Crisil Report on OMT

Assessment of Operate-Maintain-Transfer (OMT) and Toll Collection Market for Road Projects in India

June, 2014

June 2014

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1. OVERVIEW- MACRO ECONOMY AND INFRASTRUCTURE IN INDIA ................................. 1

A) Review of GDP growth in India ........................................................................................................................... 1

B) Review of industrial production/ manufacturing growth ...................................................................................... 3

C) Review of population and consumption growth in last decade ........................................................................... 3

D) Overview of infrastructure sector in India ........................................................................................................... 5

E) Key snippets ........................................................................................................................................................ 8

2. REVIEW OF ROAD INFRASTRUCTURE IN INDIA ................................................................ 9

A) Overview of Indias Road Sector ......................................................................................................................... 9

B) Review of National Highways in India ............................................................................................................... 10

C) Current status and overview of NHDP .............................................................................................................. 16

D) Outlook on investments in National Highways ................................................................................................. 20

E) Overview of National Highways Funding .......................................................................................................... 22

F) Review and outlook of state roads in India ....................................................................................................... 24

G) Review and outlook of rural roads in India ....................................................................................................... 59

H) Key snippets ..................................................................................................................................................... 61

3. INSTITUTIONAL AND POLICY FRAMEWORK FOR ROADS AND HIGHWAYS IN INDIA . 63

A) Institutional framework for roads at Central and state levels ............................................................................ 63

B) Policy framework Central level ....................................................................................................................... 64

C) Overview of Private Public Partnership (PPP) framework and models in operation ........................................ 65

D) Key parameters of New Model Concession Agreement and Bidding Process ................................................ 73

E) Overview of New Tolling Policy ......................................................................................................................... 75

F) Financial incentives for road developers ........................................................................................................... 77

G) Key snippets ..................................................................................................................................................... 77

4. KEY TRENDS IN OMT BUSINESS MODEL ......................................................................... 79

A) Overview of OMT business model .................................................................................................................... 79

B) Key trends in OMT business model and list of key projects bid for .................................................................. 82

C) Outlook for OMT Model for NHAI and key states ............................................................................................. 90

5. KEY TRENDS IN TOLL BUSINESS MODEL ........................................................................ 93

A) Overview of Tolling Business Model ................................................................................................................. 93

B) Key trends in toll business model ..................................................................................................................... 97

C) List of key toll projects by NHAI, state highways/ road development corporations ........................................ 100

D) Outlook for toll collection model for NHAI and key states .............................................................................. 115

Contents

6. COMPETITIVE ASSESSMENT ........................................................................................... 118

A) Key players in the OMT market ...................................................................................................................... 118

B) Key players in Tolling market .......................................................................................................................... 128

C) Comparative assessment summary ............................................................................................................... 138

D) Qualitative assessment of competitive landscape in OMT and toll market .................................................... 140

7. OUTLOOK ON OMT / TOLL MARKET ............................................................................... 142

A) Overall OMT / Toll Market ............................................................................................................................... 142

8. OUTLOOK ON OMT / TOLL MARKET FROM NHAI .......................................................... 146

A) Review and Outlook of NHDP Phases Relevant for Toll and OMT Projects .................................................. 146

B) Outlook of Toll and OMT Market ..................................................................................................................... 148

9. OUTLOOK ON OMT / TOLL MARKET FROM STATE HIGHWAYS .................................. 151

A) Outlook of OMT market opportunity from key states ...................................................................................... 152

B) Outlook of Toll Market Opportunity from Key States ...................................................................................... 156

10. OUTLOOK ON OMT / TOLL MARKET FROM BOT OPERATORS FOR NATIONAL HIGHWAYS (INDIRECT) ......................................................................................................... 165

A) Overview of BOT model .................................................................................................................................. 165

B) Key concerns faced by BOT players............................................................................................................... 166

C) Market for OMT/Toll players ........................................................................................................................... 167

GLOSSARY OF AUTHORITY NAMES ................................................................................... 171

1

1. OVERVIEW- MACRO ECONOMY AND INFRASTRUCTURE IN INDIA

A) Review of GDP growth in India

Moderate economic growth; marginal upward trend in 2013-14

GDP is an important economic variable that is used to gauge the health of a countrys economy. From 2003-04 to

2013-14, real GDP of India increased at a CAGR of 7.5 per cent to Rs 57 trillion in 2013-14 from Rs 28 trillion in

2003-04. The services sector continued to be the largest contributor to the countrys GDP at 60 per cent in 2013-

14, while the share of agriculture & allied services and industry was 14 per cent and 26 per cent, respectively.

The economy exhibited a muted GDP growth in 2008-09 primarily because of the global economic slowdown.

However, the economic growth revived in 2010-11 backed by strong growth in primary as well as secondary

sectors.

Indias GDP growth hit a decadal low in 2012-13, at 4.5 per cent on account of poor performance of manufacturing,

agriculture and services sectors. The performance stabilized at those levels in 2013-14 with a miniscule uptick to

clock 4.7 per cent.

The agriculture sector grew at a faster rate of about 4.0 per cent in 2013-14 compared to 1.4 per cent in the

previous year due to better monsoons.

Services sector continued its stable performance with 6.5 per cent growth in 2013-14 as against 6.2 per

cent in the previous fiscal.

Real GDP growth in India

Note: World GDP growth calculation is based on calendar year while that of India is on the basis of financial year

Source: Central Statistical Organisation, CRISIL Research

28 30 33 36 39 42 45 49 52 55 57

8.1%

7.0%

9.5% 9.6% 9.3%

6.7%

8.6%9.3%

6.3%

4.5% 4.7%

3.7%

4.9% 4.6%5.3% 5.4%

2.8%

-0.6%

5.1%

3.8%

3.3% 3.3%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

10

20

30

40

50

60

70

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Rs tn

GDP GDP growth India (RHS) GDP growth World (RHS)

2

World GDP growth averaged 2.9 per cent for the past five years and increased by about 3.0 per cent in 2013. The

growth was largely led by emerging markets and developing economies, which grew at 4.7 per cent in 2013. Indias

GDP growth has outpaced the growth of world GDP primarily driven by strong domestic demand and better

investment climate.

RBI has pegged Indian GDP growth in 2014-15 at 5.5 per cent. RBI expects GDP growth from agriculture and

allied activities to taper to 3.0 per cent but industrial GDP growth to surge from 0.6 per cent in 2013-14 to 3.5 per

cent in 2014-15. CRISIL Research estimates GDP growth for 2014-15 to be around 6 per cent.

Forex Reserves and WPI in India

Source: RBI, Ministry of Commerce and Industry, CRISIL Research

Indias forex reserves increased to USD 303.7 billion in 2013-14 from USD 199.2 billion in 2006-07, registering a

CAGR of about 6.2 per cent. WPI inflation, after remaining persistently high during 2010-11 and 2011-12, has

shown signs of moderation since December 2011 and currently stands at 6 per cent for 2013-14. The persistently

elevated prices for animal products (eggs, meat and fish), the rise in the prices of cereals and vegetables, along

with the increase in international prices of fertilizers (non-urea) and the increase in administered prices of diesel

have contributed to inflation to differing degrees over time.

199.2

309.2

252.3

277.0

303.5 294.8 292.6

303.7

6.6

4.7

8.1

3.9

9.6

8.9

7.3

6.0

-

2.0

4.0

6.0

8.0

10.0

12.0

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

USD billion

Forex Reserves USD billion Wholesale Price Index: Y-o-Y per cent

3

B) Review of industrial production/ manufacturing growth

Industrial production growth remained tepid in the past 5 years

Industrial production and manufacturing growth was increasing gradually since 2002-03 till 2007-08, however, it

has been on a decline for the past five years. The growth in industrial production was at about 15.5 per cent in

2007-08. This was backed by a healthy growth in the capital goods (around 18 per cent), consumer goods (around

18 per cent) and manufacturing sectors (around 15 per cent) in the same year. However, growth declined

significantly in 2008-09 to just about 2.5 per cent primarily due to slower growth in mining and manufacturing

sectors and non durable consumer goods, which showed a decline of about 5 per cent. Industrial production fell in

the negative territory in 2013-14 majorly due to de-growth in mining and quarrying. Also, manufacturing growth

slowed down drastically on account of unfavourable economic conditions and weak external demand. Industrial

production and manufacturing growth registered in 2013-14 was negative 0.11 per cent.

