road network. Also, a
USD 301.38 million-worth project, ending 2016, for construction, upgradation and
improvement of 433 km-long road in six north-east states, assisted by the Asian Development
Bank, has been approved by the Cabinet Committee on Economic Affairs.
4. The Ministry of Road Transport and Highways had planned to award road projects covering
10,000 km of highways in 2011–12. About 80% of these road projects will be distributed on
the BOT basis.
The Prime Minister Gram SadakYojana (PMGSY) is a scheme for development of rural
roads in India. The Construction of Rural Roads Project (CRRP) is another initiative focused
on rural development.
Major Players
Some of the foreign investors that have entered into road and highway construction are
IsoluxCorsán, Vinci, Lighteon of Australia and a few Russian, Chinese, and Malaysian
companies.
IsoluxCorsán has entered into a joint venture with the Morgan Stanley Infrastructure fund
(MSI), to jointly invest USD 400 million to develop new road infrastructure projects. Under
this agreement, the company is building three toll roads within the framework of long-term
concessions awarded as part of the BOT programme established by NHAI, whose programme
for developing the Indian road network is amongst the largest PPP projects in the world; it
was started in 1999 and is expected to cost nearly USD 50 billion by the time it is completed.
The major domestic private sector companies working in the Indian road sector are DS
Construction Ltd., GMR Infrastructure Ltd., Hindustan Construction Company, Larsen &
Toubro Ltd., Ideal Road Builders Infrastructure Developers, Gammon Infrastructure Projects
Ltd. and Soma Enterprises Ltd.
Sector Outlook
The growth potential of the roads sector is tremendous in India with a fast-growing economy
and a rising need for world-class infrastructure for better road connectivity. According to the
ministry’s data, traffic on roads is growing at a rate of up to 10% per annum, while vehicular
population growth is nearly 12% per annum. This spells out the need for fast growth of the
roads network in the near future.
The Government of India plans to construct 35,000 km of highways by 2014 under the
National Highway Development Programme at an investment of USD 60 billion. Moreover,
according to the Planning Commission’s revised estimates, funds worth USD 58 billion are
likely to be invested in the road sector in the 11th Plan. The ministry has also recommended a
total expressway network of about 18,637 km in the country for the unhindered, high-speed
and safe movement of traffic. Construction work on the country’s expressways will be
initiated in three phases and is scheduled for completion in 2022. All this is also likely to
result in increased opportunities for private players, as more projects will be awarded under
the PPP mode.
5. Many states, including Andhra Pradesh, Gujarat, Tamil Nadu, Karnataka, Uttar Pradesh,
Rajasthan and Madhya Pradesh, have formulated policies and established PPP cells to
facilitate private sector participation in key road projects. The Delhi-Noida toll bridge, the
Ahmedabad-Mehsana, Vadodara-Halol toll road, the East Coast Road and the Bangalore-
Mysore State Highway (Phase I) are examples of completed PPP projects.
Private sector participation is increasing with the rising trend of awarding projects on toll and
annuity basis. For instance, during March 2010, about 10 mega highway projects, spanning
5,000 km, have been identified, which will be awarded to private developers over the next
two years. These projects are worth USD 9.3 billion and will be based on a revenue-sharing
model.
Authorities responsible for different categories of roads are:
Category of Roads Authorities responsible
National Highways Central Government (through Ministry of Road
Transport and Highways)
State Highways and
Major Highways
State Governments (PWDs)
Rural Roads and
Urban Roads
Rural Engineering Organisations,
Local Authorities like Panchayats and
Municipalities
NATIONAL HIGHWAYS
Ministry of Road Transport and Highways is responsible for development &
maintenance of National Highways.
The total length of National Highways in the country at present is 65,569 km
This comprises only 2 per cent of the total road network, but carries over 40 per cent
of the total traffic.
National Highways Development Projects (NHDP)
6. Project Length
(In
Km)
Target date
of
Completion
NHDP Phase-I
(i) GQ
(ii) Port Connectivity &
others
5846
1133
Dec., 2005
Dec., 2007
NHDP Phase-II
(i) N-S Corridor
(ii) E-W Corridor
7300 Dec., 2007
NHDP Phase-III 10,000 Dec., 2012
In order to give a boost to the economic development of the country, the Government had
embarked upon a massive National Highways Development Project (NHDP) in the country.
Under the first two phases of the project i.e. NHDP Phase-I & NHDP Phase-II, about 14,279
km length of National Highways are proposed to be upgraded to 4 or 6 lane at a total
estimated cost of Rs. 64,639 crore. National Highways Authority of India (NHAI) is
implementing this.
