HOW ARE HIGHWAYS CONSTRUCTED IN INDIA

Roads and Highways come under public infrastructure in India and hence highways come
under center and state. National highways are constructed by National Highways Authority of
India (NHAI) which is an autonomous agency of Government of India which was founded in
the year 1988

Under the National Highway Act, 1956 Government can declare any highway in Official
Gazette as National Highway and such a highway will come under the Central Government.

Under National Highway Act, 1956 if Government feels that any land is required for
maintenance, operation or management of National Highway it may notify in the Official
Gazette with a brief description of the land. The competent authority appointed under the said
act has to publish such notification in two newspapers one of them has to be in vernacular
language so that any person having any claim, right, title and interest can come forward.

After such notification, any lawful person by the Central Government can enter the said land
for inspection, measurement, for taking the value of the land, for checking the quality of soil
and for any other purposes as may be laid down in the rules by Central Government.

After which any person having any claim, right, title and interest can within 21 days from
publication of such notification in a newspaper has to approach the Competent Authority with
written objection and Competent Authority after hearing them may either allow or disallow
such objection and such order will be final.

After completion of 21 days of notification or after disallowing the objection the competent
authority has to submit a report to the Central Government. Central Government has to notify
such a report in the official gazette for which the land is to be acquired by the Central
Government and after the publication of such notification, the said land vests on the Central
Government free from encumbrances.

After such a notification if there is an owner of such land or any person who is in possession,
they have to surrender to the competent authority within 60 days of such notice. Central
Government has to pay the market value of the said land to such a person whose right to
enjoy such land is affected. As now the land vest on the Central Government and any person
authorized by Central Government can enter such a land.
Central Government may enter into an agreement for the development and maintenance of
such a highway with any person.

Traditionally roads and highways were constructed solely by Government but due to lack of
funds and demand for better connectivity of roads private entity have been given the entry to
bid and develop roads and highways. This reduces the burden of the Government which can
put its funds in education and healthcare. Hence the infrastructure has been commercialized.

The following incentives are announced by the Government to increase the investment
infrastructure: -

a) Government to bear the cost of

i) project feasibility studies
ii) land for the right of way and way-side amenities
iii) shifting of utilities and
iv)environmental clearance, cutting of trees, etc.
b) Foreign direct investment of up to 100% in the road sector.
c) Provision of subsidy up to 40% of the project cost to make projects viable.
d) 100% tax exemption in any consecutive 10 years out of 20 years after
commissioning of the project.
e) Duty – free import f high capacity and modern road construction equipment. f) Declaration
of the road sector as an industry. g) Easier external commercial borrowing norms.
h) Right to retain the toll; further toll rates can be revised based on the wholesale price index.

Once the Central Government acquires the land and decides to develop a highway there the
National Highway Authority of India (NHAI) invites bids for the construction of national
highways from a private entity. The National Highway Authority of India (NHAI) estimates
the project price after which there is a base price kept by the National Highway Authority of
India (NHAI) and the largest bid gets the project for the development of National Highway.
The contract period is usually between 12-18 years depending on the estimated traffic.

Like in 2011 Larson and Turbo won a major bid of Rs. 2,164 crores for upgrading National
Highway 8.

National Highways plays an important role in the economic development of the nation. The
NHAI also goes with Public-Private Partnership i.e. PPP which has high benefits like giving
the effectiveness of service, risks sharing, performance-based contracts and fastened work.
Public-Private Partnership model covers the deficiency of traditional public infrastructure by
bringing in new technologies.

Mostly in Public-Private Partnership, the Government provides the land which is free from all
encumbrances. The private entity funds and builds the highway. The ownership is with the
Government but the Concession right is given to the private entity. The NHAI accounts for
the largest number of PPPs executed by any one agency in the country. Public-Private
Partnership is preferred as private funds and be used by the Government.

The two models of the Public-Private Partnership adopted in India for the development of
National Highways are BOT (Toll) and BOT (Annuity).

(a) BOT (Toll) Model: In the BOT (Toll) model, the Concessionaire recovers his investment
by charging toll from the users of the road facility. This model reduces the fiscal burden on
the government while also allocating the traffic risk to the Concessionaire. This is the model
used for most of the projects and can be regarded as the default model for highway projects.

(b) BOT (Annuity) Model: Under a BOT annuity model, the Concessionaire is assured of a
minimum return on his investment in the form of annuity payments. The Concessionaire does
not bear the traffic risk and the Government bears the entire risk concerning toll income.

In March 2018, joint venture Macquarie Infrastructure and Real Assets (MIRA) an Australian
Company and Ashok Buildcon won the major bid in Andhra Pradesh and Gujarat for nine
highways. National Highway Authority of India (NHAI) had kept a base bid of Rs. 6,258
crores and Macquarie Infrastructure and Real Assets won the bid for an amount of RS.9,681
crores. Agreement was entered into by Macquarie Infrastructure and Real Assets (MIRA)
and National Highway Authority of India (NHAI) that Macquarie Infrastructure and Real
Assets (MIRA) can collect tolls for 30 years which is the new TOT scheme i.e. toll operate
transfer scheme under which any private operator who wins the bid has to maintain, collect
tolls for 30 years and transfer the roads back to the Government after 30 years after which
fresh auction will be conducted. This was the first TOT auction covering 698 km in Gujarat
and Andhra Pradesh. This is one of the largest Foreign Direct Investment in India.

Recently Singapore based Cube Highways and Infrastructure became the highest bidder for
566 km highways to be constructed across Utter Pradesh, Tamil Nadu, and Bihar.

The government has played an important role in developing infrastructure from Public-
Private Partnership to 100% FDI as roads and highways are important for the development of
our nation's economy. However, one of the hurdles is that many locals do not pay tolls which
makes private investment in Highways difficult. To tackle this problem Government has
introduced electronic tolling to make tolling compulsory on each booth. Further, the
investment from the private sector is not much as expected due to various hurdles regarding
infrastructure in India like displaced of families due to such construction, clearance of land is
not easy and corruption is high. Not to forget if there is a change in the Government the
chances of the project been halted are also there.

However, the Government has to keep in mind that infrastructure is for public welfare and
hence there is a need that private entity does not use it for their profit maximization.