Industrial production and manufacturing growth(2002-03 to 2012-13)

Source: MoSPI, CRISIL Research

C) Review of population and consumption growth in last decade

Population on the rise; urbanisation has increased to 31 per cent

The population of India as of 2011 is 1.2 billion. The population registered an annual growth of 1.6 per cent from

2001 to 2011 and decadal growth of about 18 per cent. Urban population as of 2011 was 377 million, an annual

growth of 2.8 per cent and rural population stood at 833 million at an annual growth rate of 1.1 per cent.

Urbanisation levels have increased from 28 per cent in 2001 to about 31 per cent in 2011.

(5.00)

-

5.00

10.00

15.00

20.00

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

per cent

Industrial production growth Manufacturing growth

4

Decadal population growth

Source: Census, CRISIL Research

The consumption expenditure in India grew to Rs 41.3 trillion in 2012-13 from Rs 20.1 trillion in 2001-02, registering

an coumpounded annual growth rate of about 6.8 per cent.

Consumption expenditure growth

Note: * CSO Provisional estimates

Source: Census, CRISIL Research

743833

286

377

0

200

400

600

800

1000

1200

1400

2001 2011

Million

Urban Rural

Total 1029.0Total 1210.0

20 2122

2325

27

2931

34

37

4041

0

5

10

15

20

25

30

35

40

45

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*

Rs tn

5

D) Overview of infrastructure sector in India

Infrastructure investments envisaged in XII five year plan (2012-2017) increase by 2.6

times to Rs 51.5 trillion

Major infrastructure development requires a substantial influx of capital investment. The policies of the Indian

government seek to encourage investments in the domestic infrastructure from both local and foreign private

players. FDI inflows in construction (infrastructure) activities from April 2000 to June 2013 stood at USD 2198.77

million according to Department of Industrial Policy and Promotion (DIPP). In order to increase FDI inflows to

further boost investments and to enhance infrastructure, the Indian Government has introduced significant policy

reforms. Infrastructure industry includes roads, power, railways, urban infrastructure, irrigation and others. Road

sector is the key contributor in the overall investments undertaken in the infrastructure industry.

Source: CRISIL Research

In the Eleventh five year plan (i.e. 2007-08 to 2011-12), the actual investments in the infrastructure sector reached

Rs 19.5 trillion as against budgeted investment of Rs 20.6 trillion (95 per cent achievement level). The key drivers

were increased focus of central government on improving the infrastructure, in lieu of which several programmes

were undertaken by the government.

The construction spend on infrastructure projects is expected to amount to Rs 51.5 trillion over the next five years

from the current level of Rs 19.5 trillion (actual investments), with 47 per cent contribution by private participation

and 53 per cent by the central and state governments. Within Infrastructure, Electricity is estimated to be the

largest contributor, followed by Roads and Telecommunications.

Roads Power Urban Infrastructure

Ports

Others

Water Supply and Sanitation

BRTS

MRTS

Power Transmission and Distribution

Power Generation

Rural Roads

State Roads

National Highway

Others

Airports Telecom

Railways Irrigation

Infrastructure

6

Construction spends in infrastructure segment (XI and XII five year plan)

Others include irrigation, water supply and sanitation, storage, oil and gas pipelines

Source: High level committee on Financing Infrastructure, CRISIL Research

Electricity: Electricity investments in the XI five year plan were Rs 6.4 trillion (95 per cent of the budget estimates),

lower than the budgeted estimate of Rs 6.7 trillion. The growth in investments was led by huge latent demand for

power in the country and significant capacity additions by both the private and public sector entities. Electricity

investments are the highest among the overall investments and stood at about 33 per cent of the total investments.

In the XII year plan, the investments are expected to increase to Rs 18.5 trillion as against Rs 6.4 trillion (2.9 times

increase).

Roads: The investments in roads in the XI five year plan were Rs 3.6 trillion (115 per cent of the budget estimates)

as against the envisaged investment of Rs 3.1 trillion. Roads investment accounted for about 19 per cent of the

overall infrastructure investments during the same period. It was largely driven by the governments thrust to the

sector, by encouraging PPP, speedy implementation of NHDP and the recent changes in the amenable policy

environment. The continued thrust on improving rural roads and state roads network by the various state

governments have also supported the growth. Investments in roads is expected to increase to Rs 9.2 trillion in XII

five year plan as against Rs 3.1 trillion (actual) in XI five year plan (2.9 times increase).

Railways: Investments in railways in the XI five year plan were Rs 2.0 trillion (74 per cent of the budget estimates),

well below the budgeted estimate of Rs 2.6 trillion and accounted for about 10 per cent of overall investments. The

investments were led by the governments effort to implement the rail connectivity expansion plans and also due to

increased momentum in MRTS projects. Railway investments were about 10 per cent of the overall investments. In

the XII year plan, the investments are expected to increase to Rs 4.6 trillion as against Rs 2.0 trillion in the XI plan

(2.3 times increase).

6.7

3.1 2.6 2.6

0.9 0.3

4.46.4

3.6 3.42.0

0.4 0.3

3.5

18.5

9.2 8.8

4.6

1.6 0.7

8.1

95%

115%

130%

74%

40%

94%81%

0%

40%

80%

120%

160%

0.0

4.0

8.0

12.0

16.0

20.0

Rs trillion

Projected Investment (XI plan) Actual Investment

Projected investments (XII plan) Actual Investment as Proportion of Projected Investment

7

Telecommunications: Investments in telecommunications in the past five years were Rs 3.4 trillion (130 per cent of

the budget estimates) as against the envisaged investment of about Rs 2.6 trillion and accounted for about 17 per

cent of the overall infrastructure investments. Significant investments have been undertaken in the passive

infrastructure. Going forward, the investments are expected to increase to Rs 8.8 trillion in the next five years as

against Rs 3.4 trillion in the XI five year plan (2.6 times increase).

Ports: The ports sector has achieved an investment of Rs 0.4 trillion (40 per cent of the budget estimate) while the

budgeted investment was Rs 0.9 trillion and accounted for about 9 per cent of the overall investment in the past

five years. The sector has witnessed a multi-fold increase in investment led by significant private sector investment

in non major port expansion. The investment in the sector is expected to increase over the next five years to Rs 1.6

trillion in comparison to Rs 0.4 trillion in the past five years (4 times increase, however, on a small base).

Others: Other sectors include irrigation, water supply and sanitation, oil and gas pipelines, which achieved an

investment of about Rs 3.5 trillion (81 per cent of the budget estimates). Irrigation sector is largely dependent on

government initiatives and being a social sector has limited private sector participation. However, the need to

improve water supply and sanitation facilities in urban and rural areas will drive investments in this space led by

various government initiatives. Investments in oil and gas were largely led by the sustained efforts of the

government to encourage upstream investments through its New Exploration Licensing Policy (NELP). Moreover,

the increasing need for natural gas infrastructure including the development of gas grid and expansion of the

coverage of city gas distribution has resulted in significant investments. In the next five years, investments are

expected to increase to Rs 8.1 trillion from the current level of Rs 3.5 trillion in these sectors (2.3 times increase).

The infrastructure sector is driven primarily by the governments initiatives for the creation of essential facilities. In

lieu of this, the government has undertaken some programs for integrated development, improvement,

maintenance and growth of infrastructure in the urban and rural areas which include:

Government programmes that drive infrastructure investments


Sector Programmes

Roads and Highways National Highway Development Programme (NHDP)

Roads and Highways Pradhan Mantri Gram Sadak Yojana (PMGSY)

Power Accelerated Power Development and Reform Program (APDRP)

Power Ultra Mega Power Plants (UMPP)

Power Ultra Mega Power Transmission Project (UMTP)

Oil and Gas New Exploration and licensing policy (NELP)

Urban Infrastructure Jawaharlal Nehru National Urban Renewal Mission (JNNURM)

Ports National Maritime Development Programme (NMDP)

Water supply and sanitation Command Area Development and Water Management Programme (CADWM)

Irrigation Accelerated Irrigation Benefit Programme (AIBP)

8

E) Key snippets

Indias GDP has witnessed a healthy growth of about 7.6 per cent in the last decade and increased to Rs

57 trillion in 2013-14. The growth was primarily driven by services sector, which grew at 9.1 per cent during

the same period.