NHDP (Phase-I & II) has the following components:
Project Length(InKm) Cost(Rs. in
Crore)
NHDP Phase-I & II
(i) GQ
(ii) N-S Corridor
(iii) E-W Corridor
(iv) Port
Connectivity &
others
5846
7300
1133
64,639
Golden Quadrilateral (GQ) comprising, National Highways connecting four metro
cities having total length of 5846 km. Golden Quadrilateral is targeted for substantial
completion (92%) by December 2005.
7. North-South and East-West Corridors comprising the National Highways connecting
Srinagar to Kanyakumari including Kochi-Salem spur and Silchar to Porbandar. The
total length of the corridors is about 7300 km. The North-South and East-West
Corridors is targeted for completion by December 2007.
Apart from above the National Highways Authority of India is also implementing four
laning of 356 kms of Port Connectivity for 10 major ports of the country and 777
km length of other important National Highways. These are targeted for completion
by December 2007.
NHDP Phase-III
NHDP Phase-III Length
(In Km)
Target date of
Completion
NHDP Phase-III A
NHDP Phase-III B
4000
6000
Dec. 2009
Dec. 2012
This programme, being implemented by the National Highways Authority of India
(NHAI) envisages four-laning of about 10,000 km of existing National Highways
(other than NHDP Phase –I&II) and is proposed to be undertaken on BOT basis.
NHDP phase-III will provide connectivity to important places not covered under
NHDP Phase-I&II. This includes connectivity of numbers of State Capitals with
NHDP Phase-I&II, high-density corridors, places of tourist and economic importance
etc.
NHDP Phase III-A.
Government have approved 4/6 laning of 4000 km on BOT basis and preparation
of DPRs of the balance 6000 km in first phase and targeted to be completed by Dec
2009.
NHDP Phase III-B
In the 2nd Phase 4/6 laning of balance 6000 km will be taken up and completed
by Dec. 2012
BOT bids for 6 projects covering 507 km have been awarded. BOT bids for
another 10 projects covering 554 km length have been invited.
8. Development of National Highways other than NHDP (Phase I & II)
Apart from National Highways Development Projects (NHDP) there are about 41290
km of National Highways whose development and maintenance is being carried out
from the funds available from Budget.
Development works like Improvement of Riding Quality, widening to 2/4 lane,
strengthening, construction of bypasses and rehabilitation/construction of bridges etc.
have been undertaken for these National Highways.
These sections of National Highways are being executed by the respective State
PWDs and Border Road Organisation (BRO) on agency basis.
Projects on road development have also been taken up in various parts of the country
with the assistance of World Bank, Asian Development Bank (ADB) and Japan Bank
for International Cooperation (JBIC).
Private Sector Participation
With a view to further augment flow of funds to the sector and to encourage private
sector participation in the road sector, several initiatives have been taken by the
Government which includes:
Declaration of the road sector as an industry;
Provision of capital grants subsidy upto 40% of project cost to enhance viability of the
projects on case-to-case basis.
Duty-free import of certain identified high quality construction plants and
equipments;
100% tax exemption in any consecutive 10 years out of 20 years;
Provision of encumbrance-free site for work, i.e. the Government shall meet all
expenses relating to land and other pre-construction activities;
Foreign direct investment upto 100% in road sector;
Easier external commercial borrowing norms;
Higher concession period, upto 30 years;
Right to collect and retain toll.
BOT Projects
Ministry has so far taken up 32 numbers of projects valued about Rs.4692.31
crore on Build, Operate and Transfer (BOT) basis (Toll based projects).
9. Out of this, 22 numbers of projects have been completed and 10 numbers of
projects are in progress.
Annuity Projects
The major roadblock to Private Sector Participation is recognized as huge upfront
capital investment and high risks of revenue collection, which sometimes deter the
investors to come to this sector. To address the issues, apart from giving several
incentives, the Government has decided to offer some projects on annuity basis.
8 numbers of projects valued about Rs. 2354 crore have already been awarded on
annuity basis and are in progress.
Special Purpose Vehicles (SPV)
The NHAI has also formed Special Purpose Vehicles (SPV) for funding road projects.
SPV’s are separate legal entities formed under the Companies Act 1956.
12 numbers of projects valued about Rs. 2266 crore have been identified under SPV
funding.
5 numbers of projects amounting to Rs. 923 crore have been completed so far under
SPV.
7 numbers of projects valued about Rs.1343 crore are in progress on SPV funding
basis.
New initiatives
Special Accelerated Road Development Programme in the North Eastern Region
This Ministry has framed a "Special Accelerated Road Development Programme in
North Eastern Region" for improving road connectivity to remote places of this
region.
It envisages 2/4 laning of about 3251 km of National Highways.
2 laning/improvement of about 4388 km of State roads.
The estimated cost of the proposal is Rs.12,123 crore
Budgetary support of Rs.9952 crore
Rs.2171 crore is proposed through private sector participation.
No foreign assistance is sought for this purpose. This proposal is in the process for
approval. The programme is under active consideration of Government.
