India needs Rs 19 lakh cr for highways in 5 years, needs innovative financing: KPMG

Highways construction in India is estimated to require about Rs 19 lakh crore in the next five years and innovative financing mechanisms needs to be put in place to address any funding gap, according to a report by consultancy firm KPMG.

India has the second-largest road network in the world and the Ministry of Road Transport and Highways (MoRTH) is planning to develop about 60,000 km of highways in the next five years.

The MoRTH is targeting an average road construction rate of 40 km per day, said the KPMG report, titled 'Roads and Highways Sector - Current Trends and Future Road Map'.

"Assuming average construction cost of approximately INR 30 crore per km (including land acquisition cost), and factoring in inflation for road construction cost at a conservative 3 per cent, the total funding requirement over five years is estimated at approximately Rs 19 lakh crore which amounts to average annual fund requirement of approximately Rs 3.8 lakh crore," the report, released in a CII event, said.

Asserting the need for exploring innovative financing mechanisms to address the funding gap that is being observed in the sector, it said the approach levers that have been identified need to be built upon.

It said that "funding sources are limited. Ministry has to tap into internal extra budgetary resources as much as possible, subject to keeping tab on the extent of future liabilities" and added that the likely options to raise capital are bonds, masala bonds and debts from multilateral funding institutions.

Besides, it said policy reforms need to continue in the future.

"Other measures that can be explored are reduction of tax on infrastructure bonds and extension of tax holiday to infrastructure developers. Some innovative PPP modes similar to least present value of revenue can also be explored," the report said.

On the public-private partnership (PPP), it said this is the need of the hour.

The report also said many issues have been plaguing the roads and highways sector in India including aspects such as land acquisition.

It stressed the need for adoption of sustainable transport approaches saying it can be adopted in a widespread manner in the future.

Some of the ways to help ensure sustainable development are adoption of electric vehicles.