Overall GDP growth fell to a decadal low of 4.5 per cent in 2012-13, mainly attributable to weakening

industrial growth, tight monetary policy through most of 2011-12, and continued uncertainty in the global

economy.

With widespread reform measures initiated in recent months, countrys strong fundamentals and the global

economy poised for a moderate recovery in 2014-15, the Indian economy is expected to witness an

improved outlook in the medium term.

However, given the strong domestic demand and a more conducive investment climate, we expect Indian

economy to exhibit a moderate recovery in the medium term.

Envisaged infrastructure investments in XII five year plan has increased by 2.6 times over the past five

year plan with investments in Electricity, Roads, and Telecommunications being the key growth sectors.

Also in the XI five year plan, an achievement level of 95 per cent was attained (with roads and

telecommunication investments exceeding the target).

9

2. REVIEW OF ROAD INFRASTRUCTURE IN INDIA

A) Overview of Indias Road Sector

Second largest road network in the world

India has the second largest road network in the world, aggregating 4.7 million km; however quality of roads has

not been at par with others. In terms of quality, only half of Indias road network is surfaced.

Global comparison of road infrastructure

Source: World Road Statistics(2008), CRISIL Research

Roads constitute the most common mode of transportation and account for about 85 per cent of passenger traffic

and around 60 per cent of the freight traffic in the country.

In India, National Highways, with a length close to 79,000 km, constitute a mere 2 per cent of the road network but

carry about 40 per cent of the total road traffic. On the other hand, state roads and major district roads are the

secondary system of road that carry another 60 per cent of traffic and account for 98 per cent of road length.

0.04

0.06

0.16

0.22

0.44

0.48

0.50

0.77

0.82

0.82

1.20

1.28

1.35

1.37

1.61

1.62

1.70

1.81

1.88

2.97

0.00 2.00 4.00

Russia

South Africa

China

Norway

United States

India

Croatia

Portugal

Greece

Korea, South

Sri Lanka

Austria

Spain

Ireland

United

Italy

Denmark

Germany

France

Netherlands

Surfaced road density (surfaced road length in KM/Country area in

KM2)

29

73

77

93

96

97

111

117

136

364

420

488

644

667

951

963

3730

4110

6506

0 5000 10000

Croatia

Denmark

Portugal

Norway

Ireland

Sri Lanka

Austria

Greece

Netherlands

South Africa

United

Italy

Germany

Spain

France

Russia

China

India

United States

Total road length in 000 KM

20%

44%

49%

67%

77%

77%

78%

79%

86%

86%

92%

93%

97%

100%

100%

100%

100%

100%

100%

100%

0% 50% 100%

South Africa

China

India

United States

Norway

Netherlands

Korea,South

Russia

Portugal

Sri Lanka

Greece

France

Croatia

Germany

Denmark

Italy

United Kingdom

Ireland

Spain

Austria

Surfaced road as a % of total road length

10

In the decreasing order of the volume of traffic movement, road network in India can be divided into the following

categories:

Road network in India as in 2012-13


B) Review of National Highways in India

Investments in National Highways increased at 16 per cent CAGR over the past four

years

Summary: Review of National Highways


Over the last decade, the overall NHDP length (completed) has increased from around 500 km in 2001-02 to the

current levels of 22,277km (as of March 31, 2014). In the last four years, the overall implementation levels have

increased from 2,485 km in 2008-09 to 3,350 km in 2012-13.

Investment review: National Highways

During 2008-09 to 2012-13, investments on National Highways have registered a CAGR of about 16.2 per cent

and increased to Rs 295 billion in 2012-13 from Rs 162 billion in 2008-09.

Road network Length Coordinating Connectivity to

(km) Length Traffic agency

National highw ay 79,116 1.7% 40.0% MoST,BRO Union capital, state capitals,major ports,

foreign highw ays

State highw ay 155,716 3.3% 60.0% State PWDs Major centers w ithin the states, national

highw ays

Other roads 4,455,010 95.0% State PWDs & MoRD Main roads, rural roads, Production centers,

markets, highw ays, railw ay stations etc

Total 4,689,842 100% 100%

Percentage of total

2008-09 2009-10 2010-11 2011-12 2012-13

Year-w ise investment (Rs billion) 162 176 205 239 295

Year-w ise break-up of total length

aw arded (km)1,872 3,214 5,143 7,283 1,933

Total length constructed/ upgraded (km) 2,458 2,385 2,620 2,992 3,350

11

Year wise investments in National Highways


Length awarded and upgraded/constructed review: National Highways

Awarding of National Highway projects have picked up pace from 2008-09 onwards wherein it was 1,872 km to

about 7,283 km in 2011-12, increasing at a CAGR of about 57 per cent primarily driven by increasing projects

awarded on BOT basis (post introduction of MCA agreement). However, it dipped significantly to a low of 1,933 km

in 2012-13, impacted by the weak financial position of players, delays in project clearances and low estimated

traffic density for many stretches on offer. Length constructed/upgraded has increased to 3,350 km in 2012-13 from

that of 2,458 km in 2008-09, increasing at a CAGR of 8 per cent.

Year wise break up of total length awarded Length upgraded/ constructed


162176

205

239

295

0

50

100

150

200

250

300

350

2008-09 2009-10 2010-11 2011-12 2012-13

Rs bn

1,872

3,214

5,143

7,283

1,933

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008-09 2009-10 2010-11 2011-12 2012-13

kms

2,458 2,385

2,620

2,992

3,350

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2008-09 2009-10 2010-11 2011-12 2012-13

kms

12

Investment growth driven by multitude of factors

Economic growth, increasing government thrust, preference of road in freight traffic, increase in private

participation and increase in passenger traffic and vehicle density are key growth drivers in road sector

investments.

Economic growth

Freight traffic growth is a function of economic activity which further necessitates road development. Freight traffic

has grown at a CAGR of 6.8 per cent from 2008-09 to 2013-14 in line with the economic growth of 6.7 per cent

during the same period. Freight traffic (in BTKM) growth is set to revive to 5-7 per cent in 2014-15, up from the 3.5

per cent growth seen in 2013-14, following an expected improvement in the macroeconomic environment.

Industrial GDP is expected to grow at 4.0 per cent in 2014-15, as against a mere 0.7 per cent in 2013-14 aided by

the resumption of stalled infrastructure projects, recovery in mining activities and improvement in export demand.

However, this growth is still very modest and below the long term average.

Roads continue to dominate freight traffic with its share in overall freight movement rising steadily to 63 per cent in

2013-14 from 58 per cent in 2008-09 due to healthy growth in non-bulk traffic and capacity constraints in railways.

Moderate growth in GDP, Freight demand


Note: Estimates (no updated data released on this)

Road freight traffic gaining preference

Capacity constraints in the railways had led to the share of roads in the primary freight pie increasing from an

estimated 58 per cent (in BTKM) in 2008-09 to around 63 per cent in 2013-14. Road freight transport augmented at

8.5 per cent CAGR during 2008-09 to 2013-14 as against a 6.8 per cent CAGR in overall primary freight traffic.

From 2012-13 to 2017-18, road freight traffic is expected to expand by 7-9 per cent CAGR, which is higher than the

growth in overall primary freight demand. Growth in road freight traffic will be largely driven by growth in non-bulk

traffic and development of road infrastructure. Roads remain the preferred mode of transport for non-bulk traffic.

As non-bulk traffic is expected to grow at a faster pace of 8-10 per cent compared to 4 -6 per cent in bulk traffic

over the next 5 years, the share of non-bulk commodity in total road primary BTKM is expected to increase to

around 80 per cent. Currently, of the total road freight traffic, non-bulk commodities account for around 78 per cent.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0

500

1000

1500

2000

2500

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Freight demand BTKM (LHS) GDP factor cost Rs bn

13

Increasing vehicular and passenger traffic

Growth in vehicular and passenger traffic have both outpaced increase in total road network in the past.While

number of vehicles increased at around 10.3 per cent between 2001 and 2008, passengers travelling by road

increased at 6.4 per cent CAGR. On the other hand, the total road network increased at just 2.6 per cent during the

same period. This increase in vehicular and passenger traffic is expected to put pressure on existing road network

and hence necessitating road development.