The works to be executed under this proposal is targeted for completion within 7
years from date of commencement.
10. Central Road Fund
In 1998-99 to meet the challenges of accelerated funding requirement for all
categories of roads in the country. Union Budget had provided for levy of additional
excise duty and additional custom duty of Re.1 per litre of petrol.
Subsequently, in the Union Budget for the year 1999-2000, an additional duty of Re.1
per litre of high-speed diesel was also levied.
The then Hon’ble Finance Minister, during his budget speech for the year 2003-04,
has announced additional levy of cess of 50 paise per litre each on petrol and high-speed
diesel.
The revenue generated from the cess would be used to finance all categories of roads.
This fund has been given a statutory status by Central Road Fund Act enacted in
December 2000.
Allocations from this fund are being made in the following manner:-
Category of Road Share of fund
i) Rural roads 50% of cess on HSD
ii) National Highways
and other roads
50% of cess on HSD
+ entire cess on
petrol
50% of the cess on high speed diesel oil for development of rural roads.
50% of cess on HSD and the entire cess collected on petrol are being allocated as per
the following:-
An amount equal to 57.5% of such sum for the development and maintenance of
National Highways;
An amount equal to 12.5% for construction of road under or over bridges and safety
works at unmanned railway crossing; and
An amount equal to 30% on development and maintenance of State Roads. Out of this
amount, 10% shall be kept as reserved by the Central Govt. for allocation to States for
implementation of State Road Schemes of Inter-state and economic importance to be
approved by the Central Government.
Distribution of Central Road Fund earmarked for all roads
other than Rural roads
11. 57.5% for the development and maintenance of National
Highways
12.5% for construction of road under or over bridges and
safety works at unmanned railway crossing
30% development and maintenance of State Roads. Out of
this amount, 10% shall be kept as reserved by the
Central Govt. for allocation to States for
implementation of State Road Schemes of Inter-state
and economic importance to be approved by the Central
Government
It has also been decided to levy additional cess of 50 paise per litre on petrol and
diesel for the year 2005-06 which will be exclusively used for National Highways.
Economic importance and Interstate connectivity schemes (EI & ISC Schemes).
The scheme has now been regulated in accordance with revamped Central Road Fund
scheme as per Central Road Fund Act 2000 passed in Dec. 2002
The scheme provide following funding pattern:
100% grant for Road/bridge projects of Inter State Connectivity
50% grant for projects of Economics Importance
Broadly the following categories of road/bridge projects will be eligible for
consideration:-
Inter-State roads/bridges necessary for ensuring through communication.
Roads/Bridges connecting National Highways.
Road/Bridges required for opening up new areas for economic growth where railway
facilities cannot be provided in near future.
Roads/Bridges which would contribute materially to rapid development e.g. in hilly
areas and areas having rich mineral resources for exploitation.
The Ministry has so far accorded in principle approval to :
81 numbers of proposals amounting to Rs. 402.62 crore under Economic
Importance.
116 numbers of proposals amounting to Rs. 521.24 crore under Inter-State
Connectivity scheme.
12. An amount of Rs. 170.59 crore (Rs. 162.09 crore for the States and Rs. 8.5 crore for
UTs) is earmarked for this purpose during the year 2005-06
Other Activities of DORT&H
Nodal Ministry of roads sector for guiding different states for construction and
maintenance of quality roads by issuing technical circulars related to different aspects
of Highway Engineering and Practice.
Prepared specification for Road and Bridge Works, standard drawings for various
types of bridges, culverts and junctions.
Actively involved with International Organisations like World Bank, Asian
Development Bank, Japan Bank for International Co-operation for upgradation of the
technology and decision making process.
Involved in active co-operation in the field of developing Highway linkages like
Asian Highways. This requires continuous interaction with organisations like ESCAP,
BIMSTEC etc.
Signed Memorandum of Understanding with its counterparts in USA, Malaysia and
France for co-operation in the areas of Highway Engineering.
This Ministry also has administrative responsibilities for its Associated Offices (such
as NHAI, NITHE etc).
ENTRY MODES
To do business in India, following options are available to foreign companies:
Setting up a non-corporate entity
Liaison office: A liaison or a representative office can be opened in India subject to approval
by Reserve Bank of India. Such an office can undertake liaison activities on its company’s
behalf. A liaison office can also undertake:
Representing parent/group companies in India
Promoting import/export in India
Promoting technical/financial collaborations on parent company/group’s behalf
Coordinating communications between parent/group companies and Indian companies
13. Branch Office: Foreign companies can conduct their business in India through its branch
office which can be opened after obtaining a specific approval from Reserve Bank of India. A
branch office can undertake following activities:
Import & export of goods
Rendering professional or consultancy services
Carrying out research work in area which its parent company is engaged
Promoting technical/financial collaborations on behalf of parent company/ overseas group
company
Representing parent/group companies in India and acting as buying/selling agent in India
Providing IT services and developing software in India
Providing technical support for products supplied by parent company/group
Project office: If a foreign company is engaged by an Indian company to execute a project in
India, it may set up a project office without obtaining approval from Reserve Bank of India
subject to prescribed reporting compliances. As applicable in case of a branch office, a
project office is treated as an extension of foreign company and is taxed at the rate applicable
to foreign companies.