Since 1950-51, the passenger traffic for railways has come down from 85 per cent to 23 per cent while passenger

traffic for roads has consistently grown from 29 per cent to 77 per cent for the same period.

Proportion of freight traffic across modes of transport:

FY09 (E)

Proportion of freight traffic across modes of transport:

FY14 (E)

E:Estimates (no updated data released on this)


Passenger traffic: Roads vs Railways

Source: Working Group Report on Road Transport for Eleventh Five-Year Plan, CRISIL Research

Road53%

Rail33%

Pipeline5%

Coastal4%

Road, 62%

Rail,29%

Pipeline, 6%

Coastal, 3%

29

51

64

72 72

8287

77

85

49

36

28 28

1813

23

0

10

20

30

40

50

60

70

80

90

100

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2004-05 2011-12

(per cent)

Road passengers Railway passengers

14

Vehicular growth which was robust till 2011-12 has tapered in past two years

Domestic passenger car sales increased from 1.22 million units in 2008-09 to 1.78 million units in 2013-14 at a

CAGR of 7.9 per cent. From 1.22 million units in 2008-09, the domestic passenger car sales increased at a CAGR

of 18.5 per cent to 2 million in 2011-12. However, from 2011-12 to 2013-14, domestic passenger car sales has

seen a degrowth of 6.6 per centprimarily due to increased macroeconomic uncertainty, weak consumer sentiments,

lower disposable incomes due to high inflation, rigidity in auto lending rates and high petrol prices.

Commercial vehicles showed robust growth at a CAGR of 28 per cent from 385,000 units in 2008-09 to 809,000

units in 2011-12. However just like the domestic passenger car sales, commercial vehicle sales too showed a

degrowth from 2011-12 to 2013-14 (at a CAGR of 13 per cent).

Passenger cars sales Commercial vehicle sales

Source:SIAM, CRISIL Research Note: Commercial vehicles include goods vehicle and

passenger but excludes three wheeler

Increasing government thrust

There are various initiatives that have been undertaken by the Government of India (GoI) namely Highway

Development Programme (NHDP), Pradhan Mantri Gram Sadak Yojna (PMGSY) and Central Road Fund Act

(2000), and other initiatives like viability gap funding, tax benefit etc.

NHDP was an initiative undertaken by the central government to develop National Highways in the country

during 2005-2015 with an investment of Rs 2356.9 billion.

PMGSY, a 100 per cent centrally sponsored scheme was launched for providing all-weather access to

unconnected habitations. It is aimed at providing connectivity to 172,000 habitations with 365,279 km of

new road and developing 368,000 km of existing roads ensuring full farm-to-market connectivity.

Central Road Fund is a dedicated fund created by the central government from collection of cess on petrol

and high speed diesel (HSD). For 2012-13, an allocation of Rs 194 billion has been earmarked under CRF

for 2012-13.

1,220

1,526

1,972 2,030

1,894 1,785

-

500

1,000

1,500

2,000

2,500

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

'000 units

385

532

684

809 793

633

-

100

200

300

400

500

600

700

800

900

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

'000 units

15

Other initiatives include viability gap funding of up to 40 per cent on a case-to-case basis. Also, tax benefits

are offered to contractors by providing 100 per cent tax exemption for five years and 30 per cent relief for

next five years, which may be availed of in 20 years besides proving concession period up to 30 years.

Increased private participation

Model Concession Agreement governing the private participation in road sector got amended in August 2009, as a

result of which investment in roads has become favourable for the private sector, hence resulting in private sector

share to increase to about 26 per cent of the overall funding pie.

Several new trends have been witnessed in the road sector

Steady progress in road construction: The length of road constructed has increased at a CAGR of 8 per

cent from 2,458 km in 2008-09 to 3,350 km in 2012-13 (from around 500 km under NHDP in 2001).

Increasing participation of private equity funds: Private equity has contributed to the provision of equity

requirement for road projects in the past. Also, going ahead private equity investment can further pick up

following the recent announcements of exit policy for debt-stressed operators for toll roads.

Re-emergence of EPC contracts: Given the current financial crunch being faced by BOT players, CRISIL

Research expects 60-65 per cent of projects to be awarded on EPC / cash contract basis over next five

years.

Sector favourable policies such as 100 per cent exit policy for stressed BOT players, providing for secured

status for PPP projects while lending, proposal to scrap slow moving highway projects (under

consideration) etc.

A number of policy / initiatives have been undertaken by the government

Government has in the past undertaken several initiatives for developing National Highways. Development of

NHDP programme, providing for viability gap funding, introduction of PPP model etc. are a few of the major

initiatives.

NHDP: The NHDP encompasses building, upgradation, rehabilitation and broadening of existing National

Highways. The programme is executed by the National Highways Authority of India (NHAI), in coordination

with the Public Works Department (PWD) of the various states. The NHAI also collaborates with the Border

Roads Organisation (BRO) for development of certain stretches.

PPP: PPP is expected to be the preferred mode for execution of future phases of NHDP. The government

has devised appropriate policy mechanisms to encourage private sector participation in the sector.

VGF (Viability Gap Funding): The government will provide grants or viability gap funding (VGF) in the case

of BOT-toll projects that are not financially viable.

Diversification of funding by introduction of CRF: Central Road Fund is a dedicated fund created by the

central government from collection of cess on petrol and diesel. For 2012-13, an allocation of Rs 194 billion

has been earmarked under CRF.

Finance Ministry has suggested to banks to consider 80 per cent of land acquisition while granting

disbursements instead of the current 100 per cent norms.

16

PPP loans secured status - As per recent RBI directive, loans for PPP projects can be considered as

secured subject to fulfilment of certain conditions like escrow for toll, right of substitution for lenders,

compulsory buyout by project authority in case of termination by lenders etc.

As per the Environment Ministry notification issued in August 2013, highway development projects

involving widening of roads, which are up to 100 km, need not take environment clearance.

C) Current status and overview of NHDP

The NHDP encompasses building, up gradation, rehabilitation and broadening of existing National Highways. The

programme is executed by the National Highways Authority of India (NHAI), in coordination with the Public Works

Department (PWD) of the various states. NHAI also collaborates with the Border Roads Organisation (BRO) for

development of certain stretches.

The NHDP is being implemented in seven phases.

NHDP phases


Execution of NHDP declined sharply to 5.2 km per day during 2013-14 from 7.4 km per day during previous year,

impacted by extended monsoons and large number of stalled projects. Out of the total length of 50,230 km under

NHDP, about 44 per cent has been completed as on March 31, 2014. About 24 per cent of the total length is

currently under implementation and the rest is yet to be awarded. The total cost incurred on NHDP

projects stands at Rs 2,139 billion, as of January 31, 2014.

Phases Description Implementing Agency

I Golden Quadrilateral (Connecting Delhi-Kolkata Chennai-Mumbai) NHAI

Port connectivity (Connectivity for 10 major ports) NHAI

II North-South & East-West (NSEW) corridor (Srinagar to

Kanyakumari- (North South) and Silchar to Porbander-(East-West)) NHAI

III Connecting state capitals and places of economic and tourist

importance NHAI

IV Improve 2-lane standards w ith paved shoulders MORTH

V 6-laning of existing national highw ays (Phase involves 5,600 km

stretch under GQ) NHAI

VI Expressw ays NHAI

VII Ring Roads,bypass and flyovers NHAI

17

NHDP status (as on March 31, 2014)

*Cost as on January 31, 2014

Note: For the purpose of our analysis, the entire length of the North South & East West (NSEW) corridor has been taken under

Phase II and the entire length of Port Connectivity and Others National Highways along with the Golden Quadrilateral has been

taken under Phase I.

Source: NHAI, CRISIL Research

Phase I: Largely complete

Phase I was approved by the Cabinet Committee on Economic Affairs (CCEA) in December 2000. The phase

includes:

The 5,846 km Golden Quadrilateral (GQ) connecting the four major metros, viz Delhi, Mumbai, Chennai

and Kolkata.

A total of 380 km connecting the major ports - Haldia, Paradeep, Vishakhapatnam, Chennai and Ennore,

Tuticorin, Kochi, New Mangalore, Marmugao, Jawarharlal Nehru Port Trust (JNPT) and Kandla - from

the east coast to the west coast and to the GQ.

Other National Highway stretches of 1,754 km.

GQ, which constitutes about 77 per cent of the total length of Phase I, was completed in November 2012. As

on March 31, 2014, about 95 per cent of Phase I was complete and about 5 per cent was under implementation.

An amount of Rs 421 billion was spent on this phase till January 31, 2014.

Most projects in Phase I have been awarded on a cash contract basis. Over the next five years (2013-14 to

2017-18), CRISIL Research expects Rs 7 billion to be invested for the completion of Phase I.

Phase II: Nearing completion

The CCEA approved Phase II, comprising the North South East West (NSEW) Corridor, in December 2003. This

phase involves widening of North-South and East-West corridors. The total length of the NSEW Corridor is 7,142

km. As on March 31, 2014, about 88 per cent of the NSEW Corridor was complete. This entailed a cost of Rs 629

billion as on January 31, 2014. Further, over 6 per cent of the total length of the corridor was under implementation

while the remaining 6 per cent of the total length was yet to be awarded as of March 31, 2014. In Phase II as well,

Unit Total

I II III IV V VI VII

Total length km 7,980 7,142 12,109 14,799 6,500 1,000 700 50,230

Completed till date km 7,573 6,282 6,098 483 1,819 - 22 22,277

Completion rate as % of total per cent 94.9 88.0 50.4 3.3 28.0 - 3.1 44.3

Completion from April 1, 2013-

March 31, 2014

km 289 148 802 311 357 - 1 1,908

Under implementation (UI) km 407 443 4,326 4,575 2,262 - 19 12,032

UI as a % of total per cent 5.1 6.2 35.7 30.9 34.8 0.0 2.7 24.0

Balance length for award (BFA) km 0 417 1,685 9,741 2,419 1,000 659 15,921

BFA as a % of total per cent 0.0 5.8 13.9 65.8 37.2 100.0 94.1 31.7

Cost incurred so far * Rs billion 421 629 757 55 261 1 16 2,139

Phase

18

most of the projects have been executed on cash-contract basis.

CRISIL Research expects the balance length of projects, out of the total length of 7,142 km in Phase II, to entail an

investment of Rs 30 billion over the next five years.

Phase III: Steady awarding

Phase III involves converting two-lane roads into four lanes. The criteria for identification of stretches under this

phase are:

High-density traffic corridors not included in Phases I and II

Providing connectivity to state capitals with the NHDP (phases I and II)

Connecting centres of tourism and places of economic importance

In 2011-12, projects with a total length of 1,871 km were awarded. However, project awarding fell to 153 km in

2012-13 and around 855 km were awarded in 2013-14. Out of the total length of 12,109 km under this

phase, about 50 per cent was complete as on March 31, 2014. This entailed a cost of Rs 757 billion till January 31,

2014.

The government plans to implement most projects under this phase through the BOT-toll model. The less viable

projects will be awarded under the BOT-annuity model, while the least viable stretches will be awarded as cash

contracts. The implementation of this phase is expected to require an investment of Rs 465 billion over the next five

years, as per CRISIL Research's estimates.

Phase IV: Construction started

In this phase, around 20,000 km of National Highways are planned to be improved to two-lane standards with

paved shoulders. NHAI has identified a total of 14,799 km of road stretches under this phase and

implementation has already started with about 3 per cent of the length executed for a total spend of Rs 55

billion till January 31, 2014. Further, as on March 31, 2014, about 31 per cent of the identified road length was

under implementation and about 66 per cent was yet to be awarded.

In 2011-12, around 2,069 km of projects were awarded under this phase. During 2012-13, only about 644 km of

projects were awarded while in 2013-14, projects with a total length of 1,286 km were awarded. In 2014-15, six

projects with a total length of 725 km were awarded till May 12, 2014.

Under this phase, many of the projects are expected to be awarded on EPC basis, since the traffic volumes for

these projects are lower, and thus, they are less attractive than Phase III and V projects. Therefore, if these

projects are bid out on the BOT model, developer interest would be lower. The implementation of this phase is

expected to require an investment of Rs 630 billion as per CRISIL Research's estimates for the next five years.

Phase V: Steady awarding

This phase involves six-laning of 6,500 km of select stretches of existing four-lane National Highways on design-

build-finance-operate (DBFO) basis. This includes around 5,700 km of the GQ and other selected stretches at a

total cost of Rs 412 billion (2006 prices).

19

As on March 31, 2014, about 28 per cent of Phase V was completed. Further, as on this date, around 35 per cent

of the total length under this phase was under implementation and around 37 per cent was left to be awarded. A

sum of Rs 261 billion has been spent on this phase till January 31, 2014.

In 2013-14, two projects with a total length of 130 km were awarded under this phase while projects with a total

length of 265 km were awarded in 2012-13. This was much lower than the 1,689 km length project awarding in

2011-12. Also, both these projects were re-awards of projects awarded in the previous two years.

Over the next five years, implementation of this phase is estimated to require a total investment of Rs 489 billion.

Phase VI: No action on the ground

This phase includes the development of around 1,000 km of access-controlled four/six-lane divided carriageway

expressways. Although this phase has been approved by the government, it is yet to see any awarding.

Phase VII: Initial stages of implementation

This phase proposes construction of ring roads, flyovers and by-passes on selected stretches of the National

Highways at an estimated cost of Rs 167 billion. The government approved this phase in December 2007. While

700 km of stretches have been identified, just over 3 per cent of the project length was completed as on March 31,

2014. As this date, about 3 per cent of the project was under implementation and remaining 94 per cent was yet to

be awarded.

NHDP: Key challenges and mitigants

Player interest in bidding for BOT road projects dwindled in 2012-13, with some stretches having no bidders. Even

during the first seven months of 2013-14, player interest in BOT projects remained tepid. Of the 1,300 km length

awarded during this period, 65 per cent was awarded on EPC basis. Limited financial flexibility of players, difficulty

in achieving financial closure and delay in clearances have been the key reasons for the waning developer interest.

Limited financial flexibility: Players have limited financial flexibility to bag more BOT projects. The gearing

level of many players is high due to - a sizeable portfolio of BOT projects and some company-specific

investments in real estate etc. For major players, the average gearing in roads-BOT is 3.1 times as of

2012-13.

Problems with bank funding: Banks are being more cautious while lending to road projects as they are

approaching the sectoral exposure limit towards roads. Moreover, they are trying to ensure land acquisition

does not hinder the project progress and hence demand 80-100 per cent of the land is available with the

developer at the time of awarding itself. In 2011-12, in order to achieve financial closure most of the players

had bid aggressively by quoting huge premium amounts, which in turn lowered the project viability.

Therefore, players tried to tie-up funds for the awarded projects before bidding for new projects.

Delay in clearances: Many projects faced delays in getting environmental clearance and forest

clearance, which discouraged players from bidding for new projects. GMR and GVK filed for termination

of two large BOT projects (awarded in 2011-12) as they faced delays in allotment of land from NHAI. Of the

49 projects awarded in 2011-12, around 35 per cent are currently stalled due to forest and environmental

20

clearance issues. We have observed that there is an average delay of around 9 months, for BOT projects

currently under implementation.

Low traffic density: Relatively less attractive road projects were offered by NHAI in 2012-13, where traffic

density, and thus, potential to make good returns was lower. This factor also contributed to the poor turnout

of players for bidding. As a majority of the projects to be offered in 2013-14 are expected to be from NHDP

Phase-IV, private developers interest in BOT projects is expected to continue to remain low.

Land acquisition: Inordinate delay in the acquisition of land in some states, mainly due to procedural

formalities, court cases and lack of adequate co-operation from state governments pose a major risk to any

road project. Majority of road projects in states such as Jharkhand, Assam, Bihar, Odisha and Uttar

Pradesh have been delayed due to these reasons. However, as per the new MCA, 80 per cent of the land

required for the project should be acquired before awarding the letter of award. This will potentially reduce

the delays on account of acquisition of land.

D) Outlook on investments in National Highways

National Highway investments to increase at 12.6 per cent over next five years

Summary: Outlook on National Highways

P: Projected


Between 2013-14 and 2017-18, CRISIL Research expects an average of 11.5 km per day of roads to be

constructed / upgraded at an estimated cost of Rs 1,945 billion. Further, National Highway investments are

expected to grow 1.8 times over the next five years from Rs 295 billion in 2012-13 to Rs 535 billion in 2017-18.