Setting up a corporate entity
Wholly owned subsidiary: Foreign companies can set up wholly owned subsidiary
companies in India in form of private companies subject to FDI guidelines. A wholly owned
or a subsidiary company has the maximum flexibility to conduct business in India when
compared with a liaison or branch office and has following salient features:
Funding can be done via equity, debt (foreign as well as local) and internal accruals
Indian transfer pricing regulations apply
Repatriation of dividends is allowed without approvals
Joint Venture with Indian partner: Foreign companies can also set up joint venture with
Indian or foreign companies in India. There are no separate laws for joint ventures in India
and laws governing domestics companies apply equally to joint ventures.
Foreign Institutional Investors: FII’s can invest in India in financial markets such as
pension funds, mutual funds, investment trusts and asset management companies or their
power of attorney holders. FII’s can invest in all securities in primary and secondary markets
including the equity and other instruments of companies which are listed or are to be listed on
stock exchanges of India.
14. ENTRY PROCEDURE
Set up process
Liaison office: Setting up of a liaison office requires prior approval from Reserve Bank of
India (RBI). Approval is usually granted for a period of three years and can be renewed
thereafter.
Branch office: A prior approval from RBI is required. RBI closely examines the proposed
activities to be carried out in India.Subsequently, a certificate of establishing place of
business in India is required to be obtained from Registrar of Companies.
Project office: In specified cases, a project office is allowed to be set up under automatic
route otherwise a prior approval is required from RBI. As in case of branch office, a
certificate of establishing place of business in India is required to be obtained from Registrar
of Companies.
Incorporation of a company
For registration and incorporation, an application has to be filed with Registrar of Companies.
Once a company has been registered and incorporated in India, it is subject to laws and
regulations as applicable to other domestic companies in India.
There two types of companies which can be incorporated:
Private company: A private company is a company which has minimum of two members
and a minimum paid up capital of Rs. 100,000 or a higher paid up capital as may be
prescribed. By its articles, a private company has to:
Restrict rights to transfer its shares, if any
Limit its shareholders to a number of fifty
Prohibit any invitation to public to subscribe any of its shares or debentures of the
company
Prohibit any invitation to acceptance of deposits from any person other than its members,
directors or their relatives
Public company: A public company is defined as a company which is not a private
company. A subsidiary of a public company is also treated as a public company. A public
company is required to have a minimum paid up capital of Rs. 500,000 with a minimum
seven members and three directors. Maximum number of directors is 12 but can be increased
subject to government approval.
15. Incorporation procedure:
Following steps are required to incorporate a company:
Obtaining DIN (Director Identification Number)
Applying for name availability
Drafting Memorandum of Understanding (MOU) and Articles of Association (AOA)
Court stamping of MOU and AOA
Signing of MOU and AOA by first subscribers
Filing with Registrar of Companies (ROC)
Vetting of MOU and AOA by ROC
Obtaining certificate of incorporation
Immediate Business compliances:
Following registrations would be required to be done, depending on nature of business:
PAN (Permanent Account Number): All income tax payers are required to obtain an
income tax registration number i.e. PAN
TAN (Tax Deduction Account Number): While running a business, certain payments will
require the payee to withhold tax. A new business is required to obtain Tan from income
tax department.
Service tax: A person/company providing specified services needs to obtain service tax
registration within 30 days of providing the services.
VAT (Value Added Tax): VAT is levied on sale of goods. Any business proposing to
carry out a works contract or trade in goods needs to register for VAT.
Excise registration: Excise is an indirect tax levy on manufacture of goods.
FRRO (Foreigners Regional registration Office): Foreigners coming to India on
employment need to register with FRRO within 14 days of their arrival.
IEC (Import Export Code): Prior to carrying out any export or import activities, it is
mandatory to obtain an IEC from Directorate General of Foreign Trade.
Sources
http://www.investindia.gov.in/roads-and-highways-sector/
http://www.ibef.org/industry/roads-india.aspx
http://www.nhai.org/doc/28Oct09/NHAI-Final.pdf
http://www.performance.gov.in/sites/default/files/departments/road-transport/2013-
14.pdf
http://www.makeinindia.com/sector/roads-highways/
http://www.cfr.org/india/governance-india-infrastructure/p32638
http://www.oifc.in/infrastructure