2013-14P 2014-15P 2015-16P 2016-17P 2017-18P

Year-w ise investment (Rs billion) 274 294 371 473 535

Year-w ise break-up of total length

aw arded (km)2,623 3,434 4,450 4,776 5,356

Total length constructed/ upgraded (km) 3,206 3,545 4,215 4,852 5,000

21

National Highways: Year wise investments

P: Projected


In 2013-14, we expect awarding of 2,623 km, nearly 50 per cent of this will be part of NHDP Phase IV, which

mostly involves low traffic density stretches. Further, most of the projects will be awarded on EPC basis. Over the

next five years, CRISIL Research expects over 20,640 km of projects to be awarded in National Highways,

amounting to an average of 11 km per day (including MORTH and NHAI).

Further, of the total length of 7,406 km awarded in 2011-12, projects with an aggregate length of 4,633 km are

currently stalled. Of the total project length stalled, about 50 per cent is primarily held up due to land acquisition or

environmental clearance issues, while the rest are stuck due to the inability of companies to achieve financial

closure. Hence, project execution will decline by around 4 per cent to 3,206 km during 2013-14. However, going

ahead we expect the implemented road length to exhibit a moderate growth from 3,350 km in 2012-13 to 5,000 km

in 2017-18. With an increase in the number and size (length of roads) of projects awarded in the past few years,

CRISIL Research expects implementation of projects to pick up over the next few years.

Year wise break up of total length awarded Length upgraded/ constructed


295274

294

371

473

535

0

100

200

300

400

500

600

2012-13 2013-14P 2014-15P 2015-16P 2016-17P 2017-18P

Rs bn

1,933

2,623

3,434

4,450 4,776

5,356

-

1,000

2,000

3,000

4,000

5,000

6,000

2012-13 2013-14P 2014-15P 2015-16P 2016-17P 2017-18P

km

3,350 3,206

3,545

4,215

4,852 5,000

-

1,000

2,000

3,000

4,000

5,000

6,000

2012-13 2013-14P 2014-15P 2015-16P 2016-17P 2017-18P

km

22

E) Overview of National Highways Funding

Road projects in India have largely been financed through public funds. State and rural roads are mainly funded by

the government, while there is significant private sector participation in national highway projects.

Funding of NHDP is done by NHAI through:

Government budgetary support

Dedicated accruals under Central Road Fund (CRF)

Multilateral agency borrowings or lending by international institutions: World Bank, Asian Development

Bank (ADB), JBIC

Private financing under PPP

Market borrowings in the form of NHAI bonds

Others :Toll revenue and premium

Government budgetary support

Government support to NHAI primarily comes from the yearly budgetary allocations from the GoI. The government

has under Central Road Funds Act, 2000 created a non-lapsable dedicated fund for NHDP by levying cess on

High-Speed Diesel and petrol at the rate of Rs 2.00 per litre out of which allocation for Rs 1.50 per litre as

UNCLEAR)50 per cent of the Cess collected from diesel is for rural roads

Balance 50 per cent Cess from diesel and the entire Cess on petrol, the allocation of funds for different

categories of roads are as under:

o 57.5 per cent for NH

o 12.5 per cent for Road Over Bridges/Rail Over Bridges (to be constructed by Railways)

o 30 per cent for roads other than NH

The balance Cess at the rate of Rs 0.50 per litre (levied in 2005-06) is allocated exclusively for NH

Dedicated accruals under CRF

Over the last 10 years, cess funds have been major sources of finance for NHAI. Cess funds have met around 50

per cent of NHAI's requirement. Going forward, we expect contribution of cess funds to be lower as NHAI will

primarily rely on sources such as toll revenue, premium and borrowings to fund its investments. NHAI receives its

portion of cess funds from the Ministry of Road Transport & Highways (MoRTH). Cess funds are mainly used for:

Funding NHAI's programmes

Repayment of debt borrowed by NHAI

Multilateral agency borrowings

Funds from multilateral agencies have been a key constituent of the funding structure of various road projects. For

NHDP, various agencies such as the World Bank, ADB and Japanese Bank of International Co-operation (JBIC)

have sanctioned nearly Rs 150 billion over the last 10 years in the form of grants and loans.

23

Private financing through PPP

PPP is going to be the preferred mode of delivery for future phases of NHDP. While there are a number of forms of

PPP, the common forms that are popular in India and have been used for development of NH are:

o Build, Operate and Transfer (Toll) Model

o Build, Operate and Transfer (Annuity) Model

o Operate, Maintain and Transfer (OMT) Model

The government has put in place appropriate policy, institutional and regulatory mechanisms including a set of

fiscal and financial incentives to encourage increased private sector participation in road sector. In order 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 include:

o Declaration of the road sector as an industry

o Provision of capital grants subsidy upto 40 per cent of project cost to enhance viability of the projects on

case-to-case basis

o Duty-free import of certain identified high quality construction plants and equipments

o 100 per cent tax exemption in any consecutive 10 years within a period of 15 years after completion of

construction provided the project involves addition of new lanes

o Provision of encumbrance-free site for work, i.e. the government shall meet all expenses relating to land

and other pre-construction activities;

o Foreign direct investment upto 100 per cent in road sector;

Market borrowings: Generated primarily through NHAI bonds

In the past, market borrowings for National Highway projects were mainly in the form of capital gain bonds raised

by NHAI. In Union Budget 2011-12, however, NHAI was also allowed to issue Rs 100 billion of tax-free bonds,

which were introduced in the market in December 2011, and were fully subscribed. In Union Budget 2012-13, NHAI

has been allowed to issue another set of tax-free bonds amounting to Rs 100 billion. For 2013-14, NHAI had got

the finance minitrys approval to raise Rs 50 billion taxfree bonds. In January 2014, NHAI issues about Rs 37 billion

as tax free bonds. Simultaneously, NHAI is also in the market to raise up to Rs 40 billion through capital gains

bonds. Till December 2013, NHAI had already issued capital gain bonds of around Rs 15 billion.

Toll revenues: Vital source of funding

The Central and state governments levy fees/toll on bridges and bypasses, National Highways and state roads.

The proceeds are used for the construction and improvement of roads. Increasingly, toll revenues are becoming a

vital source for funding road projects. Toll revenues for NHAI have risen by a significant 17 per cent to around Rs

24 billion in 2011-12 from Rs 11 billion in 2006-07 with the completion of several projects.

Premium: Increase in inflows 2011-12 onwards

Premium is a fixed amount paid by a developer to NHAI annually as a revenue share in a BOT-toll project. It

increases by 5 per cent per annum until the end of the concession period. NHAI had awarded only a few projects

on a premium basis in the previous years. However, the share of projects awarded on premium has increased to

24

68 per cent in 2011-12 from 22 per cent in 2008-09. Consequently, premium has become a major source of inflow

for NHAI.

F) Review and outlook of state roads in India

Summary of Key State Level Parameters

Summary: Macro economic parameters


Of the aforementioned states, Gujarat, Bihar and Maharashtra have exhibited higher economic growth of 10.3 per

cent, 10.0 per cent and 9.9 per cent, respectively (against the countrys growth of 8.5 per cent).

StatesReal GDP

(2011-12)

GDP growth

(2004-05 to

2011-12)

Annual

population

growth (2001-

11)

Per capita

income (2011-

12)

(Rs trillion) (per cent) 2001 2011 (per cent) Rs

India 52.4 8.5 1,028.7 1,210.2 1.6 42,630

Andhra Pradesh 4.1 8.9 75.7 84.7 1.1 47,640

Bihar 1.5 10.0 82.9 103.8 2.3 14,306

Chattisgarh 1.5 8.6 20.8 25.5 2.1 56,900

Goa 0.2 8.9 1.4 1.5 0.7 157,571

Gujarat 3.7 10.3 50.7 60.4 1.8 60,496

Haryana 1.8 9.4 21.1 25.4 1.8 69,520

Himachal Pradesh 0.4 8.3 6.1 6.9 1.2 60,568

Jammu & Kashmir 0.4 6.0 10.2 12.6 2.1 31,961

Jharkhand 0.9 6.3 26.9 33.0 2.0 27,178

Karnataka 2.9 8.3 52.9 61.2 1.5 47,022

Kerala 2.1 8.3 31.9 33.4 0.5 62,143

Madhya Pradesh 2.0 8.7 60.3 72.6 1.9 32,377

Maharashtra 8.1 9.9 96.9 112.4 1.5 70,584

Orissa 1.4 8.5 36.8 41.9 1.3 32,377

Punjab 1.6 7.1 24.2 27.6 1.3 55,761

Rajasthan 2.2 7.8 56.5 68.6 2.0 30,794

Tamil Nadu 4.2 9.6 62.4 72.2 1.5 56,912

Uttar Pradesh 4.2 7.0 166.2 199.6 1.8 20,663

Uttarakhand 0.6 13.7 8.5 10.2 1.8 59,149

West Bengal 3.3 6.9 80.2 91.3 1.3 36,045

Population

(million)

25

State roads : Government capital expenditure (Rs billion)

Note: Budget estimates are initial planned expenditure. Revised estimates are calculated after budget estimates while Accounts are the actual final expenditure. All values in INR billion.

*: Represents overall transport expenditure

Source: RBI, CRISIL Research

States 2008-09 2009-10 2010-11 2011-12 2011-12 2012-13 2013-14

(Accounts) (Accounts) (Accounts) (Budget

Estimates)

(Revised

Estimates)

(Budget

Estimates)

(Budget

Estimates)

Andhra Pradesh 8 12 10 19 19 28 -

Arunachal Pradesh 6 3 6 4 8 2 -

Assam 5 6 4 10 10 12 -

Bihar 25 31 41 39 41 38 -

Chattisgarh 10 6 8 14 13 27 -

Goa 2 2 3 2 3 3 -

Gujarat 9 13 14 18 18 21 -

Haryana 7 12 9 12 11 12 -

Himachal Pradesh 5 5 4 5 7 7 5

J & K - - 10 4 3 2 -

Jharkhand - - 8 17 8 16 -

Karnataka 20 24 29 26 30 30 -

Kerala 6 8 14 13 21 27 -

Madhya Pradesh 16 20 20 19 17 23 -

Maharashtra 20 31 24 28 27 31 31

Manipur* 2 3 3 3 3 2 -

Meghalaya 2 2 2 3 3 3 -

Mizoram* 0 1 1 1 2 3 -

Nagaland* 1 2 3 2 3 3 -

Orissa 10 9 13 15 12 17 -

Punjab 3 5 6 6 5 4 -

Rajasthan 3 4 6 7 12 14 -

Sikkim 1 1 1 2 3 3 -

Tamil Nadu 27 27 30 35 30 40 -

Tripura* 3 3 2 1 2 2 -

Uttarakhand 7 8 9 9 8 8 -

Uttar Pradesh 49 41 46 48 53 50 -

West Bengal 3 6 6 8 8 13 -

NCR 11 19 14 10 9 15 -

Puducherry 0 1 1 2 1 1 -

Total 263 306 346 383 389 456 587

26

State-wise macroeconomic profile for all states in India

Andhra Pradesh

Gross State Domestic Product (GSDP) of Andhra Pradesh is estimated to be Rs 4.6 trillion for 2013-14. In terms of

real GSDP, Andhra Pradesh was ranked among the top 5 states in India in 2011-12. The state contributes to about

8.0 per cent of Indias GDP of around Rs 57 trillion. The states GSDP increased at a CAGR of about 8.2 per cent

between 2004-05 and 2013-14 marginally above the countrys GDP growth. Growth in state economy was lower in

2008-09 and 2009-10, mainly due to poor growth in the primary sector. However, it improved to 11.6 per cent in

2010-11 due to improved growth across all sectors. Nonetheless, the growth rate moderated to 5.5 per cent in

2013-14, in line with the slowdown in the Indian economy.

From 2004-05 to 2011-12, tertiary sector1 was the highest contributor to the state real GSDP. The contribution of

services sector to state GSDP increased from 51 per cent in 2004-05 to 57 per cent in 2013-14. Growth in tertiary

sector was also the highest among the sectors. It grew at a CAGR of 9.7 per cent over the past 9 years. This

growth was driven by communications, banking and insurance sector. Industrial sector is the next biggest

contributor to state GSDP. Its contribution to state economy has remained stable at nearly 24 per cent during the

past 9 years and is expected to grow further owing to Industrial Investment Policy introduced by the government.

Contribution of primary sector to state GSDP has however decreased from 25 per cent in 2004-05 to 19 per cent in

2013-14. Growth in primary sector was also the slowest during the period. It grew at a CAGR of 5.0 per cent during

the past decade.

Growth in GSDP

Note: The top and bottom box represents consolidated state GDP and India GDP respectively


1 The GSDP is divided into three categories which are primary, secondary and tertiary. Primary GSDP consists of contribution from agriculture &

allied services and mining & quarrying sector. Secondary GSDP consists of contribution from industrial sector which includes manufacturing, construction sector etc. Tertiary GSDP consists of the contribution from services sector.

563 598 610 716 721 723 759 765 820 873

546 600 706 783 839 864 950

1,059 1,054 1,068 1,138

1,264 1,422

1,568 1,717 1,839

2,115 2,287 2,446

2,618

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

Rs billion

Primary Secondary

Tertiary Andhra Pradesh GSDP growth

All India GDP growth

5.0%

7.7%

9.7%

CAGR

7.6%

8.2% State GDP

Primary

Secondary

Tertiary

India GDP

27

The population of Andhra Pradesh as of 2011 is 84.7 million where males and females have an almost equal share

at around 42.3 million each. The population registered a decadal growth of 12 per cent from 2001 to 2011 as

against the national rate of 18 per cent. The state accounts for about 7 per cent of the population of India and ranks

5th among the states in the country with respect to population. The population of the state was around 75.7 million

in 2001.

In terms of per capita income, Andhra Pradesh (Rs 46,681) was slightly higher than the national average of Rs

46,568 in 2013-14, thus indicating high level of economic activity in the state and its socio economic development.

Road capex has increased at a CAGR of 36.8 per cent from Rs 8 billion in 2008-09 to Rs 28 billion in 2012-13. An

investment of Rs 33 billion was envisaged for the year 2013-14.

Population growth (Census 2001 and 2011) Per capita income


Bihar

Bihar witnessed strong economic growth from 2004-05 to 2013-14, recording an impressive CAGR of 9.7 per cent,

driven primarily by a healthy double-digit growth in the states industrial and services sectors. Its growth has been

considerably faster than Indias average growth of 7.6 per cent CAGR during the same period.

The states GSDP is estimated to be Rs 1.8 trillion in 2013-14 and it contributes to about 3 per cent of Indias

overall GDP of around Rs 57 trillion. It was the second fastest growing state in India during the past nine years. It

remained largely unaffected from the global economic crisis, which is evident from the strong growth rate of 12.2

per cent registered in 2008-09. In fact, most of the other states in India witnessed sluggish growth in 2008-09 on

the back of the global economic slowdown. However, despite strong economic growth, the state remains one of the

poorest in the country in terms of per capita income.

From 2004-05 to 2013-14, tertiary sector has been the highest contributor to the state real GSDP. The contribution

of services sector to state GSDP increased to 57 per cent in 2013-14 from 55 per cent in 2004-05. The contribution

of secondary sector to state economy increased from 14 per cent in 2004-05 to 23 per cent in 2013-14, but lower

28

than the national average of about 25 per cent, reflecting below average presence of large industries in the state.

On the other hand, the contribution of primary sector to state GSDP is much higher as compared to all-India

average. However, the share of primary sector to state economy has significantly declined to 20 per cent in 2013-

14 from 32 per cent in 2004-05.Growth in secondary sector was highest among the sectors. It expanded at a

CAGR of 16.0 per cent over the past 9 years. Construction sector is the biggest contributor to the states secondary

sector with over 60 per cent contribution. The healthy growth in construction sector was on the back of major

infrastructure investments in roads, power etc. Followed by tertiary sector, which grew at a CAGR of 10 per cent

over the same period. Trade, hotel and restaurants and financial services sector are the biggest contributors to

tertiary sector in the state economy. It contributes nearly half of the states tertiary sector.

The contribution of registered manufacturing units to states secondary sector is relatively much lower at around 10

per cent as compared to other states such as Maharashtra, Andhra Pradesh, Gujarat, etc, where registered

manufacturing units contribute more than half of the secondary sector output. At the same time, the primary sector

witnessed a modest annual growth of 4.8 per cent.

Growth in GSDP



The population of Bihar as of 2011 is 103.8 million. The population registered an annual growth of 2.3 per cent from

2001 to 2011 as against the national average of 1.7 per cent. The state accounts for about 8.6 per cent of the

population of India and is the third most populous state in the country. Population of males and females increased

at a CAGR of 2.3 per cent and 2.2 per cent, respectively during this period. Population of males increased to 54.2

million, whereas population of females increased to 49.6 million in 2011.

In terms of per capita income, Bihar (Rs 16,083) compared unfavourably with the national average of Rs 46,568 in

2013-14.

State GDP

Primary

Secondary

Tertiary

India GDP

29




Source:MoSPI, CRISIL Research

Chhattisgarh

Gross State Domestic Product (GSDP) of Chhattisgarh is estimated to be around Rs 1.0 trillion for 2013-14. The

state contributes to about 1.7 per cent of Indias GDP of around Rs 57 trillion. The states GSDP grew at a CAGR

of 7.6 per cent during 2004-05 to 2013-14, in line with Indias growth rate of 7.6 per cent during the same period.

Growth in state economy was lower in 2009-10 mainly due to global economic downturn. Secondary sector of the

state declined by 3 per cent in 2009-10. Indian economy is led by the tertiary sector. The primary, secondary and

tertiary sectors contribute around 15 per cent, 25 per cent and 60 per cent, respectively, to the national economy.

Against this, contribution of primary sector to state economy was at around 19 per cent in 2013-14, contribution of

secondary sector was 39 per cent and that of tertiary sector was only 42 per cent.

Contribution of primary sector is larger due to the large contribution of the mining sector to state economy. Mining

sector contributes 10-11 per cent to the state economy, as against a contribution of 2 per cent to Indias GDP.

Chhattisgarh has large reserves of iron ore and coal; hence contribution of mining and secondary sector is much

larger to state GSDP. Primary sector grew at a CAGR of 6.3 per cent during the past 9 years. Growth in primary

sector was low, mainly due to poor performance in 2008-09, which was due to drought in the state and its

contribution declined by 4 per cent in the year. Growth in secondary sector too was lower. It grew at a CAGR of 6.1

per cent during the past 9 years. This was driven by growth in construction activity. Tertiary sector was the driver of

state economic growth during the past 9 years. It grew at a CAGR of 9.9 per cent over the same period. Growth in

tertiary sector was driven by growth in banking and insurance sector, which grew at a CAGR of 24.2 per cent

during the past 5 years.

30

Growth in GSDP



The population of Chhattisgarh as of 2011 is 25.5 million. The population registered an annual growth of 2.1 per

cent from 2001 to 2011 as against the national rate of 1.7 per cent. The state accounts for about 2.1 per cent of the

population of India and ranks 16th amongst the states in the country with respect to population.

In terms of per capital income, Chhattisgarh (Rs 28,708) compares far below the national average of Rs 46,568 for

the year 2013-14. This in turn indicates poor economic activity and socio-economic development in Chhattisgarh.




Source: MoSPI,CRISIL Research

18,559 18,530

21,580 22,929

23,926 24,189 25,991 25,971

27,400 28,708

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Rs

State GDP

Primary

Secondary

Tertiary

India GDP

31

Goa

Gross State Domestic Product (GSDP) of Goa is estimated at Rs 0.3 trillion (Rs 298 billion) for 2012-13. The state

contributes to about 0.5 per cent of Indias GDP of around Rs 55 trillion. The states GSDP grew at a CAGR of 11.2

per cent from 2004-05 to 2012-13, better than Indias growth rate of 8.0 per cent during the same period. Despite

global economic downturn, growth in state economy was at 10.0 per cent in 2008-09. Growth in tertiary sector of

the state increased at a healthy rate of 17 per cent in 2012-13.

Contribution of primary sector to state economy was much lower at around 3 per cent in 2012-13, contribution of

secondary sector was 32 per cent and contribution of tertiary sector was 65 per cent. Among the three sectors,

primary sector has remined stagnant in terms of growth during the past 9 years. Wherea growth in secondary

sector was relatively better at 6.0 per cent. This was driven by growth in construction activity. Tertiary sector was

the driver of state economic growth during the past 9 years. It grew at a CAGR of 16.4 per cent during the past 9

years.

Growth in GSDP



The population of Goa as of 2011 is 1.5 million only. The population registered an annual growth of 0.7 per cent

from 2001 to 2011(decadal growth 7 per cent) as against the countrys annual growth rate of 1.7 per cent.

In terms of per capita income, Goa (Rs 145,923) compares well above the national average of Rs 45,046 for the

year 2012-13. Thus, this indicates increased economic activity and socio-economic development in Goa.



State GDP

Primary

Secondary

Tertiary

India GDP

32



Gujarat

Gujarat has shown strong economic growth from 2004-05 to 2012-13, recording an impressive CAGR of 9.7 per

cent, driven primarily by a healthy double-digit growth in the states industrial and services sectors. Its growth has

been considerably faster than Indias average 7.6 per cent CAGR during the same time period.

The Gross State Domestic Product (GSDP) is estimated at Rs 4.2 trillion for the year 2012-13. In terms of real

GSDP, Gujarat was ranked among the top 5 states in India in 2012-13. The state contributes to about 7.3 per cent

of Indias GDP of Rs around 57 trillion. The economy suffered a dip in GDP growth in the year 2008-09 majorly

because of the economic slowdown resulting from the financial crisis observed during that period. However, this

was in line with Indias growth average of 6.7 per cent.

From 2004-05 to 2012-13, services sector has been the highest contributor to the state real GSDP, with an

average contribution of nearly 50 per cent, followed closely by the industrial sector with an average contribution of

39 per cent. Together these have accounted for around 89 per cent of GSDP during the period. During 2004-05 to

2012-13, both industrial and service sectors recorded an impressive 9 per cent plus growth, which drove the states

economy. Services sector grew marginally quicker at a CAGR of around 11.1 per cent compared with the industrial

sector, that grew at around 9.4 per cent. This growth can primarily be attributed to the growth initiatives undertaken

by the state government over the past few years. Within the services sector, trade and hospitality business grew

the fastest at 11 per cent from 2006-07 to 2010-11; whereas, a robust 21 per cent growth in the construction sector

enabled the state to maintain high growth in the industrial sector. However, the primary sector growth slowed down

to 4.8 per cent during 2004-05 to 2012-13. This indicates decreased dependence of the state on the agriculture

sector.

33

Growth in GSDP



Gujarat is one of the most prosperous states in India. The population of the state as of 2011 is 60.4 million

comprising 31.5 million males and 28.9 million females; showing a growth of 19 per cent over the last decade.

Gujarat accounts for about 5 per cent of the population of India and ranks 10th amongst the states in the country

with respect to population.

In terms of per capita income, Gujarat (Rs 61,220) compares above the national average of Rs 45,046 for the year

2012-13. Thus, this indicates increased economic activity and socio-economic development in Gujarat.



State GDP

Primary

Secondary

Tertiary

India GDP

34



Haryana

Haryana contributes to 3.5 per cent of Indias GDP of around Rs 57 trillion. The states GSDP has increased

consistently in the past 9 years and is estimated to be at Rs 2.0 trillion as of 2013-14. GSDP grew at a CAGR of

8.6 per cent during 2004-05 to 2013-14, higher than 7.6 per cent growth in Indias GDP during the same period. In

the past 9 years, growth was lower in 2008-09 owing to the global economic downturn. However, the states

economy bounced back and growth improved to 11.7 per cent in 2009-10.

In 2011-12, growth slowed down to 7.8 per cent and has since replicated the Indian economy which witnessed a

slowdown in said period. Sluggish growth in manufacturing, trade, hotels & restaurants sector and transport by

other means were mainly responsible for the fall in the GSDP growth in 2012-13.

From 2004-05 to 2013-14, the tertiary sector was the largest contributor to the state GSDP. Its share in total state

GSDP increased to 58 per cent in 2013-14 from 44 per cent in 2004-05. Growth in the tertiary/ services sector was

also the highest among the sectors. It grew at a CAGR of 12.0 per cent during the past 9 years. This growth was

driven by trade, hotels, real estate, finance, insurance, transport and communications

Crisil Report on OMT

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